SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000
--------------
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission File Number 333-96209
-----------
PREMIERWEST BANCORP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
OREGON 93-1282171
------------------------ ----------------------
(State of Incorporation) (I.R.S. Employer
Identification Number)
1455 East McAndrews Road
Medford, Oregon 97504
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(541) 618-6003
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of latest practicable date: 8,598,922 shares as of
November 10, 2000.
<PAGE>
Disclosure Regarding Forward-Looking Statements
This report includes forward-looking statements within the meaning of the
"safe-harbor" provisions of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements are based on the beliefs of the
Company's management and on assumptions made by and information currently
available to management. All statements other than statements of historical
fact, regarding the Company's financial position, business strategy and plans
and objectives of management for future operations of the Company are
forward-looking statements. When used herein, the words "anticipate,"
"believe," "estimate," "expect," and "intend" and words or phrases of similar
meaning, as they relate to the Company or management, are intended to identify
forward-looking statements. Examples of forward-looking statements include,
but are not limited to (i) projections of revenues, income or expenses,
earnings per share, capital expenditures, dividends, capital structure and
other financial items, (ii) statements of the plans and objectives of the
Company or its management, or Board of Directors, including the introduction
of new products or services, plans for expansion, acquisitions or future
growth, or estimates or predictions of actions by customers, vendors,
competitors or regulatory authorities, (iii) statements of future economic
performance, and (iv) statements of assumptions underlying other statements
about the Company and its business. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Forward-looking statements are subject to certain risks and uncertainties,
which could cause actual results to differ materially from those indicated by
the forward-looking statements. These risks and uncertainties include the
Company's ability to maintain or expand its market share, net interest
margins, or implement its marketing and growth strategies. Further, actual
results may be affected by the Company's ability to compete on price and other
factors with other financial institutions; customer acceptance of new products
and services; general trends in the banking industry and the regulatory
environment, as they relate to the Company's cost of funds and returns on
assets. In addition, there are risks inherent in the banking industry relating
to collectibility of loans and changes in interest rates. The reader is
advised that this list of risks is not exhaustive and should not be construed
as any prediction by the Company as to which risks would cause actual results
to differ materially from those indicated by the forward-looking statements.
2
<PAGE>
Form 10-Q
Table of Contents
Part I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements..........................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................11
Part II OTHER INFORMATION
Item 1. Legal Proceedings...................................................15
Item 4. Submission of Matters to a Vote of Securities Holders...............15
Item 6. Exhibits and Reports on Form 8-K....................................15
Signatures..................................................................16
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
PREMIERWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in 000's)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
ASSETS
<S> <C> <C>
CASH AND DUE FROM BANKS $ 9,830 $ 12,593
FEDERAL FUNDS SOLD AND INTEREST-BEARING DEPOSITS 6,646 8,275
--------- ---------
Total cash and cash equivalents 16,476 20,868
INVESTMENT SECURITIES AVAILABLE-FOR-SALE 78,650 82,349
LOANS, NET OF ALLOWANCE FOR LOAN LOSSES 217,787 171,420
FEDERAL HOME LOAN BANK STOCK 1,466 5,818
PREMISES AND EQUIPMENT - NET 10,519 10,296
ACCRUED INTEREST AND OTHER ASSETS 6,611 5,901
--------- ---------
TOTAL ASSETS $ 331,509 $ 296,652
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
DEPOSITS:
Non-interest-bearing checking $ 44,485 $ 43,789
Savings and interest-bearing demand 136,877 115,319
Time 94,521 70,637
--------- ---------
Total deposits 275,883 229,745
FEDERAL HOME LOAN BANK BORROWINGS 6,854 17,402
REPURCHASE AGREEMENTS & FEDERAL FUNDS PURCHASED 15,291 18,600
EMPLOYEE STOCK OWNERSHIP PLAN NOTES PAYABLE 438 604
--------- ---------
Total borrowings 22,583 36,606
OTHER LIABILITIES 2,359 2,077
--------- ---------
Total liabilities 300,825 268,428
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock - no par value; 1,000,000 shares authorized;
none issued - -
Common stock - no par value; 20,000,000 shares authorized;
and 8,598,922 and 8,407,879 shares issued and outstanding
in 2000 and 1999, respectively 18,575 17,918
Retained earnings 13,902 12,710
Unearned Employee Stock Ownership Plan compensation (438) (604)
Accumulated other comprehensive loss (1,355) (1,800)
--------- ---------
Total shareholders' equity 30,684 28,224
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 331,509 $ 296,652
========= =========
</TABLE>
See accompanying notes.
4
<PAGE>
PREMIERWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in 000's, Except for Earnings per Share Data)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
---------------------------- -----------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
-------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 5,527 $ 3,608 $ 15,133 $ 10,323
Interest-earning deposits 108 342 233 990
Investment securities 1,322 1,340 3,939 3,761
-------------- --------------- --------------- ----------------
Total interest income 6,957 5,290 19,305 15,074
Interest expense:
Deposits 2,537 1,618 6,494 4,963
Other borrowings 478 421 1,651 1,029
-------------- --------------- --------------- ----------------
Total interest expense 3,015 2,039 8,145 5,992
-------------- --------------- --------------- ----------------
Net interest income 3,942 3,251 11,160 9,082
Loan loss provision 215 245 594 485
-------------- --------------- --------------- ----------------
Net interest income after loan
loss provision 3,727 3,006 10,566 8,597
Non-interest income 529 548 1,537 1,558
Non-interest expense:
Salaries and employee benefits 1,600 1,759 4,932 4,682
Professional fees 28 74 256 274
Occupancy & equipment, net 379 401 1,399 1,189
Data processing 33 54 163 166
Advertising 69 121 301 302
Merger & data conversion costs 65 - 948 -
Other 896 537 1,997 1,806
-------------- --------------- --------------- ----------------
Total non-interest expense 3,070 2,946 9,996 8,419
-------------- --------------- --------------- ----------------
Income before income taxes 1,186 608 2,107 1,736
Provision for income taxes 380 176 915 534
-------------- --------------- --------------- ----------------
Net income $ 806 $ 432 $ 1,192 $ 1,202
============== =============== =============== ================
Earnings per common share:
Basic $ 0.10 $ 0.05 $ 0.14 $ 0.15
============== =============== =============== ================
Diluted $ 0.09 $ 0.05 $ 0.14 $ 0.14
============== =============== =============== ================
</TABLE>
See accompanying notes.
5
<PAGE>
PREMIERWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in 000's)
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Unearned other Total
Comprehensive Retained ESOP comprehensive Common shareholders'
income (loss) earnings compensation income (loss) stock equity
-------------- ------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1999 $ 11,265 $ (890) $ 405 $ 17,354 $ 28,134
Comprehensive loss:
Net income $ 1,202 1,202 - - - 1,202
Net change in unrealized loss
on investment securities
available-for-sale,
net of taxes (1,659) - - (1,659) - (1,659)
-------------
Comprehensive loss $ (457)
=============
ESOP compensation expense - 222 - - 222
Cash dividend (299) - - - (299)
Amortization of stock
compensation 16 - - - 16
Stock options exercised - - - 285 285
Tax benefit of stock options
exercised - - - 87 87
------------- ------------- ------------- ------------- --------------
BALANCE - SEPTEMBER 30, 1999 $ 12,184 $ (668) $ (1,254) $ 17,726 $ 27,988
============= ============= ============= ============= ==============
BALANCE - JANUARY 1, 2000 $ 12,710 $ (604) $ (1,800) $ 17,918 $ 28,224
Comprehensive income:
Net income $ 1,192 1,192 - - - 1,192
Net change in unrealized loss
on investment securities
available-for-sale,
net of taxes 445 - - 445 - 445
-------------
Comprehensive income $ 1,637
=============
ESOP compensation expense - 166 - - 166
Stock options exercised - - - 625 625
Tax benefit of stock options
exercised - - - 32 32
------------- ------------- ------------- ------------- --------------
BALANCE - SEPTEMBER 30, 2000 $ 13,902 $ (438) $ (1,355) $ 18,575 $ 30,684
============= ============= ============= ============= ==============
</TABLE>
See accompanying notes.
6
<PAGE>
PREMIERWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in 000's)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
---------------------------------
September 30, September 30,
2000 1999
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,192 $ 1202
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 783 602
Amortization (accretion) of premiums (discounts)
on investment securities, net 17 (154)
Deferred income taxes (42) 160
Dividends on Federal Home Loan Bank stock (186) (309)
Loan loss provision 594 485
Recognition of deferred compensation relating to ESOP 166 222
Decrease (increase) in accrued interest and other assets (230) (921)
Increase in accrued interest and other liabilities 282 928
--------------- ---------------
Net cash provided by operating activities 2,576 2,215
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of Federal Home Loan Bank
and Federal Reserve Bank stock 4,538 111
Purchases of investment securities available-for-sale - (24,086)
Proceeds from maturities of investment securities 4,403 5,490
Loan originations, net (47,643) (14,861)
Purchase of premises and equipment, net (1,006) (2,498)
--------------- ---------------
Net cash used in investing activities (39,708) (35,844)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 46,138 17,056
Net (payments to) borrowings from Federal Home Loan Bank
and other borrowings (14,023) 9,142
Cash dividend - (299)
Proceeds from exercise of stock options 625 285
--------------- ---------------
Net cash provided by financing activities 32,740 26,183
--------------- ---------------
DECREASE IN CASH AND CASH EQUIVALENTS (4,392) (7,446)
CASH AND CASH EQUIVALENTS - Beginning of the period 20,868 43,378
--------------- ---------------
CASH AND CASH EQUIVALENTS - End of the period $ 16,476 $ 35,932
=============== ===============
</TABLE>
See accompanying notes.
7
<PAGE>
PREMIERWEST BANCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STAEMENTS
September 30, 2000
1. SUMMARY OF OREGANIZATION, BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Organization and merger: PremierWest Bancorp was incorporated in the
state of Oregon on November 26, 1999. Effective on May 8, 2000, in a
reorganization and merger accounted for as a pooling-of-interests,
PremierWest Bancorp became the holding company for PremierWest Bank
(formerly, Bank of Southern Oregon); United Bancorp (United) merged with
and into PremierWest Bancorp and United's wholly owned subsidiary,
Douglas National Bank, merged with and into PremierWest Bank (the Bank).
In connection with the merger, PremierWest Bancorp issued 3,723,825
shares of its common stock to United shareholders and 4,857,540 shares of
its common stock to PremierWest Bank shareholders.
PremierWest Bank serves Jackson, Josephine and Douglas counties of
Southern Oregon.
Basis of presentation: The condensed consolidated financial statements
include the accounts of PremierWest Bancorp and its wholly owned
subsidiaries, PremierWest Bank, PremierWest Investment Company and
Premier Finance Company, hereafter referred to as the Company. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
The interim condensed consolidated financial statements are not audited,
but include all adjustments that management considers necessary for a
fair presentation of the results of operations for such interim periods.
In preparing the condensed consolidated financial statements, management
is required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the balance sheets
and income and expenses for the periods. Actual results could differ from
those estimates.
The accompanying condensed consolidated financial statements are
presented as though the merger had been consummated as of the earliest
date reported. The balance sheet data as of December 31, 1999 was derived
from audited financial statements and does not include all disclosures
contained in each of the Bank of Southern Oregon's and United Bancorp's
1999 Annual Report to Shareholders and included in the Company's
Registration Statement filed with the Securities and Exchange Commission,
which became effective April 4, 2000. The interim condensed consolidated
financial statements should be read in conjunction with each of the Bank
of Southern Oregon's and United Bancorp's 1999 consolidated financial
statements, including the notes thereto, included in their 1999 Annual
Reports to Shareholders and the Company's April 4, 2000 Registration
Statement. The reader should keep in mind that the results of operations
for the interim periods shown in the accompanying condensed consolidated
financial statements are not necessarily indicative of results for any
future interim periods or the entire fiscal year.
Method of accounting: The Company prepares its financial statements in
conformity with generally accepted accounting principles. The Company
utilizes the accrual method of accounting, which recognizes income when
earned and expenses when incurred. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
2. INVESTMENT SECURITIES AVAILABLE-FOR-SALE
Investment securities available-for-sale at September 30, 2000 and
December 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
2000 1999
------------------------------------- -----------------------------------------
Gross Estimated Gross Estimated
Amortized Unrealized fair Amortized Unrealized fair
(Dollars in 000's) cost losses value cost losses value
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
U.S. agency securities $ 41,534 $ (1,393) $ 40,141 $ 41,532 $ (1,620) $ 39,912
Collateralized mortgage
obligations and mortgage-backed
securities 21,407 (518) 20,889 24,894 (785) 24,109
Obligations of states and
political subdivisions 16,683 (286) 16,397 17,394 (514) 16,880
Equity securities 1,223 - 1,223 1,448 - 1,448
----------- ----------- ----------- ----------- ----------- -----------
Total $ 80,847 $ (2,197) $ 78,650 $ 85,268 $ (2,919) $ 82,349
=========== =========== =========== =========== =========== ===========
</TABLE>
At September 30, 2000, approximately $32 million in investment securities
available-for-sale were pledged to secure public deposits and nonpublic
deposits and borrowings.
8
<PAGE>
3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of the loan portfolio at September 30, 2000 and December
31, 1999 was as follows:
<TABLE>
<CAPTION>
(Dollars in 000's) 2000 1999
--------- ---------
<S> <C> <C>
Commercial $ 38,029 $ 33,065
Real estate - construction 46,683 34,844
Real estate - other 110,301 97,620
Consumer installment 24,905 9,009
Other 1,705 442
--------- ---------
221,623 174,980
Allowance for loan losses (3,354) (3,075)
Deferred loan fees (482) (485)
--------- ---------
Loans - net $ 217,787 $ 171,420
========= =========
</TABLE>
Impaired loans, on which the accrual of interest had been discontinued,
were approximately $2.43 million at September 30, 2000 and $2.80 million
at December 31, 1999.
A summary of changes in the allowance for loan losses for the nine months
ended September 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
(Dollars in 000's) 2000 1999
--------- ---------
<S> <C> <C>
Balance - Beginning of the period $ 3,075 $ 2,832
Loans charged-off (404) (845)
Loan recoveries 89 225
Loan loss provision 594 485
--------- ---------
Balance - End of the period $ 3,354 $ 2,697
========= =========
</TABLE>
4. LINE OF CREDIT AND OTHER BORROWINGS
The Company has a line of credit with Federal Home Loan Bank of Seattle
(FHLB) up to approximately $49 million as of September 30, 2000. This
line of credit is secured by restricted FHLB stock owned by the Company
and is limited to 15% of the Bank's total assets and by the amount of
FHLB stock held by the Bank. Interest and principal payments are due
monthly on any outstanding borrowings. As of September 30, 2000 and
December 31, 1999, the Company had drawn $0 and $10.0 million,
respectively, of short-term advances from FHLB under the line of credit.
The Company has also borrowed long-term funds from the FHLB against this
line of credit, aggregating approximately $6.9 million and $7.4 million
as of September 30, 2000 and December 31, 1999, respectively. As of
September 30, 2000, $5 million is due August 28, 2008, and the remaining
$1.9 million is due at various times through February 2014. The Company
is making monthly principal payments of approximately $61,000 plus
interest at rates of 5.82% to 7.75%.
Borrowings of approximately $14.7 million and $18.6 million at September
30, 2000 and December 31, 1999, relate mostly to repurchase agreements
used for customer overnight sweep accounts. The cost of these funds at
September 30, 2000 is an average annual rate of interest of approximately
5.30%. Certain investment securities, as required, have been pledged as
collateral to fully secure the long-term debt and the repurchase
agreements.
Additionally, as of September 30, 2000 the Company has approximately
$18.5 million in available borrowings through lines of credit with
certain correspondent banks and through the Federal Reserve Bank's
discount window.
9
<PAGE>
5. COMMITMENTS AND CONTINGENCIES
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. These instruments involve various
levels and elements of credit and interest rate risk in excess of the
amount recognized in the accompanying condensed consolidated financial
statements. The contract or notional amounts of those instruments reflect
the extent of involvement the Company has in particular classes of
financial instruments. As of September 30, 2000, the Company has
$39,521,000 of commitments to extend credit to customers and $461,000 of
standby letters of credit.
6. EARNINGS PER SHARE
The Company's basic earnings per common share are computed by dividing
net income by the weighted average number of common shares outstanding
during the period. The Company's diluted earnings per common share is
computed by dividing net income by the weighted-average number of common
shares outstanding plus dilutive common shares related to stock options.
The weighted average number of common shares outstanding for basic
earnings per share computations were approximately 8.4 million for the
three-month and nine-month periods ended September 30, 2000 and
approximately 8.1 million for the three-month and nine-month periods
ended September 30, 1999. Dilutive common shares related to stock options
were approximately 270,000 and 265,000 for the three-month and nine-month
periods ended September 30, 2000, respectively, and approximately 212,000
and 202,000 for the three-month and nine-month periods ended September
30, 1999, respectively.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
HIGHLIGHTS
As discussed in the notes accompanying the condensed consolidated financial
statements included in this report, effective May 8, 2000, PremierWest Bancorp
and its subsidiaries (hereafter also referred to as the Company) consummated a
merger as a pooling-of-interests. The merger was between Bank of Southern
Oregon, which changed its name to PremierWest Bank, and United Bancorp and its
wholly owned subsidiary, Douglas National Bank. Accordingly, information and
data included in the accompanying condensed consolidated financial statements
and related notes, and Management's Discussion and Analysis of Financial
Condition and Results of Operations have been combined as though the merger
had been consummated as of the earliest period financial information is
presented.
Forward-looking statements are based on the beliefs of the Company's
management and on assumptions made by and information currently available to
management. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Forward-looking statements
are subject to certain risks and uncertainties, which could cause actual
results to differ materially from those indicated by the forward-looking
statements.
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
The Company had net income of $806,000 for the three months ended September
30, 2000, including $65,000 in expense related to the Company's recent merger
and data conversion costs. Excluding these one-time costs and for comparative
purposes, the Company had net income of approximately $871,000, which was an
increase of $439,000 (or 102%) compared to the same period in 1999. This
increase is due mainly to a $691,000 increase in net interest income offset by
an increase of $59,000 in non-interest expense over the comparative
three-month period ended September 30, 1999.
The following table presents information regarding yields on interest-earning
assets, expense on interest-bearing liabilities, net interest spread, net
yields on average interest-earning assets, return on average assets and return
on average equity for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
Analysis for the three-month periods ended Increase
September 30, 2000 and 1999 2000 1999 (Decrease) %Change
--------------------------------------------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Average interest-earning assets $ 304,534 $ 262,199 $ 42,335 16.2%
Average interest-bearing liabilities $ 253,060 $ 239,677 $ 13,383 5.6%
Average total assets $ 327,792 $ 285,233 $ 42,559 14.9%
Average equity $ 29,978 $ 27,788 $ 2,190 7.9%
Average yield earned 9.09% 8.03% 1.06% 13.2%
Average rate paid 4.74% 3.38% 1.36% 40.1%
---------- ----------- -----------
Net interest spread 4.35% 4.64% (0.29)% (6.3)%
========== =========== ===========
Net interest income to average
interest-earning assets 5.15% 4.93% 0.22% 4.4%
Return on average assets, before merger costs 1.06% 0.60% 0.46% 76.7%
Return on average equity, before merger costs 11.56% 6.18% 5.38% 87.1%
Efficiency ratio, before merger costs 67.21% 77.94% (10.73)% (13.8)%
</TABLE>
11
<PAGE>
NET INTEREST INCOME. Net interest income before the loan loss provision
increased $691,000 for the three-month period ended September 30, 2000 over
the same period in 1999. The increase was mainly due to an increase in the
volume of loans and corresponding increase in overall yields. The Company's
volume of interest-earning assets increased approximately $42 million during
the three months ended September 30, 2000 as compared to the corresponding
period in 1999. Because the Company's cost of funds increased to 4.74% and the
volume of its interest-bearing liabilities increased $13 million during the
three months ended September 30, 2000 as compared to the corresponding period
in 1999, the Company's interest rate margin decreased by 22 basis points
resulting in a 6% decrease in net interest margin.
LOAN LOSS PROVISION. The loan loss provision during the three-month period
ended September 30, 2000, was $215,000 as compared to $245,000 for the same
period in 1999. The Company had net recoveries of $11,000 during the
three-month period ended September 30, 2000, compared to net charge-offs of
$653,000 for the corresponding period in 1999. Additions to the loan loss
provision have maintained the allowance for loan losses at $3.354 million as
of September 30, 2000, compared to $2.698 million as of September 30, 1999.
The increase in the allowance for loan losses is primarily related to the
increase in loans in addition to specific and inherent losses in the loan
portfolio. The Company's ratio of allowance for loan losses to total loans was
1.52% at September 30, 2000, compared to 1.73% at September 30, 1999.
Non-performing assets (defined as loans on non-accrual status, 90 days or more
past due, and other real estate owned) either specifically reserved or
adequately collateralized were $4.327 million and $2.878 million at September
30, 2000 and 1999, respectively.
NON-INTEREST INCOME. Non-interest income decreased slightly to $529,000 for
the three months ended September 30, 2000, as compared to $548,000 for the
same period in 1999. The decrease in non-interest income was primarily due to
lower fees earned from deposit service charges and brokerage commissions.
NON-INTEREST EXPENSE. Including the one-time merger and data conversion costs
of $65,000, non-interest expense increased $124,000 for the three months ended
September 30, 2000 as compared to the corresponding period in 1999. Excluding
the merger and data conversion costs and for comparative purposes,
non-interest expense increased $59,000 or 2.0% over the same period in 1999.
Salaries and employee benefits decreased $159,000 as a result of lower costs
associated with recruiting and hiring and profit sharing expense related to
the Company's employee stock option plan during the three months ended
September 30, 2000 as compared to the corresponding period in 1999. Occupancy,
equipment, data processing and advertising expenses decreased a total of
$95,000 for the three months ended September 30, 2000, as compared to the same
period in 1999. This decrease was attributed to reduction in costs associated
with building maintenance and repairs, conversion from an outside data service
bureau and a more focused advertising campaign compared to the three month
period ended September 30, 1999. Other non-interest expense increased by
$359,000 due to various factors including costs increases related to ATM and
phone networks, training of personnel on new computer systems, and armored car
and courier services between service branches.
INCOME TAXES. In accordance with provisions of the Internal Revenue Code
(IRC), certain merger costs are not deductible for income tax purposes. As a
result, the Company's taxable income resulted in an estimated $380,000 (an
effective tax rate of 32%) in federal and state income taxes for the
three-month period ended September 30, 2000. This compares to an effective tax
rate of 29% for the three-month period ended September 30, 1999.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net income was $1,192,000 for the nine months ended September 30, 2000, which
was lower by $10,000 as compared to the same period in 1999. This decrease in
net income also includes the one-time merger and data conversion costs of
$948,000. Merger costs include a transaction fee of $150,000 paid to the
Company's investment banker, $515,000 for fees incurred for legal and
accounting services, $70,000 for printing and administrative charges, and
$168,000 paid to a data processing provider for early contract termination and
data processing conversion fees. Conversion costs incurred in the third
quarter of the year were $45,000. Excluding these merger and data conversion
costs and to provide comparable information, net income was $2.140 million, an
increase of $938,000 or 78% over the first nine months of 1999. During the
nine months ended September 30, 2000, net interest income increased by
$2.078 million, offset by an increase in non-interest expense of $629,000,
excluding merger and data conversion costs, over the comparative nine-month
period ended September 30, 1999.
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<PAGE>
The following table presents information regarding yields on interest-earning
assets, expense on interest-bearing liabilities, net interest spread, net
yields on average interest-earning assets, return on average assets and return
on average equity for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
Analysis for the nine-month periods ended Increase
September 30, 2000 and 1999 2000 1999 (Decrease) %Change
--------------------------------------------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Average interest-earning assets $ 293,690 $ 253,252 $ 40,438 16.0%
Average interest-bearing liabilities $ 243,827 $ 229,182 $ 14,645 6.4%
Average total assets $ 319,615 $ 273,914 $ 45,701 16.7%
Average equity $ 29,459 $ 28,222 $ 1,237 4.4%
Average yield earned 8.78% 7.95% 0.83% 10.4%
Average rate paid 4.46% 3.49% 0.97% 27.8%
Net interest spread 4.32% 4.46% (0.14)% (3.1)%
Net interest income to average
interest-earning assets 5.08% 4.79% 0.29% 6.0%
Return on average assets, excluding merger costs 0.89% 0.59% 0.31% 52.6%
Return on average equity, excluding merger costs 9.70% 5.69% 4.01% 70.6%
Efficiency ratio, excluding merger costs 71.26% 79.13% (7.87)% (9.9)%
</TABLE>
NET INTEREST INCOME. Net interest income before the loan loss provision
increased $2.1 million for the nine-month period ended September 30, 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
nine-month period ended September 30, 2000, the volume of average loans
increased by approximately $64 million, while overall yields increased
approximately 83 basis points as compared to the corresponding period in the
prior year. Such increases more than offset the $14.6 million increase in the
volume of interest-bearing liabilities and 97 basis point increase in rates
paid, positively impacting the Company's net interest margin by 29 basis
points.
LOAN LOSS PROVISION. The loan loss provision during the nine-month period
ended September 30, 2000, was $594,000 as compared to $485,000 for the same
period in 1999. The Company had net charge-offs of $315,000 during the
nine-month period ended September 30, 2000, compared to net charge-offs of
$620,000 for 1999. The provision for loan losses was increased during the year
because of the increase in loans. Offsetting this was the decrease in net
charge-offs as a result of the impact of improved underwriting policies.
NON-INTEREST INCOME. Non-interest income held fairly steady at $1.5 million
for the nine months ended September 30, 2000, as compared to the same period
in 1999.
NON-INTEREST EXPENSE. Non-interest expense increased to $10 million, including
$948,000 of one-time merger and data conversion costs discussed above, for the
nine months ended September 30, 2000, as compared to $8.4 million for the same
period in 1999. Excluding the merger and data conversion costs and again for
comparative purposes, non-interest expense increased by $629,000 for the nine
months ended September 30, 2000, as compared to September 30, 1999. Salaries
and employee benefits increased $250,000 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 $210,000 for
the nine months ended September 30, 2000, as compared to the same period in
1999. This increase was attributed to costs associated with the new
administration and loan production facility that opened in December 1999 and
additional computer and phone equipment. 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.
INCOME TAXES. In accordance with provisions of the IRC and as discussed above,
a significant portion of merger costs is not deductible for income tax
purposes. As a result, the Company's taxable income resulted in an estimated
$915,000 (an effective tax rate of 43%) in federal and state income taxes for
the nine-month period ended September 30, 2000. This compares to an effective
tax rate of 31% for the nine-month period ended September 30, 1999.
FINANCIAL CONDITION. Total assets at September 30, 2000, increased 12% to over
$331 million since December 31, 1999, with growth in customer deposits of 20%,
or over $46 million. The growth in customer deposits, $4.4 million in
maturities of investment securities and the sale of $2.4 million in Federal
Home Loan Bank (FHLB) and Federal Reserve Bank stock were primarily used to
increase loans by $46 million and reduce FHLB borrowings of $10.5 million
during the nine months ended September 30, 2000.
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LIQUIDITY. Liquidity enables the Company to meet withdrawals of its deposits
and borrowing needs of its loan customers. The Company 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 September 30, 2000, the Company had $6.6 million
in federal funds sold.
A further source of liquidity is the Company'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 September 30, 2000, $6.9 million had been advanced in
long-term borrowings from the FHLB against the Company's credit line. Other
borrowings of approximately $15.3 million relate mostly to repurchase
agreements for customer overnight sweep accounts. The cost of these funds is
approximately 5.30%. The Company also has established secured credit lines of
approximately $18.5 million through certain correspondent banks and the
discount window with the Federal Reserve Bank of San Francisco.
At September 30, 2000, the Company had approximately $40 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 the Company's available resources will be sufficient to fund
these commitments in the normal course of business.
CAPITAL RESOURCES. Federal regulators require the calculation of risk-based
capital. This is an analysis that weights balance sheet and off-balance sheet
items for their inherent risk. It requires minimum standards for risk-based
capital-by-capital tier. As a minimum requirement, total risk-based capital
ratio should be at least 8.00%, Tier 1 capital ratio should be at least 4.00%,
and a leverage capital ratio should be at least 4.00%. At September 30, 2000,
PremierWest Bank's estimated regulatory capital ratios were as follows: total
risk-based capital ratio of 12.22%, Tier 1 capital ratio of 10.98%, and a
leverage capital ratio of 9.04%. The Company's capital ratios also approximate
the capital ratios of PremierWest Bank, since most Company capital and assets
include the capital and assets of PremierWest Bank. However, were the Company
or PremierWest Bank fully leveraged, further growth could be restricted to the
level attainable through generation and retention of net income or the Company
could seek additional capital from outside sources.
MARKET RISK. Market risk is the risk of loss from adverse changes in market
prices and rates. The Company's market risk arises principally from interest
rate risk in its lending, deposit and borrowing activities. Management
actively monitors and manages its interest rate risk exposure. Although the
Company manages other risks, as in credit quality and liquidity risk, in the
normal course of business, management considers interest rate risk to be a
significant market risk, which could have the largest material effect on the
Company's financial condition and results of operations. Other types of market
risks, such as foreign currency exchange rate risk and commodity price risk,
do not arise in the normal course of the Company's business activities. The
Company did not experience a significant change in market risk at September
30, 2000 as compared to December 31, 1999.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. The Company may occasionally have pending routine
litigation resulting from the collection of secured and unsecured indebtedness
as part of its business of providing financial services. In some cases, such
litigation will involve counterclaims or other claims against the Company.
Other than litigation in the normal course of business and in the collection
of Company loans and other such assets, the Company is not involved in any
significant cases, which in management's opinion would have a material impact
on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
On July 21, 2000, a Form 8-K/A was filed with the SEC to amend Form 8-K
reported on May 18, 2000.
15
<PAGE>
SIGNATURES: Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DATED: November 13, 2000
PREMIERWEST BANCORP
.
/s/ Bruce R. McKee
----------------------------------------
Bruce R. McKee, Chief Financial Officer
/s/ John L. Anhorn
----------------------------------------
John L. Anhorn, Chief Executive Officer
16
