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 June 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: 8,591,065 shares as of August
4, 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 .................................................. 14
Item 4 Submission of Matters to a Vote of Securities Holders .............. 14
Item 6 Exhibits and Reports on Form 8-K ................................... 14
Signatures ................................................................ 15
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
PREMIERWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(UNAUDITED)
June 30, December 31,
2000 1999
----------- ----------
ASSETS
CASH AND DUE FROM BANKS $ 12,551 $ 12,593
FEDERAL FUNDS SOLD AND INTEREST-BEARING DEPOSITS 15,900 8,275
----------- ----------
Total cash and cash equivalents 28,451 20,868
INVESTMENT SECURITIES AVAILABLE-FOR-SALE 78,613 82,349
LOANS, NET OF ALLOWANCE FOR LOAN LOSSES 214,578 171,420
FEDERAL HOME LOAN BANK STOCK 1,374 5,818
PREMISES AND EQUIPMENT - NET 9,828 10,296
ACCRUED INTEREST AND OTHER ASSETS 8,213 5,901
----------- ----------
TOTAL ASSETS $ 341,057 $ 296,652
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
DEPOSITS:
Non-interest-bearing checking $ 52,606 $ 43,789
Savings and interest-bearing demand 124,993 115,319
Time 89,300 70,637
----------- ----------
Total deposits 266,899 229,745
FEDERAL HOME LOAN BANK BORROWINGS 27,437 17,402
REPURCHASE AGREEMENTS & FEDERAL FUNDS PURCHASED 14,038 18,600
OTHER BORROWINGS 1,063 604
----------- ----------
Total borrowings 42,538 36,606
OTHER LIABILITIES 2,358 2,077
----------- ----------
Total liabilities 311,795 268,428
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 8,591,065 and 8,407,879
shares issued and outstanding in 2000 and
1999, respectively 18,522 17,918
Retained earnings 13,096 12,710
Unearned Employee Stock Ownership Plan compensation (493) (604)
Accumulated other comprehensive loss (1,863) (1,800)
----------- ----------
Total shareholders' equity 29,262 28,224
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 341,057 $ 296,652
=========== ==========
See accompanying notes.
4
<PAGE>
PREMIERWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except for Earnings per Share Data)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
--------------------------- ------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 5,071 $ 3,390 $ 9,606 $ 6,715
Interest-earning deposits 390 303 810 1,461
Investment securities 981 1,340 1,932 1,608
-------- -------- -------- --------
Total interest income 6,442 5,033 12,348 9,784
Interest expense:
Deposits 2,177 1,728 3,957 3,345
Other borrowings 607 262 1,173 608
-------- -------- -------- --------
Total interest expense 2,784 1,990 5,130 3,953
-------- -------- -------- --------
Net interest income 3,658 3,043 7,218 5,831
Loan loss provision 193 140 379 240
-------- -------- -------- --------
Net interest income after loan
loss provision 3,465 2,903 6,839 5,591
Non-interest income 594 473 1,008 1,010
Non-interest expense:
Salaries and employee benefits 1,698 1,455 3,332 2,923
Professional fees 122 122 228 200
Equipment 239 218 533 424
Occupancy, net 270 190 487 364
Data processing 68 57 130 112
Advertising 140 136 232 181
Merger costs 883 - 883 -
Other 682 786 1,101 1,269
-------- -------- -------- --------
Total non-interest expense 4,102 2,964 6,926 5,473
-------- -------- -------- --------
Income (loss) before income taxes (43) 412 921 1,128
Provision for income taxes (193) (107) (535) (358)
======== ======== ======== ========
Net income (loss) $ (236) $ 305 $ 386 $ 770
Earnings (loss) per common share:
Basic $ (0.03) $ 0.04 $ 0.04 $ 0.09
======== ======== ======== ========
Diluted $ (0.03) $ 0.04 $ 0.04 $ 0.09
======== ======== ======== ========
</TABLE>
See accompanying notes.
5
<PAGE>
PREMIERWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in Thousands)
(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) $ 402 $ 17,354 $ 28,134
Comprehensive loss:
Net income $ 770 $ 770 - - - 770
Net change in unrealized loss
on investment securities
available-for-sale,
net of taxes (1,504) - - (1,504) - (1,504)
-------------
Comprehensive loss $ (734)
=============
ESOP compensation expense - 155 - - 155
Cash dividend (299) - - - (299)
Amortization of stock
compensation 11 - - - 11
Stock options exercised - - - 92 92
Tax benefit of stock options
exercised - - - 62 62
------------- ------------- ------------- ------------- --------------
BALANCE - JUNE 30, 1999 $ 11,747 $ (735) $ (1,099) $ 17,508 $ 27,421
============= ============= ============= ============= ==============
BALANCE - JANUARY 1, 2000 $ 12,710 $ (604) $ (1,800) $ 17,918 $ 28,224
Comprehensive income:
Net income $ 386 386 - - - 386
Net change in unrealized loss
on investment securities
available-for-sale,
net of taxes (63) - - (63) - (63)
-------------
Comprehensive income $ 323
=============
ESOP compensation expense - 111 - - 111
Stock options exercised - - - 575 575
Tax benefit of stock options
exercised - - - 29 29
------------- ------------- ------------- ------------- --------------
BALANCE - JUNE 30, 2000 $ 13,096 $ (493) $ (1,863) $ 18,522 $ 29,262
============= ============= ============= ============= ==============
</TABLE>
See accompanying notes.
6
<PAGE>
PREMIERWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------------
June 30, June 30,
2000 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 386 $ 770
Adjustments to reconcile net income to net cash used by
operating activities:
Depreciation and amortization 515 209
Amortization of premiums on investment securities, net 11 2
Deferred income taxes (128) (86)
Dividends on Federal Home Loan Bank stock (162) (105)
Loan loss provision 379 240
Recognition of deferred compensation relating to ESOP 111 166
Increase in accrued interest and other assets (1,394) (1,221)
Increase in accrued interest and other liabilities 281 13
-------------- --------------
Net cash used by operating activities (1) (12)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of Federal Home Loan Bank
and Federal Reserve Bank stock 4,606 8
Purchases of investment securities available-for-sale - (27,165)
Proceeds from maturities of investment securities 3,662 4,616
Proceeds from sale of property and equipment 275 -
Loan originations (increase) decrease, net (44,125) 336
Purchase of premises and equipment, net (495) (2,065)
-------------- --------------
Net cash used in investing activities (36,077) (24,270)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 37,154 12,416
Net borrowings from Federal Home Loan Bank and other borrowings 5,932 7,808
Cash dividend - (299)
Proceeds from exercise of stock options 575 92
-------------- --------------
Net cash provided by financing activities 43,661 20,017
-------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,583 (4,265)
CASH AND CASH EQUIVALENTS - Beginning of the period 20,868 43,378
-------------- --------------
CASH AND CASH EQUIVALENTS - End of the period $ 28,451 $ 39,113
============== ==============
</TABLE>
See accompanying notes.
7
<PAGE>
PREMIERWEST BANCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STAEMENTS
June 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. 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 June 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 thousands) cost losses value cost losses value
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. agency securities $ 41,537 $ (1,760) $ 39,777 $ 41,532 $ (1,620) $ 9,912
Collateralized mortgage
obligations and mortgage-
backed securities 22,862 (624) 22,238 24,894 (785) 24,109
Obligations of states and
political subdivisions 16,797 (636) 16,161 17,394 (514) 16,880
Equity securities 437 - 437 1,448 - 1,448
--------- --------- --------- --------- --------- ---------
Total $ 81,633 $ (3,020) $ 78,613 $ 85,268 $ (2,919) $ 82,349
========= ========= ========= ========= ========= =========
</TABLE>
At June 30, 2000, approximately $24 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 June 30, 2000 and December 31,
1999 was as follows:
(Dollars in thousands) 2000 1999
-------------------------------------------------------------------
Commercial $ 36,733 $ 33,065
Real estate - construction 46,515 34,844
Real estate - other 124,545 97,620
Consumer installment 9,656 9,009
Other 794 442
--------- ---------
218,243 174,980
Allowance for loan losses (3,126) (3,075)
Deferred loan fees (539) (485)
--------- ---------
Loans - net $ 214,578 $ 171,420
========= =========
Impaired loans, on which the accrual of interest had been discontinued,
were approximately $2.97 million at June 30, 2000 and $2.80 million at
December 31, 1999.
A summary of changes in the allowance for loan losses for the six months
ended June 30, 2000 and 1999 were as follows:
(Dollars in thousands) 2000 1999
-------------------------------------------------------------------
Balance - Beginning of the period $ 3,075 $ 2,832
Loans charged-off (402) (163)
Loan recoveries 74 209
Loan loss provision 379 240
------- -------
Balance - End of the period $ 3,126 $ 3,118
======= =======
4. LINE OF CREDIT AND OTHER BORROWINGS
The Company has a line of credit with Federal Home Loan Bank of Seattle
(FHLB) of approximately $32.8 million as of June 30, 2000. This line of
credit is basically secured by restricted FHLB stock owned by the
Company, funds on deposit with FHLB, investment securities and loans.
Interest and principal payments are due monthly on any outstanding
borrowings. As of June 30, 2000 and December 31, 1999, the Company had
drawn $20.4 million and $10.0 million, respectively, of short-term
advances from FHLB under the line of credit. As of June 30, 2000, all
amounts were due within 60 days at an average annual interest rate of
approximately 6.49%. The Company has also borrowed long-term funds from
the FHLB against this line of credit, aggregating $7.0 million and
$7.4 million as of June 30, 2000 and December 31, 1999, respectively. As
of June 30, 2000, $5 million is due August 28, 2008, and the remaining
$2.0 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 $14.0 million and $18.6 million at June 30,
2000 relate mostly to repurchase agreements used for customer overnight
sweep accounts. The cost of these funds at June 30, 2000 is an average
annual rate of interest of approximately 5.3%. Certain investment
securities, as required, have been pledged as collateral to fully secure
the long-term debt and the repurchase agreements.
Additionally, the Company has approximately $15.0 million in available
borrowings through lines of credit with certain correspondent banks and
through the Federal Reserve Bank's discount window.
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 June 30, 2000, the Company has $42,784,000
of commitments to extend credit to customers and $2,363,000 of standby
letters of credit.
9
<PAGE>
6. EARNINGS PER SHARE
The Company's basic earnings per common share is computed by dividing net
income or loss 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 or loss 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
8.3 million for the three-month and six-month periods ended June 30, 2000
and approximately 8.1 million for the three-month and six-month periods
ended June 30, 1999. Dilutive common shares related to stock options were
approximately 297,000 for the three-month and six-month periods ended
June 30, 2000 and approximately 236,000 for the three-month and six-month
periods ended June 30, 1999.
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 JUNE 30, 2000 AND 1999
The Company incurred a net loss of $236,000 for the three months ended June
30, 2000, after recognizing $883,000 in expenses related to the merger. 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, $50,000
for printing and administrative charges, and $168,000 paid to a data
processing provider for early contract termination and data processing
conversion fees. Excluding these one-time mergers costs and for comparative
purposes, the Company had net income of approximately $647,000, which was an
increase of $342,000 (or 112%) compared to the same period in 1999. This
increase is due mainly to a $615,000 increase in net interest income offset by
an increase of $255,000 in non-interest expense over the comparative
three-month period ended June 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
June 30, 2000 and 1999 2000 1999 (Decrease) %Change
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average interest-earning assets $ 277,70 $ 251,400 $ 26,300 10.5%
Average interest-bearing liabilities $ 296,600 $ 243,400 $ 53,200 21.9%
Average total assets $ 328,700 $ 273,000 $ 55,700 20.4%
Average equity $ 29,500 $ 28,400 $ 1,100 3.9%
Average yield earned 9.33% 8.03% 1.30% 16.2%
Average rate paid 3.78% 3.28% (0.50)% (15.2)%
Net interest spread 5.55% 4.75% 0.80% 16.8%
Net interest income to average
interest-earning assets 5.27% 4.85% 0.45% 9.3%
Return on average assets, before merger costs 0.79% 0.45% 0.34% 75.5%
Return on average equity, before merger costs 8.77% 4.31% 4.51% 104.6%
Efficiency ratio, before merger costs 75.71% 84.30% (8.59)% (10.2)%
</TABLE>
NET INTEREST INCOME. Net interest income before the loan loss provision
increased $615,000 for the three-month period ended June 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 $26 million during the three
months ended June 30, 2000 as compared to the corresponding period in 1999.
Although the Company's cost of funds has increased by 50 basis points and the
volume of its interest-bearing liabilities increased $53 million during the
three months ended June 30, 2000 as compared to the corresponding period in
1999, the Company still increased its interest rate margin by 80 basis points
resulting in a 20% increase in net interest margin.
11
<PAGE>
LOAN LOSS PROVISION. The loan loss provision during the three-month period
ended June 30, 2000, was $193,000 as compared to $140,000 for the same period
in 1999. The Company had net charge-offs of $114,000 during the three-month
period ended June 30, 2000, compared to net recoveries of $108,000 for the
corresponding period in 1999. Additions to the loan loss provision have
maintained the allowance for loan losses at $3.126 million as of June 30,
2000, compared to $3.118 million as of June 30, 1999. The Company's ratio of
allowance for loan losses to total loans was 1.43% at June 30, 2000, compared
to 1.76% at June 30, 1999. Non-performing assets (defined as loans on
non-accrual status, 90 days or more past due, and other real estate owned)
were $3.766 million and $4.789 million at June 30, 2000 and 1999,
respectively.
NON-INTEREST INCOME. Non-interest income increased 25.6% to $594,000 for the
three months ended June 30, 2000, as compared to $473,000 for the same period
in 1999. The increase in non-interest income was primarily due to fees earned
from mortgage loan operations.
NON-INTEREST EXPENSE. Including the one-time merger costs of $883,000
discussed above, non-interest expense increased $1.4 million for the three
months ended June 30, 2000 as compared to the corresponding period in 1999.
Excluding the merger costs and for comparative purposes, non-interest expense
increased $255,000 or 8.6% over the same period in 1999. Salaries and employee
benefits increased $243,000 as a result of additional employees to support
customer service and growth of the Company' operations. Occupancy, equipment
and office expenses increased $101,000 for the three months ended June 30,
2000, as compared to the same period in 1999. This increase was attributed to
costs associated with a new administration and loan production facility,
including additional computer and phone equipment.
INCOME TAXES. In accordance with provisions of the Internal Revenue Code
(IRC), 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
$193,000 (an average tax rate of 30%) in federal and state income taxes for
the three-month period ended June 30, 2000. This compares to an average tax
rate of 26% for the three-month period ended June 30, 1999. The higher tax
rate in 2000 is attributed to the graduated income tax rate structure of the
IRC.
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Net income was $386,000 for the six months ended June 30, 2000, which was
lower by $384,000 as compared to the same period in 1999. This decrease in net
income also includes the one-time merger costs of $883,000, discussed above.
Excluding the merger costs and to provide comparable information, net income
was $1.269 million, an increase of $499,000 or 64.8% over the first six months
of 1999. During the six months ended June 30, 2000, net interest income
increased by $1.387 million, offset by an increase in non-interest expense of
$570,000, excluding merger costs, over the comparative six-month period ended
June 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 six-month periods ended Increase
June 30, 2000 and 1999 2000 1999 (Decrease) %Change
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average interest-earning assets $ 280,300 $ 249,300 $ 31,000 12.4%
Average interest-bearing liabilities $ 282,600 $ 239,000 $ 43,600 18.2%
Average total assets $ 311,600 $ 268,600 $ 43,000 16.0%
Average equity $ 29,100 $ 28,400 $ 700 2.5%
Average yield earned 8.86% 7.91% 0.95% 12.0%
Average rate paid 3.65% 3.33% 0.32% 9.6%
Net interest spread 5.21% 4.58% 0.63% 13.8%
Net interest income to average
interest-earning assets 5.15% 4.68% 0.46% 23.2%
Return on average assets, excluding merger costs 0.82% 0.57% 0.24% 41.4%
Return on average equity, excluding merger costs 8.72% 5.42% 3.30% 60.3%
Efficiency ratio, excluding merger costs 73.46% 80.00% (6.54)% (8.2)%
</TABLE>
12
<PAGE>
NET INTEREST INCOME. Net interest income before the loan loss provision
increased $1,387 million for the six-month period ended June 30, 2000, for 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
six-month period ended June 30, 2000, the volume of average loans increased by
approximately $43 million, while overall yields increased approximately 95
basis points as compared to the corresponding period in the prior year. Such
increases more than offset the $44 million increase in the volume of
interest-bearing liabilities and 32 basis point increase in rates paid,
enabling the Company to increase its net interest margin by 23.8%.
LOAN LOSS PROVISION. The loan loss provision during the six-month period ended
June 30, 2000, was $379,000 as compared to $240,000 for the same period in
1999. The Company had net charge-offs of $328,000 during the six-month period
ended June 30, 2000, compared to net recoveries of $46,000 for 1999.
NON-INTEREST INCOME. Non-interest income held steady at $1 million for the six
months ended June 30, 2000, as compared to the same period in 1999.
NON-INTEREST EXPENSE. Non-interest expense increased to $6.9 million,
including $883,000 of one-time merger costs discussed above, for the six
months ended June 30, 2000, as compared to $5.5 million for the same period in
1999. Excluding the merger costs and again for comparative purposes,
non-interest expense increased by $570,000 for the six months ended June 30,
2000, as compared to June 30, 1999. Salaries and employee benefits increased
$409,000 with the increase in full-time employees supporting the high level of
customer service and the greater volume of Company operations. Occupancy,
equipment and office expenses increased $232,000 for the six months ended
June 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.
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
$535,000 (an average tax rate of 33%) in federal and state income taxes for
the six-month period ended June 30, 2000. This compares to an average tax rate
of 32% for the six-month period ended June 30, 1999.
FINANCIAL CONDITION. Total assets at June 30, 2000, increased 15% to over $341
million since December 31, 1999, with growth in customer deposits of 16%, or
over $37 million. The growth in customer deposits, increases in the Federal
Home Loan Bank (FHLB) borrowings as well as a decrease in investment
securities and a sale of FHLB stock was primarily used to increase loans by
$43 million during the six months ended June 30, 2000. The increase in
interest-bearing demand deposits and time certificates of deposit accounts
provided additional funds to lend while allowing for adequate liquidity.
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 June 30, 2000, the Company had $15.9 million in
interest-earning deposits. These funds will be used to pay down the Company's
short-term borrowings as such borrowings become due.
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 10% of the
PremierWest Bank's total assets. As of June 30, 2000, $27.4 million had been
advanced in short and long-term borrowings from the FHLB against the Company's
credit line. Other borrowings of approximately $14 million relate mostly to
repurchase agreements for customer overnight sweep accounts. The cost of these
funds is approximately 5.3%. The Company also has established secured credit
lines of approximately $15 million through certain correspondent banks and the
discount window with the Federal Reserve Bank of San Francisco.
At June 30, 2000, the Company had approximately $43 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.
13
<PAGE>
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 June 30, 2000,
PremierWest Bank's estimated regulatory capital ratios were as follows: total
risk-based capital ratio of 11.84%, Tier 1 capital ratio of 10.21%, and a
leverage capital ratio of 8.76%. 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 June 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.
On May 5, 2000, the shareholders of Bank of Southern Oregon held their annual
meeting. The following proposals were voted upon and approved:
Proposal 1: Adoption and approval the Agreement and Plan of Merger and
share Exchange, dated as of October 7, 1999, as amended as of December
14, 1999, by among Bank of Southern Oregon, PremierWest Bancorp, United
Bancorp and Douglas National Bank:
For: 3,732,644
Against: 37,484
Abstentions and Broker Non-Votes: 742,609
Proposal 2: Reorganization of Bank of Southern Oregon into the holding company
form of ownership as a wholly owned subsidiary of PremierWest Bancorp:
For: 3,758,372
Against: 37,484
Abstentions and Broker Non-Votes: 13,187
Proposal 3: The following directors were elected to serve terms expiring with
the 2000 annual meeting of shareholders:
<TABLE>
<CAPTION>
Jeffrey L. John A. Dennis N. Richard K. Richard R. John L. Patrick G. James L.
Chamberlain Duke Hoffbuhr Karchmer Hieb Anhorn Huycke Patterson
Director Director Director Director Director Director Director Director
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For 4,240,479 4,241,729 4,241,729 4,241,729 4,241,529 4,241,729 4,240,729 4,240,099
Withheld 66,096 66,096 66,096 66,096 66,096 66,096 66,096 66,096
</TABLE>
Proposal 4: Ratification of the appointment of Symonds, Evans & Larson, P.C.
as independent auditor of Bank of Southern Oregon for the fiscal year ending
December 31, 2000:
For: 4,470,331
Against: 28,974
Abstentions and Broker Non-Votes: 14,432
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is being filed herewith and this list constitutes
the Exhibit Index:
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
On May 18, 2000, a Form 8-K was filed with the SEC to report the closing
of the Plan of Merger and Share Exchange between Bank of Southern Oregon
and United Bancorp and its wholly owned subsidiary, Douglas National
Bank.
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: August 8, 2000
PREMIERWEST BANCORP
By: /s/ Bruce R. McKee
-----------------------------------------
Bruce R. McKee, Chief Financial Officer
By: /s/ John L. Anhorn
-----------------------------------------
John L. Anhorn, Chief Executive Officer
