MEDFORD, OR — (Marketwire) — 07/26/11 — PremierWest Bancorp (NASDAQ: PRWT) announced
results for the second quarter ending June 30, 2011, as follows:
Management continued to execute strategies that have resulted in
strengthening of the Company-s performance, including:
James M. Ford, PremierWest-s President & Chief Executive Officer, observed,
“Despite the continued economic difficulties, I am pleased with the
progress made in second quarter 2011. We narrowed our loss for the quarter
and continued to achieve meaningful reductions in nonperforming and
adversely classified assets. The quarter represents the fourth consecutive
period of declines in adversely-classified loans. It was gratifying to see
that a good portion of this progress in credit quality was a result of risk
rating improvements, repayments or upgrades to performing status for a
number of loan relationships. In addition, commercial real estate (CRE) and
acquisition, development and construction (ADC) loan balances continue to
decline.
“We increased our net interest margin in part by growing our non-interest
bearing deposits through new customer acquisition and expansion of existing
client relationships while reducing our higher-cost certificates of
deposits,” remarked Ford. “With sluggish loan demand in our marketplace, we
have continued to manage our balance sheet primarily by building our
investment portfolio. We are structuring the portfolio to have the
liquidity needed to respond when loan demand improves, while redeploying
our investment portfolio into higher-yielding, high quality federal
government agency and municipal securities to improve earnings.”
Ford closed by saying, “We are grateful for to the shareholders for their
patience as we guide the Company through these trying economic times. While
we still have much work to do, I appreciate the hard efforts of our
employees over the recent years which have resulted in the improvements
displayed in this quarter-s results.”
CREDIT QUALITY
At June 30, 2011, the Company had $207.0 million in adversely classified
loans. This compares favorably to $249.5 million and $316.2 million at
March 31, 2011 and June 30, 2010, respectively. Adversely classified loans
have declined for four consecutive quarters and were down 17.0% from March
31, 2011 and 34.5% from June 30, 2010.
Included in adversely classified loans at June 30, 2011, were nonperforming
loans of $92.5 million, or 10.5% of gross loans, compared to $109.8
million, or 11.9% of gross loans, at March 31, 2011, and $129.7 million, or
11.9% of gross loans, at June 30, 2010. Nonperforming loans have declined
for four consecutive quarters and were down 15.8% from March 31, 2011 and
28.7% from June 30, 2010. Reductions in nonperforming loans occurred
primarily in the construction, land and land development and commercial
real estate loan categories. Of those loans currently designated as
nonperforming, approximately $24.2 million, or 26.2% are current as to
payment of principal and interest.
The Company monitors delinquencies, defined as loans on accruing status
30-89 days past due, as an indicator of future nonperforming assets. Total
delinquencies were $2.8 million, or 0.32% of total loans, at June 30, 2011,
down from $7.1 million, or 0.77%, at March 31, 2011, and a reduction from
$10.7 million, or 0.98%, at June 30, 2010.
For the quarter ended June 30, 2011, total net loan charge-offs were $4.9
million compared to $8.5 million in the quarter ended March 31, 2011 and
$5.0 million in the quarter ended June 30, 2010. The net charge-offs in the
current period were concentrated in the construction and land development
and non-owner occupied commercial real estate loan categories. The ratio of
net loan charge-offs to average gross loans (annualized) for the current
quarter was down 39.4% from the previous quarter. The current quarter net
loan charge-offs to average gross loans ratio was up 22.5% as compared to
the same quarter in 2010, even though net loan charge offs in dollars were
virtually the same. Average gross loans in the current period were 18.6%
lower as compared to the same quarter in 2010.
The Company-s allowance for credit losses was $28.4 million, or 3.22% of
gross loans, at June 30, 2011. This compares to an allowance for credit
losses of $33.4 million, or 3.62% of total loans, at March 31, 2011 and
$43.9 million, or 4.02% of gross loans, at June 30, 2010. At June 30, 2011,
the allowance for credit losses was 30.7% of nonperforming loans, as
compared to 30.4% at March 31, 2011 and 33.9% at June 30, 2010.
At June 30, 2011, other real estate owned (OREO) consisted of 90 properties
totaling $27.6 million, compared to 93 properties totaling $29.8 million at
March 31, 2011, and 54 properties totaling $15.1 million a year ago. OREO
balances have declined for two consecutive quarters, down 7.3% from March
31, 2011, and 13.8% from the $32.0 million in OREO as of December 31, 2010.
During the second quarter of 2011 the Company disposed of $1.6 million in
OREO property. Write-downs of OREO during the second quarter 2011 comprised
15.9% of the balance at the beginning of the period. Additions to OREO in
second quarter 2011 were primarily attributed to two separate relationships
of $2.2 million and $1.2 million, which are commercial real estate and
construction land development properties, respectively. The largest
balances in the OREO portfolio at June 30, 2011, were attributable to land
development projects and commercial real estate properties, all of which
are located within regions we operate.
LOANS AND DEPOSITS
The Company-s total gross loans, net of deferred fees, totaled $880.9
million at June 30, 2011, down $40.2 million, or 4.4%, from March 31, 2011
and down $210.0 million, or 19.3% from June 30, 2010. This is a result of
the Company-s decision to reduce its level of construction, land and
development, commercial real estate and higher risk commercial and
industrial loans. The reduction in these loan types comprised 90.7% and
86.0% of the reduction in gross loan balances during these comparative
periods. The decline in gross loans during this quarter reflects $12.1
million in originations, $41.6 million in pay offs, $6.6 million in gross
loan charge-offs and $4.1 million transferred to OREO.
Total deposits as of June 30, 2011 were $1.18 billion, a decrease of 4.5%
or $56.0 million from March 31, 2011 and a decrease of $135.7 million from
June 30, 2010. This decline was mainly due to a purposeful reduction by
management of higher-cost time and public entity deposits balances and
emphasis on the acquisition of non-interest bearing demand deposit
relationships. In keeping with this strategy, non-interest bearing demand
deposits grew 3.3%, or $8.4 million, during the second quarter of 2011 and
6.8%, or $16.6 million, since June 30, 2010. As such, the Company-s
non-interest bearing and time deposits now comprise 22.2% and 41.6% of
total deposits, respectively, as of June 30, 2011, as compared to 18.6% and
44.7% of total deposits, respectively, as of June 30, 2010. The Company had
less than $1 million in brokered deposits as of June 30, 2011, all of which
were reciprocal in nature.
NET INTEREST INCOME
Second quarter 2011 net interest income was $13.1 million, an increase of
$0.9 million versus first quarter 2011 and a decrease of $1.7 million as
compared to second quarter of 2010. Average earning assets decreased $38.3
million, or 2.9%, from first quarter 2011 and $151.6 million, or 10.7% from
June 30, 2010. Higher yielding average gross loans, as a percentage of
average interest earning assets, declined from 78.8% as of June 30, 2010 to
71.9% as of June 30, 2011. Correspondingly, lower yielding average fed
funds sold and investment securities, as a percentage of average interest
earning assets, increased to 28.1% as of June 30, 2011 from 21.1% as of
June 30, 2010. In addition to these changes in the earning asset mix,
average non-interest bearing deposits grew as a proportion of total
deposits.
The second quarter 2011 net interest margin of 4.19% increased 36 basis
points from first quarter 2011. This was due in part to higher yields from
loans, which grew to 6.18%, an increase of 41 basis points. Approximately
28 basis points of the increase in loan yields was due to the collection
during the quarter of $0.6 million in default interest from one borrower.
This one-time event increased net interest margin by 20 basis points, from
3.99% to 4.19%, for the period. In addition, the redeployment during the
current quarter of a portion of fed funds sold balances into higher
yielding U.S. government agency and investment grade municipal obligations
resulted in an increase in investment portfolio yields of 27 basis points
to 2.00%. The changes in the deposit mix noted above resulted in a 7 basis
point, or 6.3%, decrease in the cost of average interest-bearing
liabilities.
The second quarter 2011 net interest margin of 4.19% decreased 4 basis
points from second quarter 2010, including the collection of $0.6 million
in default interest previously noted. This was due in part to the higher
proportion of earning assets in loans during the second quarter 2010. The
current period loan portfolio yield of 5.90%, after adjustment as explained
above, was down from the second quarter 2010 loan yield of 5.99%, after an
adjustment of $0.3 million in interest reversed due to loans being placed
in nonaccrual status during that period. By comparison, only a nominal
amount of interest was reversed in second quarter 2011. In addition, a
higher proportion of the Company-s liquidity was retained in lower yielding
fed funds sold balances during the second quarter of 2010, resulting in
investment portfolio yields that were 27 basis points below those of second
quarter 2011. Also, the cost of interest-bearing liabilities in second
quarter 2010 was reduced by a $1.1 million accretion of a negative
certificate of deposit purchase premium as a result of the purchase of two
Wachovia Bank branches in July 2009. The negative deposit purchase premium
was fully accreted as of June 30, 2010, which lowered the cost of
interest-bearing deposits by 39 basis points during second quarter 2010.
This, along with changes in the deposit mix noted above, resulted in no
change in the cost of interest-bearing liabilities when comparing the two
periods.
NON-INTEREST INCOME and EXPENSE
Total noninterest income of $2.9 million for the quarter ended June 30,
2011, declined $0.3 million, or 9.3%, from $3.2 million in the first
quarter of 2011. This was primarily due to a $0.3 million decrease in gain
on death benefit from bank-owned life insurance and declines in investment
and mortgage brokerage fee income. This decrease was partially offset by an
increase of $0.2 million in gain on sale of investment securities.
Noninterest income for the current quarter increased $0.4 million, or
17.4%, from $2.5 million in second quarter 2010. This was primarily due to
a $0.5 million increase in gain on sale of investment securities and
investment and mortgage brokerage fee income. This increase was partially
offset by a decrease of $0.1 million in deposit account service charge fee
income. This is a result of the continued trend of banking customers
incurring fewer non-sufficient funds (NSF) items, thus reducing fee income
in this area.
Noninterest expense for the three months ended June 30, 2011, was $18.0
million, an increase of $2.2 million compared to $15.8 million in first
quarter 2011. Salaries and employee benefits expense was virtually
unchanged between the periods. Costs related to OREO and foreclosed assets
increased, primarily reflecting a $2.7 million increase in impairment
charges associated with these assets. The increase in noninterest expenses
was partially offset by a $0.3 million decrease in FDIC insurance premiums
associated with the recent change in assessment methodology. Noninterest
expense for the current quarter increased $1.7 million compared to $16.4
million in second quarter 2010. Salaries and employee benefits expense
increased $0.2 million between the periods. Costs related to OREO and
foreclosed assets increased $2.0 million over second quarter 2010,
primarily reflecting a $2.2 million increase in impairment charges
associated with these assets. The increase in noninterest expenses was
partially offset by a $0.4 million decrease in FDIC insurance premiums
associated with the recent change in assessment methodology and a $0.2
million reduction in occupancy and equipment expense.
CAPITAL
PremierWest Bank has met the quantitative thresholds to be considered
“Well-Capitalized” under published regulatory standards for total
risk-based capital and Tier 1 risk-based capital at June 30, 2011, with
ratios of 12.65 percent and 11.38 percent, respectively. However, we
continue to be subject to the terms of the Consent Order with the FDIC and
have not yet reached the 10.00 percent leverage ratio required by the
Consent Order. As such, we are not considered “Well-Capitalized” for all
regulatory ratios.
ABOUT PREMIERWEST BANCORP
PremierWest Bancorp (NASDAQ: PRWT) is a bank holding company headquartered
in Medford, Oregon, and operates primarily through its subsidiary,
PremierWest Bank. PremierWest Bank offers expanded banking-related services
through two subsidiaries, Premier Finance Company and PremierWest
Investment Services, Inc.
PremierWest Bank was created following the merger of the Bank of Southern
Oregon and Douglas National Bank in May 2000. In April 2001, PremierWest
Bancorp acquired Timberline Bancshares, Inc. and its wholly-owned
subsidiary, Timberline Community Bank, with eight branch offices located in
Siskiyou County in northern California. In January 2004, PremierWest
acquired Mid Valley Bank with five branch offices located in the northern
California counties of Shasta, Tehama and Butte. In January 2008,
PremierWest acquired Stockmans Financial Group, and its wholly-owned
subsidiary, Stockmans Bank, with five full service banking offices in the
Sacramento, California area. During the last several years, PremierWest
expanded into Klamath Falls and the Central Oregon communities of Bend and
Redmond, and into Nevada, Yolo and Butte counties in California.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This press release includes forward-looking statements within the meaning
of the “Safe-Harbor” provisions of the Private Securities Litigation Reform
Act of 1995, which management believes are a benefit to shareholders. These
statements are necessarily subject to risk and uncertainty and actual
results could differ materially due to certain risk factors, including
those set forth from time to time in PremierWest-s filings with the SEC,
and risks that we are unable to increase capital levels as planned or
effectively implement asset reduction and credit quality improvement
strategies, unable to comply with regulatory agreements and the risk that
market conditions deteriorate. You should not place undue reliance on
forward-looking statements and we undertake no obligation to update any
such statements. We make forward-looking statements in this press release
about future profitability of the Company, net interest margin, regulatory
compliance, loan demand, interest rate changes, loan upgrades, loan
migration, the prospects for earnings growth, deposit and loan growth,
capital levels, the effective management of our credit quality, the
collectability of identified non-performing loans, real estate market
conditions and the adequacy of our Allowance for Loan Losses.