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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 2000
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
to
------------------- --------------------------------
Commission file number:
------------------------------
PremierWest Bancorp
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(Exact name of registrant as specified in its charter)
Oregon 93-1282171
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(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
503 Airport Road, Medford, Oregon 97504
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 541-618-6003
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Securities registered pursuant to Name of exchange on
Section 12(b) of the Act: which registered:
None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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(Title of Class)
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 by check mark if disclosure of delinquent filing pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
As of March 15, 2001, there were 8,598,915 shares of common stock
outstanding. The aggregate market value of common stock held by non-affiliates
was $34.9 million at March 15, 2001, based on the average bid and ask prices of
such stock on such date as reported by the OTC Bulletin Board System.
Documents Incorporated by Reference:
None.
Part I
ITEM 1. BUSINESS
Introduction
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PremierWest Bancorp ("PremierWest") was incorporated on November 26,
1999 for the purpose of becoming the holding company for PremierWest Bank, the
resulting bank from the merger, completed in May 2000, of the Bank of Southern
Oregon, based in Medford, Oregon, and Douglas National Bank, headquartered in
Roseburg, Oregon.
PremierWest conducts its business solely through PremierWest Bank, an
Oregon state-chartered commercial bank with branch offices located along the
Interstate-5 corridor from Medford to Roseburg. The bank has three subsidiaries:
Premier Finance Company makes consumer loans; PremierWest Investment Company
offers insurance and investment products and services, and Blue Star Properties,
Inc. serves solely to hold properties used as bank offices.
Products and Services
- ---------------------
PremierWest offers its customers a broad range of banking services,
principally to small and medium-sized businesses and professional and retail
customers.
Loan Products
-------------
PremierWest makes commercial and real estate loans, construction loans
for owner-occupied and rental properties, and secured and unsecured consumer
installment loans. Commercial and real estate-based lending has been the primary
focus of the bank's lending activities. Although PremierWest has made
agricultural loans, it currently has no significant agricultural loans.
Commercial Lending
------------------
PremierWest offers specialized loans for business and commercial
customers, including equipment and inventory financing, accounts receivable
financing, operating lines of credit, and real estate construction loans.
PremierWest also makes Small Business Administration loans to qualified
businesses. A substantial portion of PremierWest's commercial loans are
designated as real estate loans for regulatory reporting purposes because they
are secured by mortgages and trust deeds on real property, even if the loans are
made for purpose of financing commercial activities, such as accounts
receivable, equipment purchases and leasing.
One of the primary risks associated with commercial loans is the risk
that the commercial borrower might not generate sufficient income to repay the
loan. The bank does not lend to start-up businesses, and the bank generally
requires personal guarantees and secondary sources of repayment, such as real
estate collateral.
Real Estate Lending
-------------------
Real estate is commonly a material component of collateral for
PremierWest's loans. Although the expected source of repayment of these loans is
generally the operation of the borrower's business or personal income, real
1
estate collateral provides an additional measure of security. Risks associated
with loans secured by real estate include fluctuating land values, changing
local economic conditions, changes in tax policies, and a concentration of loans
within a limited geographic area.
Commercial real estate loans primarily include owner-occupied
commercial properties and income-producing or farm properties. The primary risks
of commercial real estate loans are loss of income of the borrower and the
inability of the market to sustain rent levels. The bank mitigates commercial
real estate risk by making the majority of commercial real estate loans on
owner-occupied properties. PremierWest's underwriting standards also require a
maximum loan-to-value ratio and a minimum period of time in which the borrower
covers a minimum percentage of combined debt service, insurance and taxes.
Although commercial and commercial real estate loans generally bear
somewhat more risk than single-family residential mortgage loans, commercial and
commercial real estate loans tend to be higher yielding, have shorter terms and
generally provide for interest-rate adjustments as prevailing rates change.
Accordingly, commercial and commercial real estate loans increase the importance
of interest-rate risk management while contributing to strong asset and income
growth.
PremierWest originates several different types of loans that it
categorizes as construction loans, including residential construction loans to
borrowers who will occupy the premises upon completion of construction,
residential construction loans to builders, commercial construction loans, and
real estate acquisition and development loans. Because of the complex nature of
construction lending, these loans have a higher degree of risk than other forms
of real estate lending. The bank mitigates its risk on construction loans by
lending to customers who have been pre-qualified for long-term financing and who
are using contractors acceptable to PremierWest.
Consumer Lending
----------------
PremierWest, through both the bank and the finance company subsidiary,
makes secured and unsecured loans to individual borrowers for a variety of
purposes, including personal, home improvements, revolving credit lines, autos,
boats, and recreational vehicles. Unsecured consumer loans carry significantly
higher interest rates than secured loans. PremierWest maintains a higher
allowance for loan loss for consumer loans, while maintaining strict credit
guidelines when considering consumer loan applications.
Deposit Products and Other Services
-----------------------------------
PremierWest offers a variety of traditional bank deposit products to
attract both commercial and consumer deposits through checking and savings
accounts, money market accounts, and certificates of deposit. The company also
offers travelers' checks, money orders and automated teller machines at most of
its facilities.
The company also has a finance company subsidiary, Premier Finance
Company, that originates consumer loans from its office in Portland. Premier
Finance serves customers in the Portland area, as well as providing a source of
loans to bank customers, where the loans may carry a higher risk than permitted
under the bank's lending criteria. Through PremierWest Investment Company, a
subsidiary of the bank, the company sells insurance and related financial
2
products, including life and health insurance, and through a third-party
registered broker-dealer, provides mutual funds, annuities and other investment
products to its customers.
Market Area
-----------
On October 2, 2000, PremierWest Bank acquired Motor Investment Company,
a Klamath Falls, Oregon consumer finance company. Motor Investment Company is an
80-year-old firm and is the fourth largest independent consumer finance company
in Oregon, specializing in automobile and recreational vehicles financing, and
equity and personal loans. It currently has approximately $4 million in consumer
loans.
On December 15, 2000, PremierWest Bank purchased Leader Mortgage Loan
Corporation, the largest mortgage brokerage in Southern Oregon with branches in
Medford, Grants Pass and Klamath Falls, Oregon, specializing in residential
mortgages including FHA, VA and conventional home loans. Leader Mortgage now
operates under the name "PremierWest Mortgage," as a division of PremierWest
Bank.
PremierWest conducts its business in several primary market areas in
southern Oregon. The company serves Jackson County from its main office in
Medford, three (3) branch offices in Medford and one branch in Central Point.
Medford is the fourth largest city in the state of Oregon and is the center for
commerce, medicine and transportation in southwestern Oregon. The principal
industries in the area include lumber and wood products, manufacturing and
agriculture. Other manufacturing segments include electrical equipment and
supplies, computing equipment, printing and publishing, fabricated metal
products and machinery, and stone and concrete products. In the
non-manufacturing sector, significant industries include the recreation,
wholesale and retail trades, as well as medical care, particularly in connection
with the area's growing retirement community.
Another principal market area is centered in Roseburg, Oregon, and the
surrounding communities in Douglas County, which the company serves from its
five (5) branches in Roseburg, Winston, Glide, Sutherlin and Drain. The
company's presence in the Roseburg market area is the result of the merger with
Douglas National Bank on May 8, 2000. The economy of Douglas County has
historically depended on the forest products industry, which is generally a
declining industry, resulting in little economic growth and lower per capita
income levels compared to other market areas along the Interstate-5 corridor.
With the acquisition of Motor Investment Company, a consumer finance
company, and of Leader Mortgage Company, a mortgage brokerage division of
PremierWest Bank, in October and December, 2000, respectively, the company now
has a presence in Klamath Falls (Klamath County) and Grants Pass (Josephine
County) Oregon. The company anticipates building its banking network in these
new areas in the coming year.
Industry Overview
-----------------
The commercial banking industry continues to undergo increased
competition, consolidation and change. Non-insured financial service companies
such as mutual funds, brokerage firms, insurance companies, mortgage companies
and leasing companies are offering alternative investment opportunities for
customers' funds or lending sources for their needs. Banks have been granted
3
extended powers to better compete including the limited right to sell insurance
and securities products, but the percentage of financial transactions handled by
commercial banks has dropped steadily. Although the amount of deposits in banks
is remaining steady, such deposits represent less than 20% of household
financial assets compared to over 35% twenty-five years ago. This trend
represents a continuing shift to stocks, bonds, mutual funds and retirement
accounts.
Nonetheless, commercial banks are reducing costs by consolidation and
exploring alternative ways of providing bank products. Although new community
banks continue to be organized, bank mergers substantially outstrip formations.
To more effectively and efficiently deliver its products, banks are
opening in-store branches, installing more automated teller machines ("ATMs")
and investing in technology to permit telephone, personal computer and internet
banking. While all banks are experiencing the effects of the changing
environment, the manner in which banks choose to compete is increasing the gap
between larger super-regional banks, committed to becoming national or regional
"brand names" providing a broad selection of products at low cost and with
advanced technology, and community banks which provide most of the same products
but with a commitment to personal service and with local ties to the customers
and communities they serve.
PremierWest Bancorp is subject to the supervision of and is examined by
the Federal Reserve Bank. Areas subject to regulation are merger and acquisition
activities, capital adequacy and intercompany transactions.
PremierWest Bank is subject to the supervision and examination by, the
State of Oregon Department of Consumer and Financial Services. PremierWest Bank
is a member of the Federal Deposit Insurance Corporation ("FDIC") and is subject
to examination by the FDIC. In practice, the primary state regulator makes
regular examinations of the bank subject to its regulatory review or
participates in joint examinations with federal regulator. Areas subject to
review by federal authorities include the allowance for loan losses,
investments, loans, mergers, payments of dividends, establishment of branches
and other aspects of operations.
Employees
---------
As of December 31, 2000, PremierWest had 171 full-time equivalent
employees. None of the employees is represented by a collective bargaining
group. Management considers its relations with employees to be excellent.
Government Policies
-------------------
The operations of PremierWest's subsidiaries are affected by state and
federal legislative changes and by policies of various regulatory authorities,
including those of the State of Oregon. These policies include, for example,
statutory maximum legal lending rates, domestic monetary policies of the Board
of Governors of the Federal Reserve System, Unites States fiscal policy, and
capital adequacy and liquidity constraints imposed by national and state
regulatory agencies.
4
Supervision and Regulation
--------------------------
PremierWest is a registered bank holding company subject to the
supervision of, and regulation by, the Board of Governors of the Federal Reserve
System (the "Federal Reserve").
GENERAL - PremierWest is extensively regulated under federal and
state law. These laws and regulations are generally intended to protect
depositors, not shareholders. To the extent that the following information
describes statutory or regulatory provisions, it is qualified in its entirety
by reference to the particular statutory or regulatory provisions. Any change
in applicable laws or regulations may have a material effect on the business
and prospects of the company. The operations of the company may be affected by
legislative changes and by the policies of various regulatory authorities. The
company cannot accurately predict the nature or the extent of the effects on
its business and earnings that fiscal or monetary policies, or new federal or
state legislation, may have in the future.
FEDERAL AND STATE BANK REGULATION - PremierWest Bank, as a state
chartered bank with deposits insured by the Federal Deposit Insurance
Corporation ("FDIC"), is subject to the supervision and regulation of the Oregon
Director, and of the FDIC. These agencies may prohibit the company from engaging
in what they believe constitute unsafe or unsound banking practices.
The Community Reinvestment Act ("CRA") requires that, in connection
with examinations of financial institutions within its jurisdiction, the FDIC
evaluate the record of the financial institutions in meeting the credit needs of
their local communities, including low and moderate income neighborhoods,
consistent with the safe and sound operation of those institutions. These
factors are also considered in evaluating mergers, acquisitions and applications
to open a branch or new facility. The company's current CRA rating is
"Satisfactory."
Banks are also subject to certain restrictions imposed by the Federal
Reserve Act on extensions of credit to executive officers, directors, principal
shareholders or any related interest of such persons. Extensions of credit (i)
must be made on substantially the same terms, including interest rates and
collateral as, and follow credit underwriting procedures that are not less
stringent than, those prevailing at the time for comparable transactions with
persons not affiliated with the company, and (ii) must not involve more than the
normal risk of repayment or present other unfavorable features. Banks are also
subject to certain lending limits and restrictions on overdrafts to such
persons. A violation of these restrictions may result in the assessment of
substantial civil monetary penalties on the affected bank or any officer,
director, employee, agent or other person participating in the conduct of the
affairs of that bank, the imposition of a cease and desist order, and other
regulatory sanctions.
Under the Federal Deposit Insurance Corporation Improvement Act
("FDICIA"), each federal banking agency has prescribed, by regulation,
non-capital safety and soundness standards for institutions under its authority.
These standards cover internal controls, information and internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees and benefits, and standards for asset quality, earnings and
stock valuation. An institution that fails to meet these standards must develop
a plan acceptable to the agency, specifying the steps that the institution will
take to meet the standards. Failure to submit or implement such a plan may
subject the institution to regulatory sanctions. Management believes that the
company is in substantial compliance with these standards.
5
DEPOSIT INSURANCE - The deposits of the company are currently insured
to a maximum of $100,000 per depositor through the Bank Insurance Fund ("BIF"),
administered by the FDIC. The company is required to pay semi-annual deposit
insurance premium assessments to the FDIC.
The FDICIA included provisions to reform the federal deposit insurance
system, including the implementation of risk-based deposit insurance premiums.
The FDICIA also permits the FDIC to make special assessments on insured
depository institutions in amounts determined by the FDIC to be necessary to
give it adequate assessment income to repay amounts borrowed from the U.S.
Treasury and other sources or for any other purpose the FDIC deems necessary.
Pursuant to the FDICIA, the FDIC implemented a transitional risk based insurance
premium system on January 1, 1993. Under this system, banks are assessed
insurance premiums according to how much risk they are deemed to present to the
BIF. Banks with higher levels of capital and a low degree of supervisory concern
are assessed lower premiums than banks with lower levels of capital or involving
a higher degree of supervisory concern. The bank qualifies for the lowest
premium level, and currently pays only the statutory minimum rate.
DIVIDENDS - Under the Oregon Bank Act, the bank is subject to
restrictions on the payment of cash dividends to its parent holding company. A
bank may not pay cash dividends if that payment would reduce the amount of its
capital below that necessary to meet minimum applicable regulatory capital
requirements. In addition, the amount of the dividend may not be greater than
its net unreserved retained earnings, after first deducting (i) to the extent
not already charged against earnings or reflected in a reserve, all bad debts,
which are debts on which interest is unpaid and past due at least six months;
(ii) all other assets charged off as required by the Oregon Director or state or
federal examiner; and (iii) all accrued expenses, interest and taxes of the
company.
In addition, the appropriate regulatory authorities are authorized to
prohibit banks and bank holding companies from paying dividends constituting an
unsafe or unsound banking practice. The company is not currently subject to any
regulatory restrictions on dividends other than those noted above.
CAPITAL ADEQUACY - The federal and state bank regulatory agencies use
capital adequacy guidelines in their examination and regulation of financial
holding companies and banks. If the capital falls below the minimum levels
established by these guidelines, a holding company or a bank may be denied
approval to acquire or establish additional banks or non-bank businesses or to
open new facilities.
The FDIC and Federal Reserve have adopted risk-based capital guidelines
for banks and bank holding companies. The risk-based capital guidelines are
designed to make regulatory capital requirements more sensitive to differences
in risk profile among banks and bank holding companies, to account for
off-balance sheet exposure and to minimize disincentives for holding liquid
assets. Assets and off-balance sheet items are assigned to broad risk
categories, each with appropriate weights. The resulting capital ratios
represent capital as a percentage of total risk-weighted assets and off-balance
sheet items. The current guidelines require all bank holding companies and
federally regulated banks to maintain a minimum risk-based total capital ratio
equal to 8%, of which at least 4% must be Tier 1 capital. Generally, banking
regulators expect banks to maintain capital ratios well in excess of the
minimum.
6
Tier 1 capital for banks includes common shareholders' equity,
qualifying perpetual preferred stock (up to 25% of total Tier 1 capital, if
cumulative; under a Federal Reserve rule, redeemable perpetual preferred stock
may not be counted as Tier 1 capital unless the redemption is subject to the
prior approval of the Federal Reserve) and minority interests in equity accounts
of consolidated subsidiaries, less intangibles, except as described above. Tier
2 capital includes: (i) the allowance for loan losses of up to 1.25% of
risk-weighted assets; (ii) any qualifying perpetual preferred stock which
exceeds the amount which may be included in Tier 1 capital; (iii) hybrid capital
instruments (iv) perpetual debt; (v) mandatory convertible securities and (vi)
subordinated debt and intermediate term preferred stock of up to 50% of Tier 1
capital. Total capital is the sum of Tier 1 and Tier 2 capital less reciprocal
holdings of other banking organizations, capital instruments and investments in
unconsolidated subsidiaries.
Banks' assets are given risk-weights of 0%, 20%, 50%, and 100%. In
addition, certain off-balance sheet items are given credit conversion factors to
convert them to asset equivalent amounts to which an appropriate risk-weight
will apply. These computations result in the total risk-weighted assets.
Most loans are assigned to the 100% risk category, except for first
mortgage loans fully secured by residential property, which carry a 50% rating.
Most investment securities are assigned to the 20% category, except for
municipal or state revenue bonds, which have a 50% risk-weight, and direct
obligations of or obligations guaranteed by the U.S. Treasury or U.S. Government
agencies, which have 0% risk-weight. In converting off-balance sheet items,
direct credit substitutes, including general guarantees and standby letters of
credit backing financial obligations, are given 100% conversion factor. The
transaction-related contingencies such as bid bonds, other standby letters of
credit and undrawn commitments, including commercial credit lines with an
initial maturity of more than one year, have a 50% conversion factor.
Short-term, self-liquidating trade contingencies are converted at 20%, and
short-term commitments have a 0% factor.
The FDIC also has implemented a leverage ratio, which is Tier 1 capital
as a percentage of total assets less intangibles, to be used as a supplement to
risk-based guidelines. The principal objective of the leverage ratio is to place
a constraint on the maximum degree to which a bank may leverage its equity
capital base. The FDIC requires a minimum leverage ratio of 3%. However, for all
but the most highly rated bank holding companies and for banks seeking to expand
or experiencing or anticipating significant growth, the FDIC requires a minimum
leverage ratio of 4%.
The FDICIA created a statutory framework of supervisory actions indexed
to the capital level of the individual institution. Under regulations adopted by
the FDIC, an institution is assigned to one of five capital categories depending
on its total risk-based capital ratio, Tier 1 risk-based capital ratio, and
leverage ratio, together with certain subjective factors. Institutions deemed to
be "undercapitalized" are subject to certain mandatory supervisory corrective
actions. The company does not believe that these regulations have any material
effect on its operations.
EFFECTS OF GOVERNMENT MONETARY POLICY - The earnings and growth of the
company are affected not only by general economic conditions, but also by the
fiscal and monetary policies of the federal government, particularly the Federal
Reserve. The Federal Reserve can and does implement national monetary policy for
such purposes as curbing inflation and combating recession, by its open market
7
operations in U.S. Government securities, control of the discount rate
applicable to borrowings from the Federal Reserve, and establishment of reserve
requirements against certain deposits. These activities influence growth of bank
loans, investments and deposits, and also affect interest rates charged on loans
or paid on deposits. The nature and impact of future changes in monetary
policies and their impact on the company cannot be predicted with certainty.
CHANGING REGULATORY STRUCTURE OF THE BANKING INDUSTRY - The laws and
regulations affecting banks and bank holding companies are currently undergoing
significant changes. Bills are now pending or expected to be introduced in the
United States Congress that contain proposals for altering the structure,
regulation, and competitive relationships of the nation's financial
institutions. If enacted into law, these bills could have the effect of
increasing or decreasing the cost of doing business, limiting or expanding
permissible activities (including insurance and securities activities), or
affecting the competitive balance among banks, savings associations, and other
financial institutions. Some of these bills would reduce the extent of federal
deposit insurance, broaden the powers or the geographical range of operations of
bank holding companies, alter the extent of which banks will be permitted to
engage in securities activities, and realign the structure and jurisdiction of
various financial institution regulatory agencies. Whether or in what form any
such legislation may be adopted or the extent to which the business of the
company might be affected thereby cannot be predicted with certainty.
Of particular note is legislation enacted by Congress in 1995
permitting interstate banking and branching, which allows banks to expand
nationwide through acquisition, consolidation or merger. Under this law, an
adequately capitalized bank holding company may acquire banks in any state or
merge banks across state lines if permitted by state law. Further, banks may
establish and operate branches in any state subject to the restrictions of
applicable state law. Under Oregon law, an out-of-state bank or bank holding
company may merge with or acquire an Oregon state chartered bank or bank holding
company if the Oregon bank, or in the case of a bank holding company, the
subsidiary bank, has been in existence for a minimum of three years, and the law
of the state in which the acquiring bank in located permits such merger.
Branches may not be acquired or opened separately, but once an out-of-state bank
has acquired branches in Oregon, either through a merger with or acquisition of
substantially all the assets of an Oregon bank, the acquirer may open additional
branches.
In December 1999, Congress enacted the Gramm-Leach-Bliley Act (the "GLB
Act") and repealed the nearly 70-year prohibition on banks and bank holding
companies engaging in the businesses of securities and insurance underwriting
imposed by the Glass-Steagall Act.
Under the GLB Act, a bank holding company may, if it meets certain
criteria, elect to be a "financial holding company," which is permitted to
offer, through a non-bank subsidiary, products and services that are "financial
in nature" and to make investments in companies providing such services. A
financial holding company may also engage in investment banking, and an
insurance company subsidiary of a financial holding company may also invest in
"portfolio" companies, without regard to whether the businesses of such
companies are financial in nature.
The GLB Act also permits eligible banks to engage in a broader range of
activities through a "financial subsidiary," although a financial subsidiary of
a bank is more limited than a financial holding company in the range of services
it may provide. Financial subsidiaries of banks are not permitted to engage in
8
insurance underwriting, real estate investment or development, merchant banking
or insurance portfolio investing. Banks with financial subsidiaries must (i)
separately state the assets, liabilities and capital of the financial subsidiary
in financial statements; (ii) comply with operational safeguards to separate the
subsidiary's activities from the bank; and (iii) comply with statutory
restrictions on transactions with affiliates under Sections 23A and 23B of the
Federal Reserve Act.
Activities that are "financial in nature" include activities normally
associated with banking, such as lending, exchanging, transferring and
safeguarding money or securities, and investing for customers. Financial
activities also include the sale of insurance as agent (and as principal for a
financial holding company, but not for a financial subsidiary of a bank),
investment advisory services, underwriting, dealing or making a market in
securities, and any other activities previously determined by the Federal
Reserve to be permissible non-banking activities.
Financial holding companies and financial subsidiaries of banks may
also engage in any activities that are incidental to, or determined by order of
the Federal Reserve to be complementary to, activities that are financial in
nature.
To be eligible to elect status as a financial holding company, a bank
holding company must be well capitalized, under the Federal Reserve capital
adequacy guidelines, and well managed, as indicated in the institution's
most recent regulatory examination. In addition, each bank subsidiary must
also be well capitalized and well managed, and must have received a rating of
"satisfactory" in its most recent CRA examination. Failure to maintain
eligibility would result in suspension of the institution's ability to commence
new activities or acquire additional businesses until the deficiencies are
corrected. The Federal Reserve could require a non-compliant financial holding
company that has failed to correct noted deficiencies to divest one or more
subsidiary banks, or to cease all activities other than those permitted to
ordinary bank holding companies under the regulatory scheme in place prior to
enactment of the GLB Act.
In addition to expanding the scope of financial services permitted to
be offered by banks and bank holding companies, the GLB Act addressed the
jurisdictional conflicts between the regulatory authorities that supervise
various types of financial businesses. Historically, supervision was an
entity-based approach, with the Federal Reserve regulating member banks and bank
holding companies and their subsidiaries. As holding companies are now permitted
to have insurance and broker-dealer subsidiaries, the supervisory scheme is
oriented toward functional regulation. Thus, a financial holding company is
subject to regulation and examination by the Federal Reserve, but a
broker-dealer subsidiary of a financial holding company is subject to regulation
by the Securities and Exchange Commission, while an insurance company subsidiary
of a financial holding company would be subject to regulation and supervision by
the applicable state insurance commission.
The GLB Act also includes provisions to protect consumer privacy by
prohibiting financial services providers, whether or not affiliated with a bank,
from disclosing non-public, personal, financial information to unaffiliated
parties without the consent of the customer, and by requiring annual disclosure
of the provider's privacy policy. Each functional regulator is charged with
promulgating rules to implement these provisions.
9
Item 2. PROPERTIES
PremierWest conducts its banking business through 13 offices of
PremierWest Bank, five are located in Jackson County, including the bank's main
office and eight in Douglas County. In addition, the bank maintains an ATM kiosk
in Roseburg, and has ATMs located at all but two branch offices. Further, the
company conducts business through Premier Finance Company in a leased office
in Portland, and its investment company activities in Roseburg, Motor Investment
Company located in Klamath Falls, and Leader Mortgage located in Medford, Grants
Pass and Klamath Falls, Oregon. PremierWest Mortgage has three branches located
in Grants Pass, Klamath Falls and Medford, Oregon.
Item 3. LEGAL PROCEEDINGS
From time to time PremierWest is involved in various legal proceedings
that are incidental to its business. In the opinion of management, no current
legal proceedings are material to the financial condition of PremierWest, either
individually or in the aggregate.
Item 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Stock price quotations for the common stock of PremierWest appear on
the OTC Bulletin Board, an electronic, screen-based market maintained by NASD
Regulation, Inc., a subsidiary of the National Association of Securities
Dealers, Inc., under the trading symbol "PRWT." The common stock is registered
under the Securities Exchange Act of 1934, but is not currently eligible to be
held in margin accounts. The following lists the high and low closing prices
(the latest trade) for each period, as adjusted for subsequent stock
dividends. Prior to May 8, 2000, the prices reflect the high and low closing
prices during each period for PremierWest's predecessor company, the Bank of
Southern Oregon, whose trading symbol was "BSOR." Prices do not include retail
mark-ups, mark-downs or commissions. On March 15, 2001, the common stock was
held of record by approximately 342 shareholders, a number which does not
include beneficial owners who hold shares in "street name." As of March 15,
2001, the most recent date prior to the date of this proxy statement, the
closing price of the common stock was $4.938 per share.
2000 1999 1998
------------------------------ --------------------------------- -----------------------------------
Closing Closing Closing
Market Price Cash Market Price Cash Market Price Cash
------------------ Dividends -------------------- Dividends ---------------------- Dividends
High Low Declared High Low Declared High Low Declared
--------- -------- --------- --------- --------- --------- --------- --------- ---------
1st Quarter $ 7.13 $ 5.50 $ - $ 9.00 $ 7.50 $ - $ 8.00 $ 6.50 $ -
2nd Quarter $ 6.88 $ 4.25 $ - $ 9.00 $ 7.00 $ - $ 14.63 $ 7.88 $ -
3rd Quarter $ 5.63 $ 4.25 $ - $ 7.75 $ 6.56 $ - $ 11.00 $ 7.00 $ -
4th Quarter $ 5.19 $ 4.13 $ - $ 8.00 $ 6.50 $ - $ 9.88 $ 7.25 $ -
As of December 31, 2000, the Common Stock was held of record by approximately
345 shareholders.
Oregon and federal banking laws and regulations place restrictions on
the payment of dividends by a bank to its shareholders. PremierWest does not
currently pay cash dividends, but rather retains earnings to help fund its
acquisition plans and internal growth. Any change in this policy will be
dependent upon its future financial needs and economic situations.
Item 6. SELECTED FINANCIAL DATA
The following tables present, for the periods specified, selected
unaudited consolidated financial data for PremierWest. The information is
presented for illustrative purposes only and is not necessarily indicative of
the financial positions or results of operations, nor is it necessarily
indicative of future financial positions or results of operations.
11
Years ended December 31,
------------------------
(Dollars in thousands except per share data) 2000 1999 1998 1997 1996 1995
- -------------------------------------------- ---- ---- ---- ---- ---- ----
Operating Results
Interest income $ 26,199 $ 20,812 $ 20,020 $ 19,649 $ 17,962 $ 16,558
Interest expense 11,196 8,080 7,968 7,555 6,966 6,290
Net interest income 15,003 12,732 12,052 12,094 10,996 10,268
Loan loss provisions 669 835 1,702 1,871 395 290
Non-interest income 1,930 2,080 2,162 1,515 1,288 1,323
Non-interest expense 12,275 11,542 9,062 7,630 6,604 6,734
Income before income taxes 3,989 2,435 3,450 4,108 5,285 4,567
Provision for income taxes 1,098 707 1,214 1,362 1,624 1,491
Net income before merger and data conversion costs 2,891 1,728 2,236 2,746 3,661 3,076
Merger and data conversion costs (1) 1,087 - - - - -
Net income $ 1,804 $ 1,728 $ 2,236 $ 2,746 $ 3,661 $ 3,076
Per Share Data (2) (before merger & data conversion costs)(1)
Basic earnings per common share $ 0.32 $ 0.21 $ 0.28 $ 0.35 $ 0.75 $ 0.63
Diluted earnings per common share $ 0.32 $ 0.21 $ 0.27 $ 0.33 $ 0.75 $ 0.62
Dividends declared per common share $ - $ 0.04 $ 0.03 $ 0.03 $ 0.04 $ 0.04
Ratio of dividends declared to net income 0.0% 17.3% 11.8% 8.0% 5.3% 5.9%
Financial Ratios (before merger & data conversion costs)(1)
Return on average equity 9.54% 6.12% 8.14% 11.42% 17.19% 17.38%
Return on average assets 0.89% 0.62% 0.88% 1.18% 1.77% 1.63%
Efficiency ratio (3) 71.26% 77.92% 63.75% 56.06% 53.76% 58.10%
Net interest margin 5.16% 5.01% 5.15% 5.41% 5.68% 5.21%
Per Share Data (after merger & data conversion costs)(1)
Basic earnings per common share $ 0.21 $ 0.21 $ 0.28 $ 0.35 $ 0.75 $ 0.63
Diluted earnings per common share $ 0.21 $ 0.21 $ 0.27 $ 0.33 $ 0.75 $ 0.62
Dividends declared per common share $ - $ 0.04 $ 0.03 $ 0.03 $ 0.04 $ 0.04
Ratio of dividends declared to net income 0.0% 17.3% 11.8% 8.0% 5.3% 5.9%
Financial Ratios (after merger & data conversion costs)(1)
Return on average equity 5.96% 6.12% 8.14% 11.42% 17.19% 17.38%
Return on average assets 0.56% 0.62% 0.88% 1.18% 1.77% 1.63%
Efficiency ratio 78.91% 77.92% 63.75% 56.06% 53.76% 58.10%
Net interest margin 5.16% 5.01% 5.15% 5.41% 5.68% 5.21%
Balance Sheet Data at Year End
Loans $ 236,386 $ 174,980 $143,148 $135,877 $126,211 $115,731
Allowance for loan losses $ 3,476 $ 3,075 $ 2,832 $ 1,570 $ 1,447 $ 1,222
Allowance as percentage of loans 1.47% 1.76% 1.98% 1.15% 1.15% 1.06%
Total assets $ 344,246 $ 296,652 $264,799 $251,060 $225,092 $195,414
Total deposits $ 296,240 $ 229,745 $214,186 $194,348 $176,746 $156,570
Total equity $ 32,442 $ 28,224 $ 28,134 $ 25,493 $ 22,600 $ 19,677
- ----------------------------------
Notes:
(1) Merger and data conversion costs relate to the United Bancorp merger
that closed May 8, 2000.
(2) Per share data has been retroactively adjusted for subsequent stock
dividends and stock splits.
(3) Efficiency ratio is noninterest expense divided by the sum of net
interest income plus noninterest income minus nonrecurring items.
12
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
This document includes forward-looking statements containing
assumptions and estimates of the management of PremierWest that are based upon
currently available information. All statements other than statements of
historical fact included herein regarding the company's financial position,
business strategies, and management's plans and objectives for future
operations, are forward-looking statements. The words "anticipate," "believe,"
"estimate," and "intend," and words or phrases of similar meaning, as they
relate to the company or management, are intended to help identify
forward-looking statements. Although management believes that the expectations
reflected in such forward-looking statements are reasonable, they can give no
assurance that such expectations will prove correct. Based upon changing
conditions, the occurrence of certain risks or uncertainties, or if any
underlying assumptions prove incorrect, actual results may vary materially and
adversely from those expectations and intentions. The company does not intend to
update these forward-looking statements. All subsequent written and oral
forward-looking statements attributable to the company and/or persons acting on
its behalf are expressly qualified in their entirety.
PremierWest conducts a general commercial banking business, gathering
deposits from the general public and applying those funds to the origination of
loans for commercial, real estate and consumer loans and investments.
PremierWest was created from the merger of Bank of Southern Oregon and Douglas
National Bank on May 8, 2000, and the simultaneous formation of a bank holding
company for the resulting bank, PremierWest Bank. The merger was accounted for
as a pooling of interests. Accordingly, the consolidated financial statements
included elsewhere in this proxy statement, and the following discussion,
present the company as if the merger had taken place prior to the periods
presented.
PremierWest's profitability depends primarily on net interest income,
which is the difference between (a) interest income generated by
interest-earning assets (principally loans and investments) and (b) interest
expense incurred on interest-bearing liabilities (principally customer deposits
and borrowed funds). Net interest income is affected by the difference (the
"interest rate spread") between rates of interest earned on interest-earning
assets and rates of interest paid on interest-bearing liabilities, as well as
the relative amounts of interest-earning assets and interest-bearing
liabilities. Financial institutions have traditionally used interest rate
spreads as a measure of net interest income. Another indication of an
institution's net interest income is its "net yield on interest-earning assets"
or "net interest margin," which is net interest income divided by average
interest-earning assets.
To a lesser extent, PremierWest's profitability is also affected by
such factors as the level of noninterest income and expenses, the provision for
loan losses, and the provision for income taxes. Noninterest income consists
primarily of service charges on deposit accounts. Noninterest expense consists
primarily of salaries and employee benefits, professional fees, equipment,
occupancy-related expenses, data processing, advertising and other operating
expenses.
Financial Highlights
--------------------
The following financial highlights exclude $1.1 million of one-time
merger and data processing costs related to the United Bancorp merger incurred
during the year ended December 31, 2000. For the year ended December 31, 2000,
PremierWest earned $2.9 million compared with $1.7 million for 1999. Diluted
earnings per share were $0.32 and $0.21 for the year ended 2000 and 1999,
respectively. Return on average shareholders' equity was 9.5% and return on
13
average assets was 0.9% for the year ended December 31, 2000 compared with a
return on average shareholders' equity of 6.1% and a return on average assets of
0.6% for 1999.
Loans and deposits grew to record highs at December 31, 2000. Loans
have increased from $175.0 million at December 31, 1999 to $236 million at
December 31, 2000. Deposits have increased over $66 million, or 29% since
December 31, 1999 to $296 million at December 31, 2000.
Net income was $1.7 million in 1999, down 23% over 1998 earnings of
$2.2 million. Diluted earnings per share also declined to $0.21 in 1999 compared
with $0.27 in 1998. The return on average shareholders' equity declined to 6.1%
for 1999 compared with 8.1% for 1998. Total loans grew over 22% in 1999 to
$175.0 million at year-end, while total deposits increased 7% to $229.7 million
during the same period.
Results of Operations
---------------------
For the years ended December 31, 2000, 1999 and 1998, net income of
$2.9 million in 2000 represents an increase of 67% over 1999. Net income of $1.7
million in 1999 represents a decrease of 23% as compared to 1998. The increase
in net income in 2000 is due to an increase of $2.3 million in net interest
income offset by an increase of $733,000 in noninterest expense and a $391,000
increase in income taxes on pretax earnings. Net income in 1999 decreased
compared to 1998 as a result of a $680,000 increase in net interest income and a
$867,000 decrease in the loan loss provision, offset by a $2.5 million increase
in noninterest expense.
NET INTEREST INCOME
2000 Compared to 1999. Net interest income before the loan loss
provision increased 18% to $15 million for the year ended December 31, 2000, as
compared to the same period in 1999.
The increase was primarily due to an increase in the volume of loans
and related yields that more than offset an increase in the volume of
interest-bearing deposits and borrowings and related rates paid. During the year
2000, the volume of average interest earning assets increased by approximately
$39 million, while overall yields increased approximately 78 basis points as
compared to the prior year. Such increases more than offset the $38 million
increase in the volume of interest-bearing liabilities and 67 basis point
increase in rates paid, positively impacting the company's net interest margin
by 15 basis points on a tax-equivalent basis.
1999 Compared to 1998. Net interest income for 1999 increased $680,000,
or 5.6%, over 1998. Interest income in 1999 increased by $792,000, or 4.0%, over
1998, while interest expense in 1999 increased by $112,000, or 1.4%, from 1998.
The increase in net interest income is attributable primarily to an increase in
the volume of average earning assets of $21.7 million, outpacing growth in the
volume of average interest-bearing liabilities of $16.5 million and increases in
rates paid. Average loans increased by $3.1 million, while average federal funds
sold grew by $14.4 million. As a result of the change in asset mix, the interest
rate spread declined to 4.27% in 1999 from 4.37% in 1998, and the net interest
margin also declined in 1999 to 5.01% from 5.15% in 1998.
AVERAGE BALANCES, INTEREST RATES AND YIELDS
The following tables set forth certain information relating to
PremierWest's consolidated average interest-earning assets and interest-bearing
liabilities and reflects the average yield on assets and average cost of
liabilities for the years indicated. The yields and costs are derived by
14
dividing income or expense by the average daily balance of assets or
liabilities, respectively, for the periods presented. During the periods
indicated, nonaccruing loans, if any, are included in the net loan category. The
yields and costs include fees, premiums and discounts, which are considered
adjustments to yield. The table reflects the effect of income taxes on
securities.
Average Balances and Average Rates Earned and Paid
--------------------------------------------------
The following table shows average balances and interest income or
interest expense, with the resulting average yield or rates by category of
average earning asset or interest-bearing liability:
Year-end December 31, 2000
--------------------------
Average Interest Income Average Yields
Balance or Expense or Rates
---------- ---------- ----------
(in thousands)
INTEREST-EARNING ASSETS:
Loans (1) (2) $212,685 $ 20,957 9.85%
Investment securities
Taxable securities 64,556 4,193 6.50%
Non-taxable securities (1) 16,364 1,141 6.97%
Temporary investments 4,736 296 6.25%
--------- ----------
Total interest earning assets 298,341 26,587 8.91%
Cash and due from banks 11,372
Allowance for loan losses (3,646)
Other assets 17,618
---------
Total assets $323,685
=========
INTEREST-BEARING LIABILITIES:
Interest-bearing checking and
savings accounts $123,037 $ 4,046 3.29%
Time deposits 90,324 5,232 5.79%
Term debt 33,754 1,918 5.68%
--------- ---------
Total interest-bearing liabilities 247,115 11,196 4.53%
Non-interest-bearing deposits 44,208
Other liabilities 2,074
---------
Total liabilities 293,397
Shareholders' equity 30,288
---------
Total liabilities and
shareholders' equity $323,685
=========
Net interest income (1) $ 15,391
=========
Net interest spread 4.38%
Average yield on earing assets (1) (2) 8.91%
Interest expense to earning assets 3.75%
--------
Net interest income to earning assets (1) (2) 5.16%
========
[TABLE CONTINUED]
Year-end December 31, 1999
--------------------------
Average Interest Income Average Yields
Balance or Expense or Rates
---------- ---------- ----------
(in thousands)
INTEREST-EARNING ASSETS:
Loans (1) (2) $147,237 $ 14,470 9.83%
Investment securities
Taxable securities 68,345 4,355 6.37%
Non-taxable securities (1) 17,272 1,037 6.00%
Temporary investments 26,353 1,213 4.60%
--------- ---------
Total interest earning assets 259,207 21,075 8.13%
Cash and due from banks 10,171
Allowance for loan losses (2,968)
Other assets 12,159
---------
Total assets $278,569
=========
INTEREST-BEARING LIABILITIES:
Interest-bearing checking and
savings accounts $ 113,300 $ 3,210 2.83%
Time deposits 69,426 3,469 5.00%
Term debt 26,488 1,401 5.29%
--------- ---------
Total interest-bearing liabilities 209,214 8,080 3.86%
Non-interest-bearing deposits 38,968
Other liabilities 2,143
---------
Total liabilities 250,325
Shareholders' equity 28,244
---------
Total liabilities and
shareholders' equity $278,569
=========
Net interest income (1) $ 12,995
=========
Net interest spread 4.27%
Average yield on earing assets (1) (2) 8.13%
Interest expense to earning assets 3.12%
--------
Net interest income to earning assets (1) (2) 5.01%
========
[TABLE CONTINUED]
Year-end December 31, 1998
--------------------------
Average Interest Income Average Yields
Balance or Expense or Rates
---------- ---------- ----------
(in thousands)
INTEREST-EARNING ASSETS:
Loans (1) (2) $144,091 $ 14,471 10.04%
Investment securities
Taxable securities 69,605 4,380 6.29%
Non-taxable securities (1) 11,857 738 6.22%
Temporary investments 11,981 618 5.16%
--------- ---------
Total interest earning assets 237,534 20,207 8.51%
Cash and due from banks 9,109
Allowance for loan losses (2,077)
Other assets 8,704
---------
Total assets $253,270
=========
INTEREST-BEARING LIABILITIES:
Interest-bearing checking and
savings accounts $105,140 $ 3,207 3.05%
Time deposits 64,981 3,569 5.49%
Term debt 22,552 1,192 5.29%
--------- ---------
Total interest-bearing liabilities 192,673 7,968 4.14%
Non-interest-bearing deposits 32,093
Other liabilities 1,039
---------
Total liabilities 225,805
Shareholders' equity 27,465
---------
Total liabilities and
shareholders' equity $253,270
=========
Net interest income (1) $ 12,239
=========
Net interest spread 4.37%
Average yield on earing assets (1) (2) 8.51%
Interest expense to earning assets 3.35%
--------
Net interest income to earning assets (1) (2) 5.15%
========
- ---------------------------------------------
(1) Tax exempt income has been adjusted to a tax equivalent basis at a 34%
effective rate.
(2) Non-accrual loans of $4.5 million for 2000, $4.1 million for 1999 and
$7.2 million for 1998 are included in the average balances.
RATE/VOLUME ANALYSIS
The following tables analyze net interest income in terms of changes in
the volume of interest-earning assets and interest-bearing liabilities, and
changes in net interest income that are attributable to changes in yields earned
15
on interest-earning assets and rates paid on interest-bearing liabilities. The
table reflects the extent to which changes in interest income and changes in
interest expense are attributable to changes in volume (changes in volume
multiplied by the prior year rate) and changes in rate (changes in rate
multiplied by prior year volume). Changes attributable to the combined impact of
volume and rate have been allocated to rate.
Analysis of Changes in Interest Differential
- --------------------------------------------
The following table sets forth, on a tax-equivalent basis, a summary of
the changes in net interest income resulting from changes in volumes and rates.
Changes not due solely to volume or rate changes are allocated to rate.
2000 Compared to 1999 1999 Compared to 1998
Increase (Decrease) Increase (Decrease)
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------
Due to change in Due to change in
-------------------------------------- --------------------------------------
(in thousands) Volume Rate Net Change Volume Rate Net Change
--------- --------- --------- -------- --------- ---------
INTEREST-EARNING ASSETS:
Loans $ 6,432 $ 55 $ 6,487 $ 315 $ (316) $ (1)
Investment securities:
Taxable securities (241) 79 (162) (79) 54 (25)
Non-taxable securities (55) 158 104 337 (38) 299
Temporary investments (995) 78 (917) 742 (147) 595
--------- --------- --------- --------- --------- ---------
Total 5,141 370 5,512 1,315 (447) 868
INTEREST-BEARING LIABILITIES:
Interest-bearing checking and
savings accounts 276 560 836 248 (245) 3
Time deposits 1,044 719 1,763 244 (344) (100)
Term debt 384 133 517 208 1 209
--------- --------- --------- --------- --------- ---------
Total 1,704 1,412 3,116 700 (588) 112
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in
net interest income $ 3,437 $ (1,042) $ 2,396 $ 615 $ 141 $ 756
========= ========= ========= ========= ========= =========
LOAN LOSS PROVISION
The loan loss provision is based upon management's assessment of
various relevant factors, including:
o types and amounts of non-performing loans;
o historical loss experience;
o collectibility of collateral values and guaranties;
o pending legal action for collection of loans and related
guaranties; and
o current economic conditions.
The loan loss provision reflects management's judgment of the credit
risk inherent in the loan portfolio. Although management believes the loan loss
provision has been sufficient to maintain an adequate reserve for loan losses,
there can be no assurance that actual loan losses will not exceed the amounts
that have been charged to operations.
2000 COMPARED TO 1999. The loan loss provision during the year ended
December 31, 2000, was $669,000 as compared to $835,000 for 1999. The company
had net charge-offs of $268,000 during the year 2000, compared to net
16
charge-offs of $592,000 for 1999. The provision for loan losses decreased during
the year because of a decrease in net charge-offs and the improved credit
quality of the overall loan portfolio.
1999 COMPARED TO 1998. The loan loss provision was $835,000 in 1999,
compared to $1.7 million in 1998, a decrease of 51%. The change in the loan loss
provision in 1999 was principally a result of new management's efforts to
improve loan underwriting and loan collection discipline and to identify,
monitor and resolve problem credits. Accordingly, there was an improvement in
asset quality reflected by a decrease in non-performing loans from $4.9 million
at the end of 1998 to $2.8 million at the end of 1999.
The loan loss provisions in 2000, 1999 and 1998 were primarily related
to commercial loans that were past due and not adequately collateralized. As a
result, in 1998 and 1997 the company needed to allocate a larger portion of the
reserve to commercial loans. Subsequently, a portion of these loans was
charged-off. Since late 1998, management has required adherence to stringent
loan policies and procedures and may require real estate to serve as additional
commercial loan collateral, reducing credit risk and, as a consequence, reducing
the need for additional reserve allocations for commercial loans.
NONINTEREST INCOME
2000 COMPARED TO 1999. Noninterest income held fairly steady at $1.93
million for the year ended December 31, 2000, as compared to 1999.
1999 COMPARED TO 1998. Total noninterest income was $2.1 million in
1999, a decrease of 3.8% from 1998. The principal change was a $372,000 decrease
in gains on sale of investment securities.
As a result of liquidity needs in 1998 and a stable interest rate
environment, the company sold approximately $26.6 million of available-for-sale
securities and recognized a $379,000 gain. Due to a rising interest rate market
in 1999 and the consequential unrealized losses on securities
available-for-sale, only $1.5 million in securities were sold in 1999.
In general, management prices deposits at rates competitive with rates
offered by the leading commercial banks in PremierWest's market area, which tend
to be somewhat lower than rates offered by thrift institutions and credit
unions. The company generally has not imposed service charges and fees to the
same extent as other local institutions. Although a wider range of service
charges and fees and higher service charges and fees would yield more income for
each dollar of deposits, imposing service charges and fees on a basis equivalent
to those imposed by many other area commercial banks might adversely affect
deposit growth. To promote deposit growth and create cross-selling
opportunities, PremierWest has not adopted an aggressive fee structure. Deposit
growth has been generated by developing strong customer relationships and
cross-selling deposit relationships to loan customers, and to a lesser extent
from new branch offices opened in 1999. Management intends to continue promoting
demand deposit products, particularly noninterest bearing deposit products, in
order to obtain additional interest-free lendable funds.
17
Noninterest Expense
-------------------
2000 COMPARED TO 1999. Noninterest expense increased to $12.3 million
for the year ended 2000, excluding $1.1 million of one-time merger and data
conversion costs, as compared to $11.5 million for 1999. Salaries and employee
benefits increased $474,000 with the increase in full-time employees supporting
the high level of customer service and the greater volume of Company operations.
Occupancy and equipment expenses increased $443,000 for the year ended December
31, 2000, as compared to the same period in 1999. This increase was attributed
to costs associated with the new 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 noninterest
expenses 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 noninterest expenses.
1999 COMPARED TO 1998. Total noninterest expense increased $2.5 million
or 27.4% in 1999 from 1998. The largest component of noninterest expense was
salaries and employee benefits, which increased 35.5%. This increase was the
result of the overall growth of the company, two new branch offices opened in
1999 and an increase in management and staff personnel and related benefits.
Fees for professional services decreased by 1.6%, due principally to lower legal
fees associated with the reduction of collection efforts needed on problem
loans. Occupancy and equipment costs increased by 20% as a result of added
capital expenditures, such as bank proof and optical reading equipment,
computers, upgraded software, ATM machines and two new full service branch
offices. Advertising costs increased by 161% in order to adequately market new
products and promote growth in the customer base. Other noninterest expenses
increased in 1999 as compared to 1998 primarily due to the general overall
growth of the company.
Provision For Income Taxes
--------------------------
2000 COMPARED TO 1999 AND 1998. In accordance with provisions of the
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
$1.1 million (an effective tax rate of 38%) in federal and state income taxes
for the year ended December 31, 2000. This compares to an effective tax rate of
29% for 1999 and 35% for 1998.
The provision for income taxes fluctuated in 1999 compared to 1998
primarily due to the changing level of pre-tax income and an increased level of
nontaxable interest income in 1999.
Financial Condition
-------------------
Total assets at December 31, 2000, increased 16% to over $344.2 million
since December 31, 1999, with growth in customer deposits of 29%, or over $66.4
million. Funds from the growth in customer deposits, $5.2 million in maturities
and $4.8 in sales of investment securities, and the sale of $4.5 million in
Federal Home Loan Bank (FHLB) and Federal Reserve Bank Stock were used to
increase loans by $63 million and reduce FHLB borrowing of $10.7 million during
the year 2000.
PremierWest's total assets at December 31, 1999 were $296.6 million,
compared to $264.8 million at December 31, 1998. Cash and cash equivalents
decreased by $22.5 million, investment securities available-for-sale increased
18
by $19.8 million, net loans increased by $31.6 million and premises and
equipment, net, increased by $3.7 million, in 1999 as compared to 1998. As of
December 31, 1999 the company had decreased its interest-bearing deposits with
FHLB and sold its federal funds to invest in one- and two-year callable U.S.
Government Agency securities maturing in 3 to 5 years. Although loans increased
by 22.6% in 1999, management seeks to reduce concentrations of credit in
construction real estate loans and this has somewhat slowed loan growth.
Premises and equipment, net of depreciation, increased in 1999
primarily due to new administrative offices purchased in December 1999, and
two new branches in Central Point and Medford, Oregon, both opened in March
1999. Other capital expenditures in 1999 included computer equipment acquired
to upgrade banking technology and prepare for the Y2K date conversion.
Asset growth in 1999 was primarily funded by a $15.6 million, or
7.3%, increase in customer deposits. Specifically, noninterest bearing demand
deposits increased $7.3 million, or 20%, at December 31, 1999 as compared to
December 31, 1998.
Investment Portfolio
--------------------
Investment securities provide a return on residual funds after lending
activities. Investments may be in interest-bearing deposits, U.S. Government and
agency obligations, state and local government obligations and
government-guaranteed, mortgage-backed securities. PremierWest generally does
not invest in securities that are rated less than investment grade by a
nationally recognized statistical rating organization. A goal of the bank's
investment policy is to limit interest-rate risk.
All securities-related activity is reported to the Board of Directors.
Board review and approval are required for general changes in investment
strategy. Senior management can purchase and sell securities in accordance with
PremierWest's stated investment policy.
Management determines the appropriate classification of securities at
the time of purchase. If management has the intent and PremierWest has the
ability at the time of purchase to hold a security until maturity or on a
long-term basis, the security is classified as held-to-maturity and is reflected
on the balance sheet at historical cost. Securities to be held for indefinite
periods and not intended to be held to maturity or on a long-term basis are
classified as available-for-sale. Available-for-sale securities are reflected on
the balance sheet at their market value.
The following table sets forth the estimated market value of
PremierWest's investment portfolio at the dates indicated.
19
December 31,
---------------------------------------------------
(in thousands) 2000 1999
----------------------- -----------------------
INVESTMENT SECURITIES AVAILABLE-FOR-SALE:
Obligations of U.S. Government agencies $ 41,154 $ 39,912
Collateralized mortgage obligations and mortgage-backed securities 17,083 24,109
Obligations of states and political subdivisions 15,071 16,880
Equity securities 326 449
----------------------- -----------------------
$73,634 $ 81,350
======================= =======================
The contractual maturity of investment securities at December 31,
2000 is shown below. Expected maturities of investment securities could differ
from contractual maturities because the borrower, or issuer, may have the
right to call or prepay obligations with or without call or prepayment
penalties.
December 31, 2000
(in thousands) Amortized Estimated
Cost Fair Value
------------------- ------------------
U.S. GOVERNMENT AGENCIES:
Due in one year or less $ 4,536 $ 4,536
Due from one year to five years 37,270 37,006
Due after ten years 14,902 14,683
Mortgage-backed securities 14,449 14,339
Collateralized mortgage obligations 2,748 2,744
Equity securities 326 326
--------------- ---------------
Total $ 74,231 $ 73,634
=============== ===============
PremierWest sold approximately $4.8 million of U.S. agency
mortgage-backed securities and municipal securities during the last quarter of
2000 with an insignificant amount of gain. In 1999, PremierWest sold $1.5
million in investment securities. PremierWest sold U.S. Government securities,
U.S. Government agency securities and Oregon municipal securities in 1998,
resulting in a net realized gain of $379,000.
Government securities may be pledged from time-to-time to secure public
deposits. At December 31, 2000, $39 million of government securities classified
as available-for-sale were pledged to secure public deposits.
As of December 31, 2000, PremierWest also held 1,490 shares of $100 par
value Federal Home Loan Bank of Seattle stock, which are restricted securities.
FHLB stock represents an equity interest in the FHLB, but it does not have a
readily determinable market value. The stock can be sold at its par value only,
and only to the FHLB or to another member institution. Member institutions are
required to maintain a minimum stock investment in the FHLB, based on total
assets, total mortgages and total mortgage-backed securities.
20
From time to time PremierWest also holds government securities
purchased under agreements to resell substantially identical securities.
Securities purchased under agreements to resell, or "fed funds," represent
short-term loans and are reflected as a receivable on the balance sheet. All
securities purchased under agreements to resell that were outstanding on
December 31, 1999 and 1998 matured overnight. Securities purchased under
agreements to resell averaged $2 million in 1999 and $1.4 million in 1998. The
maximum amount outstanding at any month end in those years was $5 million in
1999 and $6.5 million in 1998. There were virtually no securities purchased
under agreements to resell invested during the year 2000.
Loan Portfolio
--------------
The following table sets forth the composition of the loan portfolio in
dollar amounts and in percentages at December 31, 2000, 1999 and 1998.
December 31, 2000 December 31, 1999 December 31, 1998
---------------------- ---------------------- ----------------------
(in thousands) Amount Percentage Amount Percentage Amount Percentage
-------- -------- -------- -------- -------- --------
Commercial $ 37,878 16.0% $ 31,516 18.0% $ 41,298 28.8%
Real estate construction 48,039 20.3% 34,843 19.9% 29,794 20.8%
Real estate other 114,902 48.5% 97,620 55.8% 62,795 43.9%
Consumer installment 30,675 12.9% 9,009 5.1% 8,679 6 1%
Other 5,478 2.3% 1,992 1.2% 582 0.4%
-------- -------- -------- -------- -------- -------
Total $236,972 100.0% $174,980 100.0% $143,148 100.0%
==================== ==================== ===================
The following table presents maturity information for the loan
portfolio at December 31, 2000. The table does not include prepayments or
scheduled principal repayments.
(in thousands) Within One to After
One Year Five Years Five Years Total
-------------- -------------- -------------- --------------
LOAN MATURITIES
FIXED -RATE
Commercial $ 15,326 $ 12,963 $ 4,426 $ 32,715
Real estate - construction 23,672 5,803 4,131 33,606
Real estate - other 2,108 9,920 26,073 38,101
Consumer installment 2,834 12,679 12,267 27,780
Other 4,452 144 606 5,202
-------------- -------------- -------------- --------------
Total $ 48,392 $ 41,509 $ 47,503 $ 137,404
============== ============== ============== ==============
ADJUSTABLE-RATE LOAN REPRICINGS
Commercial $ 1,024 $ 4,139 $ -
Real estate - construction 738 13,095 600
Real estate - other 25,510 51,134 157
Consumer installment 2,021 - 874
Other 276 - -
-------------- -------------- --------------
Total $ 29,569 $ 68,368 $ 1,631
============== ============== ==============
Loans due on demand and overdrafts are included in the amount due in
one year or less. PremierWest has no loans without a stated schedule of
repayment or a stated maturity.
At December 31, 2000, commercial loans that were more than 90 days
delinquent or nonaccruing totaled $318,000 in aggregate outstanding balances, or
0.8% of the commercial loan portfolio. At December 31, 2000, real estate loans
21
that were more than 90 days delinquent or nonaccruing totaled $3.4 million in
aggregate outstanding balances or 2.9% of the commercial real estate portfolio.
At December 31, 2000, real estate construction loans with outstanding
balances more than 90 days delinquent or nonaccruing amounted to $1.1 million or
2.2% of the real estate construction loan portfolio.
At December 31, 2000, PremierWest had approximately $31 million in its
consumer installment loan portfolio, representing 5% of total loans. Installment
loans totaling approximately $55,000 were over 90 days delinquent or nonaccruing
on that date.
Non-performing Loans
--------------------
A loan is considered by PremierWest to be non-performing when it is 90
days or more delinquent or, if sooner, when the bank has determined that
repayment of the loan in full is unlikely. Generally, unless loan collateral is
a one- to four-family residential dwelling, interest accrual ceases in 90 days
(but no later than the date of acquisition by foreclosure, voluntary deed or
other means) and the loan is classified as non-performing. A loan placed on
nonaccrual status may or may not be contractually past due at the time the
determination is made to place the loan on nonaccrual status, and it may or may
not be secured. When a loan is placed on nonaccrual status, it is the bank's
policy to reverse interest previously accrued but uncollected and charge it
against current income. Interest later collected on the nonaccrual loan is
credited to loan principal if, in management's opinion, full collectability of
principal is doubtful.
When the bank acquires real estate through foreclosure, voluntary deed,
or similar means, it is classified as "other real estate owned" until it is
sold. On December 31, 2000, other real estate owned amounted to $1.8 million.
When property is acquired in this manner, it is recorded at the lower of cost
(the unpaid principal balance at the date of acquisition) or fair value. Any
resulting write-down is charged to expense. All costs incurred from the date of
acquisition to maintain the property are expensed. "Other real estate owned" is
appraised during the foreclosure process, before acquisition. Losses are
recognized for the amount by which the book value of the related mortgage loan
exceeds the estimated net realizable value of the property.
Certain potential problem loans that management believes are adequately
secured and for which no material loss is expected are not categorized as
non-performing loans. Loans of this type are considered problem loans because
certain circumstances known to management could cause the borrowers to be unable
to comply with the existing loan repayment terms at some future date. At
December 31, 2000 potential problem loans totaled approximately $4.8 million.
PremierWest had nonaccrual loans of $4.8 million at December 31, 2000, and $2.8
million at December 31, 1999. Interest income that would have been recognized on
nonaccrual loans if such loans had performed in accordance with contractual
terms totaled $539,000 for the year ended December 31, 2000 and $410,000 for the
year ended December 31, 1999. Interest income recognized on such loans during
all of the periods was insignificant.
22
The following table summarizes non-performing assets by category:
December 31,
-------------------------------------------------------
(in thousands) 2000 1999 1998 1997 1996
-------------------------------------------------------
Loans on non-accrual status $ 4,803 $ 2,774 $ 5,003 $ 2,246 $ 212
Loans past due greater than 90 days but
not on non-accrual status 9 123 200 1,903 530
Other real estate owned 1,846 1,209 73 257 -
--------------------------------------------------------
Total non-performing assets $ 6,658 $ 4,106 $ 5,276 $ 4,406 $ 742
========================================================
Percentage of non-performing
loans to total loans 2.8% 2.3% 3.7% 3.2% 0.6%
========================================================
Allowance for Loan Losses
-------------------------
Impaired loans include all nonaccrual and restructured commercial and
real estate loans. Loan impairment is measured as the present value of expected
future cash flows discounted at the loan's initial interest rate, the fair value
of the collateral of an impaired collateral-dependent loan or an observable
market price. Interest income on impaired loans is recognized on a cash-basis
method. The investment in loans for which impairment had been recognized totaled
$4.8 million as of December 31, 2000 and $4.1 million as of December 31, 1999.
At December 31, 2000 and 1999, the valuation allowance for loan losses related
to impaired loans was $720,000 and $836,000 respectively.
PROVISION FOR LOAN LOSSES
The loan loss provision represents a charge to earnings for maintaining
an allowance for loan losses at a level management believes is adequate. The
provision charged to operating expense is based on loan loss experience and
other factors that, in management's judgment, should be recognized to estimate
losses. Management monitors the loan portfolio to ensure that the reserve for
loan losses remains adequate to absorb losses identified by the portfolio review
process, including loans on nonaccrual status and current loans whose repayment
according to the loan's repayment plan is considered by management to be in
serious doubt. PremierWest takes into account loan growth and the level of
delinquent and non-performing loans in its review of the portfolio, considering
also such external factors as current economic conditions in the primary market
area, collectibility of collateral values and guaranties and the current status
of legal action for collection of loans and related guaranties.
PremierWest's allowance for loan losses totaled $3.5 million at
December 31, 2000 and $3.1 million at December 31, 1999, representing 1.5% of
total loans at December 31, 2000 and 1.7% of total loans at December 31, 1999.
The loan loss allowance represents 72% of non-performing loans at December 31,
2000 and 75% of non-performing loans at December 31, 1999. Although management
believes that it uses the best information available in providing for estimated
loan losses and believes that the allowance was adequate at December 31, 2000,
future adjustments could be necessary and net earnings could be negatively
affected if circumstances and/or economic conditions differ substantially from
the assumptions used in making the initial determinations.
The amount of the allowance for loan losses is based on a variety of
factors, including:
o analysis of risks inherent in the various segments the loan
portfolio;
o management's assessment of known or potential problem credits
have come to management's attention during the ongoing review
of credit quality;
o estimates of the value of underlying collateral and
guaranties;
23
o legal representation regarding the potential outcome of
pending actions for collection of loans and related
guaranties;
o historical loss experience; and
o current economic conditions and other factors.
If actual circumstances and losses differ substantially from
management's assumptions and estimates, the allowance for loan losses might not
be sufficient to absorb all future losses. Net earnings would be adversely
affected if that occurred. Loan loss estimates are reviewed periodically.
Adjustments, if any, are reported in earnings in the period in which they become
known. In addition, PremierWest maintains a portion of the loan loss allowance
to cover inherent losses that have not been specifically identified.
Although management believes that it uses the best information
available to make such determinations and that the allowance for loan losses was
adequate at December 31, 2000, future adjustments could be necessary if
circumstances or economic conditions differ substantially from the assumptions
used in making the initial determinations. A downturn in the local Oregon
economy and employment could result in increased levels of non-performing assets
and charge-offs, increased loan loss provisions and reductions in income.
Additionally, as an integral part of the examination process, bank regulatory
agencies periodically review PremierWest's allowance for loan losses. The
banking agencies could require the recognition of additions to the loan loss
allowance based on their judgment of information available to them at the time
of their examination.
The following is a summary of PremierWest's loan loss experience and
selected ratios for the periods presented.
Years Ended December 31,
----------------------------------------------------------
(in thousands) 2000 1999 1998
----------------------------------------------------------
Loans outstanding at end of year $ 236,972 $ 174,980 $ 143,148
==========================================================
Average loans outstanding $ 212,685 $ 147,237 $ 144,091
==========================================================
Allowance for loan losses, beginning of year $ 3,075 $ 2,832 $ 1,569
Loans charged off:
Commercial (197) (726) (452)
Real estate (163) (34) (98)
Consumer (147) (74) (72)
----------------------------------------------------------
Total loans charged off (507) (834) (622)
----------------------------------------------------------
Recoveries:
Commercial 38 63 168
Real estate 47 167 -
Consumer 15 12 15
Other 139
----------------------------------------------------------
Total recoveries 239 242 183
----------------------------------------------------------
Net loans (charged off) recovered (268) (592) (439)
Provision charged to income 669 835 1,702
----------------------------------------------------------
Allowance for loan losses, end of year $ 3,476 $ 3,075 $ 2,832
==========================================================
Ratio of net loans charged off to average
loans outstanding -0.13% -0.40% -0.30%
==========================================================
Ratio of allowance for loan losses to
ending total loans 1.47% 1.76% 1.98%
==========================================================
24
The following table shows the allocation of PremierWest's allowance for
loan losses by category and the percent of loans in each category to total loans
at the dates indicated. PremierWest allocates its allowance for loan losses to
each loan classification based on relative risk characteristics. Specific
allocations represent estimated losses that are due to current credit
circumstances and other available information. Unallocated portions of the
allowance are intended to compensate for the subjective nature of the
determination of losses inherent in the overall loan portfolio. Because the
total loan loss allowance is a valuation reserve applicable to the entire loan
portfolio, the portion of the allowance allocated to each loan category does not
represent the total available for future losses that may occur within that loan
category.
At December 31,
--------------------------------------------------------------------------------------------------
2000 1999 1998
--------------------------- ------------------------------- ------------------------------
Percentage of Percentage of Percentage of
(in thousands) Amount Total Loans Amount Total Loans Amount Total Loans
------------ ------------- ------------- ------------- ------------- -------------
Type of Loan:
Commercial $1,214 16.0% $1,112 18.0% $1,421 28.8%
Real estate construction 925 20.3% 657 19.9% 472 20.8%
Real Estate - other 1,207 48.5% 1,050 55.8% 731 50.0%
Installment and other 94 15.2% 97 6.3% 97 0.4%
Unallocated 36 0.0% 159 0.0% 111 0.0%
------------- ------------- ------------- ------------- ------------- -------------
Total $3,476 100.0% $3,075 100.0% $2,832 100.0%
============= ============= ============= ============= ============= =============
As of December 31, 2000, PremierWest's specific allocation of its
allowance for loan losses for commercial and real estate construction loans
related primarily to loans on nonaccrual status. Specific allocation of loan
loss reserves for other real estate loans relates to loans for which management
believes the borrower might be unable to comply with loan repayment terms (even
though the loans are not in nonaccrual status) and for which supporting
collateral might not be adequate to recover loan amounts if foreclosure and
subsequent sale of collateral become necessary.
Management uses the best information available in reserving for loan
losses and believes that the allowance for loan losses is adequate at December
31, 2000. Future adjustments, however, may be necessary and net earnings could
be negatively affected if circumstances differ substantially from the
assumptions used in making the initial determinations.
Deposits
--------
Deposit accounts are the primary source of funds. PremierWest offers a
number of deposit products to attract both commercial and regular consumer
checking and savings customers, including regular and money market savings
accounts, NOW accounts, and a variety of fixed-maturity, fixed-rate certificates
with maturities ranging from seven days to 60 months. These accounts earn
interest at rates established by management based on competitive market factors
and management's desire to increase certain types or maturities of deposit
liabilities. The bank also provides travelers checks, official checks, money
orders, ATM services and IRA accounts. PremierWest does not solicit or accept
brokered deposits.
The distribution of deposit accounts by type and rate is set forth in
the following tables as of the indicated dates.
25
Years ended December 31,
-------------------------------------------------------------------------------------------
2000 1999 1998
-------------------------------------------------------------------------------------------
Average Interest Average Average Interest Average Average Interest Average
(in thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
-------------------------------------------------------------------------------------------
LIABILITIES
Interest-bearing
checking & savings $123,037 $ 4,046 3.29% $113,300 $3,210 2.83% $105,140 $ 3,207 3.05%
Time deposits 90,324 5,232 5.79% 69,426 3,469 5.00% 64,981 3,569 5.49%
Borrowed funds 33,754 1,918 5.68% 26,488 1,401 5.29% 22,552 1,192 5.29%
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 247,115 $11,196 4.53% 209,214 $8,080 3.86% 192,673 $ 7,968 4.14%
======== ======== ======== ======== ======== ========
Non-interest-bearing liabilities 44,208 38,968 32,093
Other non-interest-bearing liabilities 2,074 2,143 1,039
-------- -------- --------
Total liabilities $293,397 $250,325 $225,805
======== ======== ========
======== ======== ===========
The following table sets forth the amount of time deposits as of
December 31, 2000, including certificates of deposit, by time remaining until
maturity.
At December 31, 2000
------------------------------------------------
Time Deposits of All Other
$100,000 or More Time Deposits
-------------------- ---------------------------
(in thousands) Amount Percentage Amount Percentage
------- ------- ------- -------
Time Remaining to Maturity
Three months or less $17,673 34.8% $14,977 21.7%
Over three months through 12 months 15,968 31.4% 26,356 38.2%
Over 12 months 17,173 33.8% 2 7,633 40.1%
------- ------- ------- -------
Total $50,814 100.0% $68,966 100.0%
======= ======= ======= =======
Capital Resources
-----------------
Shareholders' equity was $32.4 million at December 31, 2000, an
increase of $4.2 million or 14.9% from December 31, 1999. As of December 31,
2000, PremierWest was in compliance with applicable regulatory capital
requirements, as shown in the following table.
Minimum to be Minimum to be
"well "adequately
Actual capitalized" capitalized"
----------------------------------------
Total Risk-Based Capital Ratio 11.60% 10.00% 8.00%
Tier 1 Risk-Base Capital Ratio 10.50% 6.00% 4.00%
Leverage Ratio 9.20% 5.00% 4.00%
Liquidity
---------
Liquidity enables PremierWest to meet withdrawals of its deposits and
borrowing needs of its loan customers. PremierWest maintains its liquidity
position through maintenance of cash resources and the stability of its core
deposit base. Liquidity has been relatively stable and adequate over its
history. Short-term deposits, however, have grown while excess cash was invested
on a short-term basis into federal funds sold and interest-earning deposits with
the FHLB. As of December 31, 2000, PremierWest had $3.7 million in federal funds
sold.
At December 31, 2000, certificates of deposit represented 41% of total
deposits, while demand deposit accounts, or checking accounts represented 17%,
and savings accounts and interest-bearing demand accounts represented 42%.
Management believes that the bank will have sufficient sources of funds to meet
the liquidity needs relating to deposit and savings accounts and maturing
certificates of deposit for the next fiscal year.
26
A further source of liquidity is PremierWest's ability to borrow funds
by maintaining a secured line-of-credit with the FHLB up to 15% of the Bank's
total assets. As of December 31, 2000, $6.7 million had been advanced in
long-term borrowings from the FHLB against PremierWest credit line. Other
borrowings of approximately $6.2 million relate mostly to repurchase agreements
for customer overnight sweep accounts. The cost of these funds is approximately
4.9%. PremierWest also has established secured credit lines of approximately $19
million through certain correspondent banks and the discount window with the
Federal Reserve Bank of San Francisco.
At December 31, 2000, PremierWest had approximately $45.7 million in
outstanding commitments to extend credit for newly approval loans and available
funds for construction projects. Under the terms of such commitments, completion
of specified project benchmarks must be certified before funds may be drawn. In
addition, it is anticipated that a portion of other commitments will expire or
terminate without funding. Management believes that PremierWest's available
resources will be sufficient to fund these commitments in the normal course of
business.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Like other financial institutions, PremierWest is subject to interest
rate risk. Interest-earning assets could mature or reprice more rapidly than, or
on a different basis from, interest-bearing liabilities (primarily borrowings
and deposits with short- and medium-term maturities) in a period of declining
interest rates. Although having assets that mature or reprice more frequently on
average than liabilities will be beneficial in times of rising interest rates,
such an asset/liability structure will result in lower net interest income
during periods of declining interest rates. Interest rate sensitivity, or
interest rate risk, relates to the effect of changing interest rates on net
interest income. Interest-earning assets with interest rates tied to the prime
rate for example, or that mature in relatively short periods of time, are
considered interest-rate sensitive. Interest-bearing liabilities with interest
rates that can be repriced in a discretionary manner, or that mature in
relatively short periods of time, are also considered interest-rate sensitive.
The differences between interest-sensitive assets and interest-sensitive
liabilities over various time horizons are commonly referred to as sensitivity
gaps. As interest rates change, the sensitivity gap will have either a favorable
effect or an adverse effect on net interest income. A negative gap (with
liabilities repricing more rapidly than assets) generally should have a
favorable effect when interest rates are falling, and an adverse effect when
rates are rising. A positive gap (with assets repricing more rapidly than
liabilities) generally should have the opposite effect: an adverse effect when
rates are falling and a favorable effect when rates are rising.
The following table illustrates the maturities or repricing of
PremierWest's assets and liabilities at December 31, 2000, based upon the
contractual maturity or contractual repricing dates of loans and the contractual
maturities of time deposits. Prepayment assumptions have not been applied to
fixed-rate mortgage loans. Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdrafts are reported as due in one
year or less. Allocation of deposits other than time deposits to the various
maturity and repricing periods is based upon management's best estimate, taking
into account, among other things, the proposed policy statement issued by
federal bank regulators on August 4, 1995.
27
December 31, 2000 (in thousands)
INTEREST RATE SENSITIVITY- STATIC GAP BASIS BY REPRICING INTERVAL
------------------------------------------------------------------
0-3 Months 4-12 Months 1-5 Years Over 5 Years Total
------------------------------------------------------------------
ASSETS
Interest-earning assets
Federal funds sold and interest-earning deposits in other bank $ 3,730 $ -- $ -- $ -- $ 3,730
Securities available-for-sale 2,631 3,881 37,184 30,535 74,231
Loans 38,967 38,557 111,243 48,205 236,972
--------- --------- --------- --------- ---------
Total $ 45,328 $ 42,438 $ 148,427 $ 78,740 $ 314,933
--------- --------- --------- --------- ---------
LIABILITIES
Interest-bearing liabilities
Interest-bearing checking and savings $ 36,288 $ 36,288 $ 52,822 $ -- $ 125,398
Time deposits 32,650 42,324 44,806 -- 119,780
Borrowings 6,016 791 2,717 3,693 13,217
--------- --------- --------- --------- ---------
Total $ 74,954 $ 79,403 $ 100,345 $ 3,693 $ 258,395
--------- --------- --------- --------- ---------
Interest rate sensitivity gap $ (29,626) $ (36,965) $ 48,082 $ 75,047 $ 56,538
Cumulative $ (29,626) $ (66,591) $ (18,509) $ (18,509) $ 113,076
------------------------------------------------------------------
Cumulative gap as a % of earning assets -65.4% -156.9% -12.5% 71.8% 35.9%
------------------------------------------------------------------
For purposes of the gap analysis, loans are not reduced by the allowance for
loan losses and non-performing loans, and premiums, unearned discounts and
deferred loan fees are excluded.
This analysis of interest-rate sensitivity has a number of limitations.
The "gap" analysis above is based upon assumptions concerning such matters as
when assets and liabilities will reprice in a changing interest rate
environment. Because these assumptions are no more than estimates, certain
assets and liabilities indicated as maturing or repricing within a stated period
might actually mature or reprice at different times and at different volumes
from those estimated. The actual prepayments and withdrawals after a change in
interest rates could deviate significantly from those assumed in calculating the
data shown in the table. Certain assets, adjustable-rate loans for example,
commonly have provisions that limit changes in interest rates each time the
interest rate changes and on a cumulative basis over the life of the loan. Also,
the renewal or repricing of certain assets and liabilities can be discretionary
and subject to competitive and other pressures. The ability of many borrowers to
service their debt could diminish after an interest rate increase. Therefore,
the gap table above does not and cannot necessarily indicate the actual future
impact of general interest movements on net interest income.
In addition to a static gap analysis of interest rate sensitivity,
PremierWest also attempts to monitor interest rate risk from the perspective of
changes in the economic value of equity, also referred to as net portfolio value
(NPV), and changes in net interest income. Changes to the NPV and net interest
income are simulated using instant and permanent rate shocks of plus and minus
200 basis points, in increments of 100 basis points. These results are then
compared to prior periods to determine the effect of previously implemented
strategies. If estimated changes to NPV or net interest income are not within
acceptable limits, the Board may direct management to adjust its asset and
28
liability mix to bring interest rate risk within acceptable limits. The NPV
calculations are based on the net present value of discounted cash flows, using
market prepayment assumptions and market rates of interest for each asset and
liability product type based on its characteristics. The theoretical projected
change in NPV and net interest income over a 12-month period under each of the
instantaneous and permanent rate shocks have been calculated by PremierWest
using computer simulation.
PremierWest's simulation analysis forecasts net interest income and
earnings given unchanged interest rates (stable rate scenario). The model then
estimates a percentage change from the stable rate scenario under scenarios of
rising and falling market interest rates over various time horizons. The
simulation model based on December 31, 2000 data, estimates that if a decline of
200 basis points occurs, net interest income could be favorably affected up to
approximately 0.5%, while a similar increase in market rates would also have a
favorable impact of approximately 0.6%. Because of uncertainties about customer
behavior, refinance activity, absolute and relative loan and deposit pricing
levels, competitor pricing and market behavior, product volumes and mix, and
other unexpected changes in economic events affecting movements and volatility
in market rates, there can be no assurance that simulation results are reliable
indicators of earnings under such conditions.
Increase (decrease) in
Net Interest Income Net Interest Return on
(in thousands) Margin 2000 Equity
----------------------------------------------------
Prime rate at December 31, 2000 is 9.50% $ -- 5.16% 9.70%
PRIME RATE INCREASE OF:
2% TO 11.50% $ 93 5.18% 9.88%
1% TO 10.50% $ 136 5.20% 9.99%
PRIME RATE DECREASE OF:
2% TO 7.50% $ 68 5.17% 9.83%
1% TO 8.50% $ (85) 5.13% 9.46%
It is PremierWest's policy to manage interest rate risk to maximize
long-term profitability under the range of likely interest-rate scenarios.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements called for by this item are included in this
report beginning on page F-1.
The following tables set forth the company's unaudited consolidated
financial data regarding operations for each quarter of 2000 and 1999. This
information, in the opinion of management, includes all adjustments necessary,
consisting only of normal and recurring adjustments, to state fairly the
information set forth therein. Certain amounts previously reported have been
reclassified to conform to the current presentation. These reclassifications had
no net impact on the results of operations.
29
2000
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
INCOME STATEMENT DATA
Interest income $ 5,906 $ 6,442 $ 6,957 $ 6,894
Interest expense 2,346 2,784 3,015 3,051
------- ------- ------- -------
Net interest income 3,560 3,658 3,942 3,843
Provisions for loan losses 186 193 215 75
------- ------- ------- -------
Net interest income after provision for loan losses 3,374 3,465 3,727 3,768
Non-interest income 414 594 529 393
Non-interest expense 2,824 3,219 3,005 3,227
------- ------- ------- -------
Income before provision for income taxes 964 840 1,251 934
Provision for income taxes 342 193 380 183
------- ------- ------- -------
Net Income before merger and data conversion costs 622 647 871 751
Merger and data conversion costs -- 883 65 139
------- ------- ------- -------
Net income (Loss) $ 622 $ (236) $ 806 $ 612
======= ======= ======= =======
Basic earnings per common share (before merger &
data conversion costs) $ 0.08 $ 0.07 $ 0.10 $ 0.09
Diluted earnings per common share (before merger &
data conversion costs) $ 0.08 $ 0.07 $ 0.10 $ 0.07
Basic earnings per common share (after merger &
data conversion costs) $ 0.07 $ (0.03) $ 0.10 $ 0.07
Diluted earnings per common share (after merger &
data conversion costs) $ 0.07 $ (0.03) $ 0.10 $ 0.07
1999
(in thousands, except per share amounts) (unaudited) First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
INCOME STATEMENT DATA
Interest income $ 4,751 $ 5,033 $ 5,290 $ 5,738
Interest expense 1,963 1,991 2,039 2,088
------- ------- ------- -------
Net interest income 2,788 3,043 3,251 3,650
Provisions for loan losses 100 140 245 350
------- ------- ------- -------
Net interest income after provision for loan losses 2,688 2,903 3,006 3,300
Non-interest income 537 473 548 522
Non-interest expense 2,508 2,964 2,946 3,124
------- ------- ------- -------
Income before provision for income taxes 717 412 608 698
Provision for income taxes 252 107 176 172
------- ------- ------- -------
------- ------- ------- -------
Net income $ 465 $ 305 $ 432 $ 526
======= ======= ======= =======
Basic earnings per common share $ 0.06 $ 0.04 $ 0.05 $ 0.06
Diluted earnings per common share $ 0.06 $ 0.04 $ 0.05 $ 0.06
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
30
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of PremierWest Bancorp
--------------------------------
John L. Anhorn, age 58, has served as Director, President and Chief
Executive Officer of PremierWest since its inception in 1999, and its
predecessor, Bank of Southern Oregon, since May 1998. Mr. Anhorn has more than
35 years of banking experience, and previously served as President of Western
Bank until April 1997, when Western Bank merged into Washington Mutual Bank.
John A. Duke, age 62, is a self-employed investment manager, and has
served as Chairman of the Board of Directors of PremierWest since its inception
in 1999, and its predecessor, Bank of Southern Oregon, since its organization in
1990.
Dennis N. Hoffbuhr, age 52, has served as a director of PremierWest
since its inception in 1999, and its predecessor, Bank of Southern Oregon, since
its formation in 1990. Mr. Hofbuhr is the owner and President of Hoffbuhr and
Associates, Inc., a land surveying and land use planning firm in Medford,
Oregon. Mr. Hoffbuhr is a registered land surveyor certified by the Oregon State
Board of Engineering Examiners.
Patrick G. Huycke, age 51, has served as a director of PremierWest
since its inception in 1999, and its predecessor, Bank of Southern Oregon, since
1994. Mr. Huycke is an attorney with Huycke, Boyd & Maulding LLP. Mr. Huycke
received his law degree from Willamette University and has practiced law for 23
years.
James L. Patterson, age 61, became a director of Bank of Southern
Oregon in 1999 and continued as a director of PremierWest following its
formation as a holding company of the bank. Mr. Patterson is a self-employed
business consultant. He retired after serving for 34 years with Pacific Power.
Pete Martini, age 57, is President of Elk River Enterprises, a
wood-products manufacturer. Mr. Martini served as a chairman of the board of
directors of Douglas National Bank and United Bancorp from 1993 until its merger
with PremierWest in May 2000.
Rickar D. Watkins, age 55, is the President of a medical supply company
he founded in 1974. Mr. Watkins served as a director of United Bancorp and
Douglas National Bank since 1987, until its merger with PremierWest in May 2000.
Directors of PremierWest Bank
-----------------------------
In addition to Messrs. Anhorn, Duke, Hoffbuhr, Huycke, Becker,
Patterson, Martini and Watkins, about whom information is provided above, the
following serve as directors of PremierWest Bank:
31
Jeffrey L. Chamberlain, age 56, has served as a director of PremierWest
since its inception in 1999, and its predecessor, Bank of Southern Oregon, since
1990. Mr. Chamberlain is a self-employed private investor and developer,
specializing in the development of healthcare facilities. Mr. Chamberlain has a
B.S. in Business Administration from Portland State University.
Richard R. Hieb, age 56, became a Director in 2000, and has served as
Executive Vice President, Chief Operating Officer and Secretary of PremierWest
since its formation in 1999 and of its predecessor, Bank of Southern Oregon
since May 1998. Mr. Hieb has more than 35 years of experience in commercial
banking, and previously served for 10 years as Executive Vice President and
Chief Administrative Officer of Western Bank, which was acquired by and became a
division of Washington Mutual Bank in April 1997.
Richard K. Karchmer, age 57, is a physician in the practice of medical
oncology and hematology. He has served as a director of PremierWest since its
inception in 1999, and its predecessor, Bank of Southern Oregon, since its
formation in 1990.
Brian Pargeter, age 58, is the owner of an insurance agency. Mr.
Pargeter served as a director of Douglas National Bank and United Bancorp from
1993 until its merger with PremierWest in May 2000.
David A. Emmett, age 58, has served as a director of PremierWest Bank
since the merger with Douglas National Bank. Mr. Emmett served as a director of
Douglas National Bank from 1998 through 2000. He is a Certified Public
Accountant, self-employed, and the owner and operator of a public accounting
firm.
Executive Officers
------------------
In addition to Mr. Anhorn and Mr. Hieb, the following are the executive
officers of PremierWest Bancorp and PremierWest Bank, as indicated.
Tammy D. Glass, age 41, has 20 years of experience in banking. Ms.
Glass has been with Bank of Southern Oregon since its formation in 1990, and
currently serves as Senior Vice President, Operations and Marketing.
M. Neil Zick, age 58, has over 30 years of banking experience and
serves as Executive Vice President and Chief Administrative Officer. Mr. Zick
served as President, Chief Executive Officer and a director of United Bancorp
and Douglas National Bank from 1998 until its merger with PremierWest in May
2000. Prior to that time, Mr. Zick served as Senior Vice President and Chief
Financial Officer of United Bancorp and Douglas National Bank.
Robert A. Johnson, age 62, has been engaged in the banking business for
41 years, for 34 years with First Interstate Bank of Oregon and for 5 years
thereafter with Western Bank, which was acquired by and became a division of
Washington Mutual Bank in April 1997. Mr. Johnson was a regional credit
administrator with Western Bank. In January 1999, when he left Western Bank to
join Bank of Southern Oregon, Mr. Johnson was Team Leader for commercial
lenders, with responsibility for a commercial loan portfolio of approximately
$40 million.
32
Bruce R. McKee, age 50, serves as the Chief Financial Officer of
PremierWest Bancorp and Senior Vice President and Chief Financial Officer of
PremierWest Bank. He is a certified public accountant licensed both in Oregon
and California. Before joining PremierWest in December 1998, he served for six
years as Chief Financial Officer and Director of Finance for a healthcare
company located on the West Coast. Before that, he served for eleven years with
Grant Thornton International, an international accounting and consulting firm
providing consulting and audit services to over 150 financial institutions,
including community banks, savings banks, and mortgage banking firms.
Ronald T. Delude, age 64, serves as Senior Vice President of
PremierWest Bank, and also serves as an executive officer of the bank's
subsidiaries, Premier Finance Co. and PremierWest Investment Co. Prior to
joining PremierWest in August 2000, Mr. DeLude was Executive Vice President and
Chief Operating Officer of West Coast Bank and President and Chief Executive
Officer of Bank of Vancouver, an affiliate of West Coast Bank. Prior to joining
West Coast Bank in 1998, Mr. DeLude was Senior Vice President and Regional
Manager for Western Bank, now a division of Washington Mutual.
Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------
Section 16 of the Securities Exchange Act of 1934 requires that all
executive officers, directors and persons who beneficially own more than 10
percent of the common stock file an initial report of their beneficial
ownership of common stock and to periodically report changes in their
ownership. The reports must be made with the Securities and Exchange
Commission with a copy sent to us.
Based solely upon our review of the copies of the Section 16 filings
that we received with respect to the fiscal year ended December 31, 2000, we
believe that all reporting persons made all required Section 16 filings with
respect to such fiscal year on a timely basis.
Item 11. EXECUTIVE COMPENSATION
The following table shows compensation for services in all capacities
for the fiscal years ended December 31, 2000, 1999, and 1998 for the President
and Chief Executive Officer and any other executive officer who received
compensation in excess of $100,000 during 2000, including salary and bonus.
Summary Compensation Table
Annual Compensation Securities
Underlying All Other
Name and Principal Position Year Salary Bonus (1) Options Compensation
--------------------------------------------------------------------------
John L. Anhorn, 2000 $ 165,000 $ 32,000 - $ 3,000 (2)
President and Chief Executive Officer (3) 1999 $ 152,000 $ 20,000 - $ 3,000 (2)
1998 $ 98,700 $ - 75,000 $ 1,500 (2)
Richard R. Hieb, 2000 $ 115,000 $ 27,500 - $ 3,000 (2)
Executive Vice President, 1999 $ 110,000 $ 15,000 - $ 2,000 (2)
Chief Operating Officer and Secretary (3) 1998 $ 58,000 $ - 60,000 $ 1,000 (2)
- --------------------------------------------
(1) Includes amounts deferred at the election of the name executive
officers pursuant to the 401(k) Plan of PremierWest.
(2) Represents matching contributions of PremierWest under its 401(k) plan.
(3) Mr. Anhorn and Mr. Hieb joined PremierWest effective May 1, 1998
33
Employment Agreements
---------------------
PremierWest has an employment agreement with John Anhorn to serve as
President and Chief Executive Officer. The term of the employment agreement is
indefinite, and Mr. Anhorn's service is terminable at any time by PremierWest
with or without cause. The employment agreement provides for an annual salary
and other benefits, including health insurance coverage, paid vacation,
participation in incentive compensation and 401(k) plans, use of a bank-owned
vehicle, term life insurance, disability insurance and paid membership in a
country club.
The employment agreement also grants to Mr. Anhorn an option to acquire
75,000 shares of PremierWest common stock, which may be increased based on
subsequent changes in the common stock of Bank of Southern Oregon as a result of
stock splits or stock dividends. If a change in control occurs before Mr. Anhorn
completes 3 years of service, one half of the 75,000-share option grant vests.
The entire option grant vests if a change in control occurs after 3 years. If
Mr. Anhorn is terminated without cause, or if he terminates his service for
cause, he will be entitled to severance in an amount equal to one year of his
current base salary. If a change in control occurs, the severance payment will
be reduced by any amounts he receives through ordinary compensation,
noncompetition payments or other benefits payable by the acquiring company.
The agreement also provides that Mr. Anhorn may not compete with
PremierWest for a period of two years if he is terminated for cause or if he
terminates his service without cause, provided PremierWest continues to pay Mr.
Anhorn's annual salary and maintains continued health insurance coverage until
age 65 for Mr. Anhorn during the noncompetition period. PremierWest has an
employment agreement with Rich Hieb to serve as Chief Operating Officer. The
terms of Mr. Hieb's employment agreement are largely identical to those in Mr.
Anhorn's employment agreement, except that Mr. Hieb's initial annual salary is
$100,000 and his stock option grant gives him the right to acquire 60,000
shares, and his non compete period is one year.
PremierWest has entered into change of control agreements with Tammy
Glass, Robert A. Johnson, Ronald T. DeLude, and Bruce McKee, providing for
severance payments of one-year's salary if that person is terminated within one
year of a change of control of the company.
Certain Relationships and Related Party Transactions
----------------------------------------------------
PremierWest has deposit and lending relationships with its directors
and officers, as well as with their affiliates. All loans to directors, officers
and their affiliates were made in the ordinary course of business, on
substantially the same terms (including interest rates and collateral) as those
prevailing at the time for comparable transactions with other persons, and did
not involve more than the normal credit risk or present other unfavorable
features. All of the loans are current and all required payments thereon have
been made. As of December 31, 1999, the aggregate outstanding amount of all
loans to officers and directors was approximately $7.0 million, which
represented 24.7% of shareholders' equity on that date.
34
Stock Option Plan
- -----------------
PremierWest assumed the Bank of Southern Oregon 1992 Combined Incentive
and Non-Qualified Stock Option Plan and the United Bancorp Stock Option Plan, as
amended. The plans authorize the issuance of up to 734,189 shares upon exercise
of options granted under the plans. Options can be either incentive stock
options or non-qualified stock options. As of January 2, 2001, options to
acquire 563,075 shares of PremierWest common stock were outstanding.
Securities
Underlying Unexercised Value of In-the-Money Options
Shares Options at Fiscal Year-End (#) at Fiscal Year-End ($) (1)
Acquired on Value ------------------------------- -------------------------------
Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------------ ----------- ------------ ------------ ------------ ------------
John Anhorn 0 $0 0 75,000 $0 $0
Richard R. Hieb 0 $0 0 60,000 $0 $0
- ---------------------------
(1) None of the stock options held by Mr. Anhorn or Mr. Hieb are
"in-the-money." In general, a stock option is "in-the-money" when the
stock's fair market value exceeds the option exercise price. Value of
unexercised options equals the estimated fair market value of a share
acquirable upon exercise of an option at December 31, 1999, less the
exercise price per share, multiplied by the number of shares
acquirable upon exercise of the options. The stock options held by
Mr. Anhorn and Mr. Hieb are exercisable at the price of $8.25 per
share. PremierWest common stock is quoted on the OTC Bulletin Board,
but it is not actively traded. Solely for purposes of the table and
for no other purpose, PremierWest estimated the per share fair market
value of the common stock at March 15, 2001 as $4.94, the closing
price on that date. This is an estimate only and does not necessarily
reflect actual transactions.
Report of the Budget and Compensation Committee on Executive Compensation
- -------------------------------------------------------------------------
The PremierWest Board of Directors does not have a compensation
committee. The Executive committee, consisting of John L. Anhorn, John A. Duke,
Patrick G. Huycke, and Richard K. Karchmer acts as the compensation committee.
Mr. Anhorn does not participate in deliberations or voting on committee actions
concerning his compensation.
Compensation Objective
----------------------
PremierWest's compensation policy is to align the interests of
executive management with those of the shareholders. Key elements to the policy
include:
o Set base compensation at a level to attract and retain
competent executives.
o Establish incentive compensation plans that deliver bonuses
based on the financial performance of the company.
o Provide significant equity based incentives for executives to
ensure they are motivated over the long term to respond to the
company's business challenges and opportunities, as owners
rather than just employees.
In setting executive compensation, the committee utilizes the foregoing
criteria. The committee utilizes cash bonuses and grants of stock options under
the Stock Option Plan to provide rewards and incentives for achieving the
objectives of the Board of Directors for the year. Option grants are at the
Board's discretion and awarded to individual executive officers to provide
incentives to increase shareholder value.
35
Mr. Anhorn's 2000 salary of $165,000 is commensurate with his
experience and contributions to the improvement in the company's performance
since joining the company in 1998. The committee believes this level of
compensation is appropriate in view of the company's need to retain qualified
management. Mr. Anhorn was granted stock options in that year as an incentive to
improve the company's performance, and received a cash bonus of $32,000 in 2000
in recognition of the increases in credit quality, asset growth and interest
income.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the shares of PremierWest common stock
beneficially owned as of March 15, 2001, by each director and each named
executive officer, the director and executive officers as a group and those
persons known to beneficially owned more than 5% of PremierWest's common stock:
Number of Shares Percentage
Beneficially of
Name and Position Number of Shares Percentage Beneficially of Owned (1) Class Owned (1) Class
- ----------------------------------------------------------------------------- ------------------ -----------------
John Duke, Director, Chairman of Board 604,730 (2) 7.03%
Patrick Huycke, Director 106,034 (3) 1.23%
Dennis Hoffbuhr, Director 52,568 (4) *
Pete Martini, Director 51,129 (5) *
Thomas Becker, Director 48,042 (6) *
Rickar Watkins, Director 43,693 (7) *
John L. Anhorn, Director, CEO 14,500 (8) *
Richard Hieb, Director and Chief Operating Officer 8,700 (9) *
James Patterson, Director 4,100 *
All directors and executive officers as a group ( 16 persons) 1,016,173 11.82%
- --------------------------------------------------
* Less than 1.0%.
(1) Shares held directly with sole voting and investment power, unless
otherwise indicated
(2) Includes 604,730 shares held in John A. Duke Trust
(3) Includes 94,550 shares held by Profit Sharing Plan Trust
(4) Includes 26,200 shares subject to option exercisable within 60 days and
200 shares held by his spouse
(5) Includes 3,080 shares held by Corporation controlled by Martini
(6) Includes 15,768 shares subject to options exercisable within 60 days
(7) Includes 13,599 shares held by the Rickar D. Watkins Trust
(8) Includes 2,000 shares held in 401(k)
(9) Includes 7,700 shares held in IRA
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PremierWest has deposit and lending relationships with its directors
and officers, as well as with their affiliates. All loans to directors,
officers and their affiliates were made in the ordinary course of business, on
substantially the same terms (including interest rates and collateral) as
those prevailing at the time for comparable transactions with other persons,
and did not involve more than the normal credit risk or present other
unfavorable features. All of the loans are current and all required payments
thereon have been made. As of December 31, 2000, the aggregate outstanding
amount of all loans to officers and directors was approximately $8 million,
which represented 24.7% of shareholders' equity on that date.
36
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements:
The consolidated financial statements for the fiscal years
ended December 31, 2000, 1999, and 1998 are included in this
report beginning on page F-1.
(2) Financial Statement Schedules:
All schedules have been omitted because the information is not
required, not applicable, not present in amounts sufficient to
require submission of the schedule, or is included in the
financial statements or notes thereto.
(3) The following exhibits are filed with, and incorporated into
by reference, this report, and this list constitutes the
exhibit index:
Exhibits
- --------
3 (i) Articles of Incorporation of PremierWest Bancorp*
(ii)Bylaws of PremierWest Bancorp*
4 Specimen Stock Certificate*
10.1 Agreement and Plan of Reorganization by and among PremierWest Bancorp,
PremierWest Bank, Timberline Bancshares, and Timberline Community Bank
dated October 16, 2000**
10.2 Stock Option Agreement by and between Timberline Bancshares and
PremierWest Bancorp, dated October 16, 2000**
10.3 Employment Agreement between John L. Anhorn and Bank of Southern Oregon
dated April 2, 1998*
10.4 Employment Agreement between Richard R. Heib and Bank of Southern
Oregon dated April 2, 1998*
10.5 Lease and Purchase Agreement dated December 3, 1998 for the property at
300 E. Pine Street, Central Point, Oregon*
10.6 Employment Agreement between PremierWest Bancorp, Bank of Southern
Oregon, and M. Neil Zick dated January 25, 2000*
10.7 1992 Combined Incentive and Non-Qualified Stock Option Plan of Bank of
Southern Oregon*
10.8 United Bancorp Stock Option Plan, as amended***
37
21 Subsidiaries of the PremierWest Bancorp
23 Consent of Symonds Evans & Company, P.C. (relating to the audited
financial statements of the registrant)
* Incorporated by reference to the registration statement on Form S-4, and all
amendments thereto (commission file no. 333-96209)
** Incorporated by reference to the registration statement on Form S-4, and all
amendments thereto (commission file no. 333-53588)
*** Incorporated by reference to the registration statement on Form S-8
(commission file no. 333-40886)
(b) On October 16, 2000, the registrant filed on Form 8-K a report
announcing that it had entered into a definitive agreement for
the acquisition of Timberline Bancshares, Inc. by PremierWest
Bancorp and the merger of Timberline Community Bank into
PremierWest Bank, PremierWest Bancorp's banking subsidiary.
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
PREMIERWEST BANCORP
(Registrant)
By: /s/ John L. Anhorn Date: March 22, 2001
--------------------------------------------------
John L. Anhorn, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Date: March 22, 2001
--------------------------------------------------
John Duke, Director
By: /s/ Patrick Huycke Date: March 22, 2001
--------------------------------------------------
Patrick Huycke, Director
By: /s/ Dennis Hoffbuhr Date: March 22, 2001
--------------------------------------------------
Dennis Hoffbuhr, Director
By: Date: March 22, 2001
--------------------------------------------------
Pete Martini, Director
By: /s/ Thomas Becker Date: March 22, 2001
--------------------------------------------------
Thomas Becker, Director
By: Date: March __, 2001
---------------------------------------------------
Rickar Watkins, Director
By: /s/ James Patterson Date: March 22, 2001
--------------------------------------------------
James Patterson, Director
By: /s/ John L. Anhorn Date: March 22, 2001
--------------------------------------------------
John L. Anhorn, Director, President and
Chief Executive Officer
By: /s/ Richard R. Hieb Date: March 22, 2001
--------------------------------------------------
Richard R. Hieb, Chief Operating Officer
By: /s/ Bruce R. McKee Date: March 22, 2001
--------------------------------------------------
Bruce R. McKee, Chief Financial Officer, and
Principal Accounting Office
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Name of Jurisdiction Name Under Which
Subsidiary of Incorporation Business Is Conducted
- --------------------------------------------------------------------------------
PremierWest Bank Oregon PremierWest Bank
Premier Finance
PremierWest Investment Company
Blue Star Properties
PremierWest Mortgage
Motor Investment Company
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8) pertaining to the 1992 Combined Incentive and Non-Qualified Stock Option
Plan of Bank of Southern Oregon and the United Bancorp Stock Option Plan, as
amended, of our report dated January 19, 2001, with respect to the consolidated
financial statements of PremierWest Bancorp and subsidiaries (PremierWest) as of
December 31, 2000 and 1999 and for the years then ended, included in the Annual
Report (Form 10-K) for the year ended December 31, 2000. Our report states that
we did not audit the consolidated financial statements of United Bancorp and
subsidiaries (United) as of and for the year ended December 31, 1999, which were
included in the consolidated financial statements of PremierWest. Those
statements were audited by other auditors whose report was furnished to us, and
our opinion, insofar as it related to the amounts included for United, was based
solely on the report of the other auditors. Our report also contains an
explanatory paragraph which states that "the consolidated financial statements
for the year ended December 31, 1998, represent the combination of the
consolidated financial statements of PremierWest and United, which were audited
and reported on separately by other auditors. We have audited the combination of
the accompanying consolidated financial statements for the year ended December
31, 1998, after restatement for the May 2000 pooling of interests." Insofar as
our report related to the amounts included for PremierWest for the year ended
December 31, 1998, prior to the restatement for the May 2000 pooling of
interests, it was based solely on the report of Kosmatka Donnelly & Co. LLP.
Insofar as our report related to the amounts included for United for the year
ended December 31, 1998, it was based solely on the report of Knight Vale &
Gregory PLLC.
/s/ Symonds, Evans & Company, P.C.
Portland, Oregon
March 21, 2001