SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2002
--------------
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission File Number 333-96209
-----------
PREMIERWEST BANCORP
(Exact name of registrant as specified in its charter)
OREGON 93-1282171
(State of Incorporation) (I.R.S. Employer
Identification Number)
503 Airport Road
P.O. Box 40
Medford, Oregon 97504
(Address of principal executive offices)
(Zip Code)
(541) 618-6003
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of latest practicable date: 11,550,175 shares as of
September 30, 2002.
1
Disclosure Regarding Forward-Looking Statements
This report includes forward-looking statements within the meaning of the
"safe-harbor" provisions of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements are based on the beliefs of the Company's
management and on assumptions made by and information currently available to
management. All statements other than statements of historical fact, regarding
the Company's financial position, business strategy and plans and objectives of
management for future operations of the Company are forward-looking statements.
When used herein, the words "expect to", "plan", "anticipate", "believe",
"estimate", and "intend" and words or phrases of similar predictive nature, as
they relate to the Company or management, are intended to identify
forward-looking statements. Examples of forward-looking statements include, but
are not limited to (i) projections of revenues, income or expenses, earnings per
share, capital expenditures, dividends, capital structure and other financial
items, (ii) statements of the plans and objectives of the Company or its
management, or Board of Directors, including the introduction of new products or
services, plans for expansion, acquisitions or future growth, or estimates or
predictions of actions by customers, vendors, competitors or regulatory
authorities, (iii) statements of future economic performance, and (iv)
statements of assumptions underlying other statements about the Company and its
business. Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Forward-looking statements are
subject to certain risks and uncertainties, which could cause actual results to
differ materially from those indicated by the forward-looking statements. These
risks and uncertainties include the Company's ability to maintain or expand its
market share, net interest margins, or implement its marketing and growth
strategies. Further, actual results may be affected by the Company's ability to
compete on price and other factors with other financial institutions; customer
acceptance of new products and services; general trends in the banking industry
and the regulatory environment, as they relate to the Company's cost of funds
and returns on assets. In addition, there are risks inherent in the banking
industry relating to collectibility of loans and changes in interest rates. The
reader is advised that this list of risks is not exhaustive and should not be
construed as any prediction by the Company as to which risks would cause actual
results to differ materially from those indicated by the forward-looking
statements.
2
Form 10-Q
Table of Contents
Part I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.....................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................16
Part II OTHER INFORMATION
Item 1. Legal Proceedings..............................................21
Item 6. Exhibits and Reports on Form 8-K...............................22
Signatures................................................................22
3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
PREMIERWEST BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in 000's)
(Unaudited) (Audited)
September 30, December 31,
2002 2001
------------------ ------------------
ASSETS
- ---------------
CASH AND DUE FROM BANKS $ 29,331 $ 19,731
FEDERAL FUNDS SOLD AND INTEREST-BEARING DEPOSITS 33,650 15,000
------------------ ------------------
Total cash and cash equivalents 62,981 34,731
INVESTMENT SECURITIES AVAILABLE-FOR-SALE 37,138 65,328
LOANS, NET OF ALLOWANCE FOR LOAN LOSSES 383,425 352,791
FEDERAL HOME LOAN BANK STOCK 1,668 1,595
PREMISES AND EQUIPMENT, NET 19,094 18,286
ACCRUED INTEREST AND OTHER ASSETS 15,975 15,579
------------------ ------------------
TOTAL ASSETS $ 520,281 $ 488,310
================== ==================
LIABILITIES
- ---------------
DEPOSITS:
Non-interest-bearing checking $ 91,314 $ 82,685
Savings and interest-bearing demand 201,092 187,372
Time 142,877 159,998
------------------ ------------------
Total deposits 435,283 430,055
FEDERAL HOME LOAN BANK BORROWINGS 25,087 5,566
REPURCHASE AGREEMENTS 8,675 5,480
EMPLOYEE STOCK OWNERSHIP PLAN NOTES PAYABLE 36 162
------------------ ------------------
Total borrowings 33,798 11,208
OTHER LIABILITIES 3,536 3,353
------------------ ------------------
Total liabilities 472,617 444,616
SHAREHOLDERS' EQUITY
- ----------------------------
Preferred stock - no par value; 1,000,000 shares authorized;
none issued - -
Common stock - no par value; 20,000,000 shares authorized;
and 11,550,175 and 11,397,468 shares issued and outstanding
in 2002 and 2001, respectively 33,596 29,480
Retained earnings 13,491 14,008
Unearned Employee Stock Ownership Plan compensation (36) (162)
Accumulated other comprehensive income, net of tax 613 368
------------------ ------------------
TOTAL SHAREHOLDERS' EQUITY 47,664 43,694
------------------ ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 520,281 $ 488,310
================== ==================
See accompanying notes.
4
PREMIERWEST BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in 000's, Except for Earnings per Share Data)
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
---------------------------- -----------------------------
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
------------- ------------- ------------- --------------
Interest income:
Interest and fees on loans $ 7,489 $ 7,326 $ 22,117 $ 19,777
Interest-earning deposits 83 274 147 755
Investment securities 489 929 1,980 2,950
------------- ------------- ------------- ------------
Total interest income 8,061 8,529 24,244 23,482
Interest expense:
Deposits 1,806 3,528 6,143 9,981
Other borrowings 218 151 446 460
------------- ------------- ------------- ------------
Total interest expense 2,024 3,679 6,589 10,441
------------- ------------- ------------- ------------
Net interest income 6,037 4,850 17,655 13,041
Loan loss provision 225 258 812 613
------------- ------------- ------------- ------------
Net interest income after
loan loss provision 5,812 4,592 16,843 12,428
Non-interest income
Service fees 598 521 1,702 1,342
Mortgage loan brokerage fees 372 407 1,240 1,103
Commissions from investment services 155 82 467 148
Net gains on sale of investment securities 4 33 290 68
Other 171 33 247 72
------------- ------------- ------------- ------------
1,300 1,076 3,946 2,733
Non-interest expense:
Salaries and employee benefits 3,179 2,738 9,444 7,178
Occupancy and equipment, net 1,062 747 3,069 2,081
Communications 284 251 850 570
Professional fees 178 30 567 280
Advertising 85 75 253 225
Supplies 140 127 384 318
Other 543 778 1,524 1,708
------------- ------------- ------------- ------------
Total non-interest expense 5,471 4,746 16,091 12,360
------------- ------------- ------------- ------------
Income before income taxes and cumulative effect
of an accounting change 1,641 922 4,698 2,801
Provision for income taxes 552 320 1,575 949
------------- ------------- ------------- ------------
Net income before cumulative effect
of an accounting change 1,089 602 3,123 1,852
Cumulative effect of an accounting change,
net of tax - - (99) -
------------- ------------- ------------- ------------
Net income $ 1,089 $ 602 $ 3,024 $ 1,852
============= ============= ============= ============
Earnings per common share:
Basic $ 0.09 $ 0.05 $ 0.27 $ 0.17
============= ============= ============= ============
Diluted $ 0.09 $ 0.05 $ 0.27 $ 0.17
============= ============= ============= ============
Per share cumulative effect of an
accounting change, net of tax $ - $ - $ (0.01) $ -
============= ============= ============= ============
Basic $ 0.09 $ 0.05 $ 0.26 $ 0.17
============= ============= ============= ============
Diluted $ 0.09 $ 0.05 $ 0.26 $ 0.17
============= ============= ============= ============
See accompanying notes.
5
PREMIERWEST BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in 000's)
(UNAUDITED)
Accumulated
Unearned other Total
Comprehensive Retained ESOP comprehensive Common shareholders'
income earnings compensation income (loss) stock equity
-------------- -------------- -------------- -------------- --------------- --------------
BALANCE - JANUARY 1, 2001 $ 14,514 $ (383) $ (368) $ 18,679 $ 32,442
Comprehensive income:
Net income $ 1,852 1,852 - - - 1,852
Unrealized gains on investment
securities available-for-sale
net of taxes 1,201
Reclassification adjustment for
net gains on sales of investment
securities available-for-sale
included in net income (68)
--------------
1,133 - - 1,133 - 1,133
--------------
Comprehensive income $ 2,985
==============
Common stock issued to
shareholders of Timberline Bancshares, Inc. - - - 7,995 7,995
Stock dividend paid (5%) (2,546) - - 2,546 -
ESOP compensation expense - 166 - 44 210
Tax benefit of stock options exercised - - - 71 71
Stock options exercised - - - 127 127
-------------- -------------- -------------- --------------- --------------
BALANCE - SEPTEMBER 30, 2001 $ 13,820 $ (217) $ 765 $ 29,462 $ 43,830
============== ============== ============== =============== ==============
BALANCE - JANUARY 1, 2002 $ 14,008 $ (162) $ 368 $ 29,480 $ 43,694
Comprehensive income:
Net income $ 3,024 3,024 - - - 3,024
Unrealized gains on investment
securities available-for-sale
net of taxes 535
Reclassification adjustment for
net gains on sales of investment
securities available-for-sale
included in net income (290)
--------------
245 - - 245 - 245
--------------
Comprehensive income $ 3,269
==============
Stock dividend paid (5%) (3,541) - - 3,541 -
ESOP compensation expense - 126 - 69 195
Tax benefit of stock
options exercised - - - 162 162
Stock options exercised - - - 344 344
-------------- -------------- -------------- --------------- --------------
BALANCE - SEPTEMBER 30, 2002 $ 13,491 $ (36) $ 613 $ 33,596 $ 47,664
============== ============== ============== =============== ==============
See accompanying notes.
6
PREMIERWEST BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in 000's)
(UNAUDITED)
FOR THE NINE MONTHS ENDED
-----------------------------------
September 30, September 30,
2002 2001
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,024 $ 1,852
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,493 1,262
Amortization of premiums
on investment securities, net 31 42
Dividends on Federal Home Loan Bank stock (73) (77)
Net securities gains (290) (68)
Net (gain) loss on sale of property (65) 101
Loan loss provision 812 613
Recognition of deferred compensation relating to ESOP 195 210
Decrease (Increase) in accrued interest and other assets 890 (282)
Increase (Decrease) in accrued interest and other liabilities 346 (625)
---------------- ----------------
Net cash provided by operating activities 6,363 3,028
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities, available-for-sale (7,056) (22,342)
Proceeds from sales of investment securities, available-for-sale 12,482 -
Proceeds from calls and maturities of investment
securities, available-for-sale 22,626 47,404
Loan originations, net (32,090) (42,021)
Proceeds from sale of property 128 1,332
Purchase of premises and equipment (2,364) (4,731)
Acquired net assets of Timberline, net of cash and cash
equivalents acquired of $24,314 - 17,835
---------------- ----------------
Net cash used by investing activities (6,274) (2,523)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase increase in deposits 5,227 39,287
Net borrowings 22,590 343
Proceeds from exercise of stock options 344 127
---------------- ----------------
Net cash provided by financing activities 28,161 39,757
---------------- ----------------
INCREASE IN CASH AND CASH EQUIVALENTS 28,250 40,262
CASH AND CASH EQUIVALENTS - Beginning of the period 34,731 18,036
---------------- ----------------
CASH AND CASH EQUIVALENTS - End of the period $ 62,981 $ 58,298
================ ================
See accompanying notes.
7
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2002
1. SUMMARY OF ORGANIZATION, BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND MERGER: PremierWest Bancorp was incorporated in the
state of Oregon on November 26, 1999. Effective on May 8, 2000, in a
reorganization and merger accounted for as a pooling-of-interests,
PremierWest Bancorp became the holding company for PremierWest Bank
(formerly, Bank of Southern Oregon) at which time United Bancorp
("United") merged with and into PremierWest Bancorp and United's wholly
owned subsidiary, Douglas National Bank, merged with and into PremierWest
Bank.
On April 16, 2001, PremierWest Bancorp completed the acquisition of
Timberline Bancshares, Inc. and its wholly owned subsidiary, Timberline
Community Bank ("Timberline"). The acquisition was accounted for using
the purchase method of accounting. Accordingly, PremierWest Bancorp has
recorded the assets and liabilities of Timberline at their respective
fair values at the time of the completion of the merger and the results
of Timberline have been included with those of PremierWest Bancorp since
the date of the acquisition. The financial statement data for the periods
presented are not comparable as a result of the acquisition of Timberline
using the purchase method of accounting (see Note 8).
PremierWest Bank, including its subsidiaries, serves Jackson, Josephine,
Douglas, and Klamath counties of southern Oregon and Siskiyou and Shasta
counties of northern California.
BASIS OF PRESENTATION: The condensed consolidated financial statements
include the accounts of PremierWest Bancorp and its wholly owned
subsidiary, PremierWest Bank, and PremierWest Bank's wholly owned
subsidiaries, PremierWest Investment Services, Premier Finance Company,
and Blue Star Properties, Inc. (collectively, "the Company" or "the
Bank"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
The interim condensed consolidated financial statements are not audited,
but include all adjustments that management considers necessary for a
fair presentation of the results of operations for such interim periods.
The balance sheet data as of December 31, 2001 was derived from audited
financial statements and does not include all disclosures contained in
the 2001 Annual Report to Shareholders. The interim condensed
consolidated financial statements should be read in conjunction with the
Company's 2001 consolidated financial statements, including the notes
thereto, included in the 2001 Annual Report to Shareholders. The reader
should keep in mind that the results of operations for the interim
periods shown in the accompanying condensed consolidated financial
statements are not necessarily indicative of results for any future
interim periods or the entire fiscal year.
METHOD OF ACCOUNTING: The Company prepares its financial statements in
conformity with accounting principles generally accepted in the United
States. The Company utilizes the accrual method of accounting, which
recognizes income when earned and expenses when incurred. The preparation
of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the
date of the financial statements,
8
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2002
and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
CRITICAL ACCOUNTING POLICIES: Various elements of the Company's
accounting policies are inherently subject to estimation techniques,
valuation assumptions and other subjective assessments. In particular,
management has identified certain policies that, due to the judgments,
estimates and assumptions inherent in those policies, are critical to an
understanding of our consolidated financial statements. These policies
relate primarily to the determination of our allowance for loan losses.
There are other complex accounting standards that require the Company to
employ significant judgment in interpreting and applying certain of the
principles prescribed by those standards. These judgments include, but
are not limited to, the determination of whether a financial instrument
or other contract meets the definition of a derivative and qualifies for
accounting in accordance with Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities".
These policies and judgments, estimates and assumptions are described in
greater detail in subsequent sections of Management's Discussion and
Analysis and in Notes to the consolidated financial statements included
in the Company's 2001 Annual Report on Form 10-K. We believe that the
judgments, estimates and assumptions used in the preparation of our
consolidated financial statements are appropriate given the factual
circumstances at the time. However, given the sensitivity of our
consolidated financial statements to these critical accounting policies,
the use of other judgments, estimates and assumptions could result in
material differences in our results of operations or financial condition.
STOCK DIVIDENDS: On April 19, 2001, the Company declared a 5% stock
dividend payable to its shareholders of record June 1, 2001. On March 28,
2002, the Board of Directors of the Company declared a 5% stock dividend
payable to its shareholders of record June 1, 2002. All share and per
share data in the accompanying condensed consolidated financial
statements has been retroactively restated to reflect the stock
dividends.
9
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2002
2. INVESTMENT SECURITIES
Investment securities available-for-sale at September 30, 2002 and December 31,
2001 consisted of the following:
2002
--------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
(Dollars in 000's) cost gains losses value
---------------- --------------- ---------------- ----------------
U.S. agency securities $ 13,506 $ 259 $ - $ 13,765
Mortgage-backed securities
and collateralized mortgage obligations 1,987 33 1 2,019
Obligations of states and
political subdivisions 16,364 722 - 17,086
Corporate bonds 3,966 9 29 3,946
Other securities 322 - - 322
---------------- --------------- ---------------- ----------------
Total $ 36,145 $ 1,023 $ 30 $ 37,138
================ =============== ================ ================
2001
--------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
(Dollars in 000's) cost gains losses value
---------------- --------------- ---------------- ----------------
U.S. agency securities $ 31,263 $ 453 $ 35 $ 31,681
Mortgage-backed securities
and collateralized mortgage obligations 11,669 161 11 11,819
Obligations of states and
political subdivisions 16,255 162 84 16,333
Corporate bonds 3,971 - 50 3,921
Other securities 1,574 - - 1,574
---------------- --------------- ---------------- ----------------
Total $ 64,732 $ 776 $ 180 $ 65,328
================ =============== ================ ================
At September 30, 2002, approximately $37.1 million in investment securities
available-for-sale were pledged to secure public deposits and nonpublic deposits
and borrowings.
10
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2002
3. LOANS, NON-PERFORMING LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of the loan portfolio at September 30, 2002 and December 31, 2001 was as follows:
(Dollars in 000's) 2002 2001
------------------- -------------------
Commercial $ 110,690 $ 80,866
Real estate - construction 52,299 59,754
Real estate - other 188,699 175,047
Consumer installment 35,331 36,110
Other 2,865 6,616
------------------- -------------------
389,884 358,393
Less:
Allowance for loan losses 5,283 4,825
Deferred loan fees 1,176 777
------------------- -------------------
Loans, net $ 383,425 $ 352,791
=================== ===================
The following table summarizes non performing loans as of September 30, 2002 and December 31,2001:
(Dollars in 000's) 2002 2001
--------------- ---------------
Loans on non-accrual status $ 3,425 $ 2,115
Loans past due greater than 90 days but
not on non accrual status 127 3,594
--------------- ---------------
Total non-performing loans 3,552 5,709
=============== ===============
Percentage of non-performing loans to total loans 0.91% 1.59%
=============== ===============
A summary of changes in the allowance for loan losses for the nine months ended September 30, 2002
and 2001 were as follows:
(Dollars in 000's) 2002 2001
--------------- ---------------
Balance - Beginning of the period $ 4,825 $ 3,476
Loans charged-off (450) (199)
Loan recoveries 96 51
Loan loss provision 812 613
Allowance for loan losses acquired from Timberline - 676
--------------- ---------------
Balance - End of the period $ 5,283 $ 4,617
=============== ===============
11
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2002
4. LINE OF CREDIT AND OTHER BORROWINGS
The Company has a line of credit available with Federal Home Loan Bank of
Seattle (FHLB) for up to approximately $78 million as of September 30,
2002. This line of credit is secured by restricted FHLB stock owned by
the Company and is limited to 15% of the Bank's total assets and by the
amount of FHLB stock held by the Bank. Interest and principal payments
are due monthly on any outstanding borrowings. As of September 30, 2002
and December 31, 2001, the Company had no advances from the FHLB under
the line of credit. The Company has also borrowed long-term funds from
the FHLB against this line of credit, aggregating approximately $25.1
million and $5.6 million as of September 30, 2002 and December 31, 2001,
respectively. As of September 30, 2002, $20.0 million is due July 23,
2004, $3.6 million is due August 28, 2008, and the remaining $1.5 million
is due at various times through February 2014. The Company is making
monthly principal payments of approximately $53,000 plus interest at
rates of 2.81% to 7.63%.
Borrowings of approximately $8.7 million and $5.5 million at September
30, 2002 and December 31, 2001 respectfully, relate to repurchase
agreements used for customer overnight sweep accounts. The cost of these
funds at September 30, 2002 is an average annual rate of interest of
approximately 1.34%. Certain investment securities, as required, have
been pledged as collateral to fully secure the repurchase agreements.
Additionally, as of September 30, 2002, the Company has approximately $20
million in available borrowings through lines of credit with
correspondent banks and through the Federal Reserve Bank's discount
window. No balances were outstanding as of September 30, 2002 and
December 31, 2001.
5. COMMITMENTS AND CONTINGENCIES
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. These instruments involve various
levels and elements of credit and interest rate risk in excess of the
amount recognized in the accompanying condensed consolidated financial
statements. The contract or notional amounts of those instruments reflect
the extent of involvement the Company has in particular classes of
financial instruments. As of September 30, 2002, the Company has $63.4
million of commitments to extend credit to customers and $4.3 million of
standby letters of credit.
In the ordinary course of business, the Bank becomes involved in various
litigation arising from normal banking activities. In the opinion of
management, the ultimate disposition of these actions will not have a
material adverse effect on the Bank's consolidated financial position or
results of operations.
12
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2002
6. EARNINGS PER SHARE
The Company's basic earnings per common share is computed by dividing net
income by the weighted average number of common shares outstanding during
the period, retroactively adjusted for all stock dividends. The Company's
diluted earnings per common share is computed by dividing net income by
the weighted-average number of common shares outstanding plus dilutive
common shares related to stock options, retroactively adjusted for all
stock dividends.
Three-months ended September 30: 2002 2001
- ------------------------------------------------------------ ----------------- ------------------
Weighted average number of common shares:
Basic earnings per common share 11,528,000 11,397,000
Diluted earnings common per share 11,597,000 11,481,000
Nine-months ended September 30: 2002 2001
- ------------------------------------------------------------ ----------------- ------------------
Weighted average number of common shares:
Basic earnings per common share 11,500,000 10,638,000
Diluted earnings common per share 11,576,000 10,720,000
7. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and
Other Intangible Assets." SFAS No. 142 discontinues the practice of
amortizing goodwill and requires that goodwill be continually evaluated
for impairment and be written-down when appropriate. SFAS No. 142 also
requires that other intangible assets that have been separately
identified and accounted for continue to be amortized over a determinable
useful life. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001. Application of the non-amortization provisions of SFAS
No. 142 have eliminated the Bank's amortization of goodwill beginning
with the nine months ended September 30, 2002. In June 2002, the Bank
performed the first of the required goodwill impairment tests to
determine if an impairment loss should be recognized. Adoption of SFAS
No. 142 requires that a review be performed of the valuation of goodwill
at all relevant business unit levels. Management determined the effect of
these impairment tests on the Bank's consolidated financial position and
results of operations by recognizing a $99,000 goodwill impairment loss,
net of $51,000 in related taxes, due to the acquisition of Motor
Investments Company in October 2000. Analyses of other recorded goodwill
components indicate that no additional impairment of asset values exists.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting obligations associated with the retirement of long-lived assets
and the associated asset retirement costs. SFAS No. 143 is effective
13
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2002
for fiscal years beginning after June 15, 2002. Management does not
expect that the adoption of SFAS No. 143 will have a material effect on
the Bank's consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement supersedes SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of," and provides guidance on the classification and accounting
for such assets when held for sale or abandonment. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001. The Bank's
adoption of SFAS No. 144 did not have a material effect on its
consolidated financial statements.
In April 2002, the FASB issued SFAS No., 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." This Statement rescinds FASB Statement No. 4,
"Reporting Gains and Losses from Extinguishments of Debt," and an
amendment of that Statement, FASB Statement No. 64, "Extinguishments of
Debt Made to Satisfy Sinking Fund Requirements." This statement also
rescinds FASB Statement No. 44, "Accounting for Intangible Assets of
Motor Carriers." This Statement amends FASB Statement No. 13, "Accounting
for Leases," to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. This Statement also amends other
existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under
changed conditions and is effective for fiscal years beginning after May
31, 2002. The Company's management does not expect that the application
of the provisions of this statement will have a material impact on the
Bank's consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue
No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)." The statement is effective for exit or
disposal activities that are initiated after December 31, 2002, with
early application encouraged. The Company's management does not expect
that the application of the provisions of this statement will have a
material impact on the Bank's consolidated financial statements.
In October 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 147, "Acquisitions
of Certain Financial Institutions - an amendment of FASB Statements No.
72 and 144 and FASB Interpretation No. 9." The Company's management does
not expect that the application of the provisions of this statement will
have a material impact on the Bank's consolidated financial statements.
14
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2002
8. ACQUISITION OF TIMBERLINE BANCSHARES, INC.
On April 16, 2001, the Company completed the acquisition of Timberline
Bancshares, Inc. and its wholly owned subsidiary, Timberline Community Bank.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the assets and liabilities of Timberline have been recorded by
the Company at their respective estimated fair values at the time of the
completion of the transaction and the results of Timberline have been
included with those of the Company since the date of the acquisition. As of
September 30, 2002, the accompanying condensed consolidated balance sheet
included approximately $6.0 million in goodwill related to this acquisition.
The estimated fair values of net assets acquired at the acquisition date are
summarized as follows:
(Dollars in 000's)
Cash and due from banks $ 4,614
Federal funds sold 19,700
Investment securities 10,159
Loans, net of allowance for loan losses 56,040
Property and equipment 2,847
Other assets 8,604
-----------------
Total assets acquired $ 101,964
=================
Deposits $ 86,800
Other liabilities 783
-----------------
Total liabilities assumed 87,583
Net assets acquired 14,381
-----------------
$ 101,964
=================
The following pro forma information presents the Company's consolidated
results of operations as if the acquisition of Timberline had occurred at the
beginning of the nine-month period ended September 30, 2001 presented below.
The pro forma information does not purport to be indicative of the actual
results of operations that would have occurred had the transactions taken
place at the beginning of the nine-month period presented or of future
results of operations.
(Dollars in 000's, except earnings per share) Nine-months ended September 30,
----------------------------------------------
2002 2001
--------------------- ----------------------
Actual Pro Forma
--------------------- ----------------------
Total interest and non-interest income $ 28,190 $ 28,312
Net income $ 3,024 $ 1,980
Basic earnings per common share $ 0.26 $ 0.19
Diluted earnings per common share $ 0.26 $ 0.18
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
unaudited condensed consolidated financial statements and the notes thereto for
the nine month and three month periods ended September 30, 2002 and 2001
included in this report.
When used in the following discussion, the word "expects," "believes,"
"anticipates" an other similar expressions are intended to identify
forward-looking statements, which are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially form those projected. Specific
risks and uncertainties include, but are not limited to, those listed in the
paragraph entitled "Disclosure Regarding Forward-Looking Statements" at page 2,
as well as general business and economic conditions, and other factors listed
from time to time in the Company's SEC reports. Readers are cautioned not to
place undue reliance on these forward-looking statements, as they are merely
projections and are not assurances of future performance.
OVERVIEW.
PremierWest Bancorp is a bank holding company headquartered in Medford, Oregon.
The largest subsidiary, PremierWest Bank, is a community bank that provides a
broad array of financial services to customers located in southern Oregon and
northern California. Growth has been rapid in recent years, having been formed
in connection with the May 2000 merger of Douglas National Bank and its parent
holding company, United Bancorp, with the Bank of Southern Oregon, which then
changed its name to PremierWest Bank. In April 2001 the Bank acquired Yreka,
California based Timberline Bancshares, Inc., and its wholly owned subsidiary,
Timberline Community Bank, in a transaction accounted for as a purchase. Total
assets at September 30, 2002 were $520 million and net loans outstanding were
$383 million, compared with total assets of $483 million and net loans of $332
million at September 30, 2001. For the nine month period ending on September 30,
2002 net income was $3,024,000, an increase of $1,172,000 or 63% over the same
period of 2001. Management attributes this growth in part to the acquisition in
April 2001 of Timberline Bancshares, as well as an increased presence in other
markets served.
Assets and earnings have grown with continued focus on providing high quality
community banking services in the Bank's markets, improving the quality of the
loan portfolio and pursuing a prudent plan of expansion, particularly in
communities in Northern California. Continued growth is planned through the
attraction of new customers and opening new branches, as well as expanding
through acquisition in markets with similar cultures and customer bases. Further
information about the Bank's business can be found at its Internet website at
HTTP://WWW.PREMIERWESTBANK.COM; however, readers are cautioned that information
provided on the website is not incorporated into this report except to the
extent specifically described herein.
HIGHLIGHTS
As mentioned above, the Timberline acquisition was accounted for as a purchase.
Accordingly, the Company has recorded the assets and liabilities of Timberline
at the time of the completion of the acquisition at their respective estimated
fair values and the results of operations of Timberline have been included with
those of the Company since the date of the acquisition. The unidentified
intangible assets related to the excess of the Company's purchase price over the
estimated net fair value of the assets acquired and liabilities assumed is
reported as goodwill. The financial statement data for the nine-month periods
presented are not comparable as a result of the acquisition of Timberline using
the purchase method of accounting (See Note 8 to the condensed consolidated
financial statements).
16
FINANCIAL CONDITION AT SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
- ---------------------------------------------------------------
Total assets at September 30, 2002 increased 6.6% to $520 million compared to
December 31, 2001. Net loans grew $31 million to $383 million accounting for
73.6% of total assets. Total deposits increased 1.2% to $435 million while the
Bank's overall deposit mix changed from higher yielding certificates of deposits
into less expensive core deposits. The Company's loan to deposit ratio increased
to 89.6% as of September 30, 2002 compared to 83.3% as of December 31, 2001.
During the quarter ending September 30, 2002 the Bank borrowed an additional $20
million from the FHLB to augment deposits as a source of liquidity and funding
for increased loan demand. Overall loan quality has improved since December 31,
2001 - as of September 30, 2002 non-performing loans totaled $3.6 million or
..91% of total loans compared to $5.7 million or 1.59% of total loans as of
December 31, 2001. As of September 30, 2002 the Bank's loan loss allowance
totaled $5.3 million. Adding net income from PremierWest's operations, the
Company's capital to assets ratio was 9.16% as of September 30, 2002.
EARNINGS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
- ---------------------------------------------------------------
The Company had net income of $1,089,000 for the three months ended September
30, 2002, which was an increase of $487,000 (or 80.9%) compared to the same
period in 2001. This increase is due mainly to a $1.4 million increase in net
interest income and non-interest income offset by an increase of $1 million in
non-interest expense and applicable income taxes over the comparative
three-month period ended September 30, 2001.
The following table presents information regarding yields on interest-earning
assets, expense on interest-bearing liabilities, net interest spread, net yields
on average interest-earning assets, return on average assets and return on
average equity for the periods indicated (dollars in thousands):
Analysis for the three-month period ended Increase
September 30, 2002 and 2001 2002 2001 (Decrease) %Change
------------ ------------ ------------ ------------
Average fed funds sold and investments $ 60,670 $ 95,085 $ (34,415) -36.2%
Average gross loans 387,260 329,569 57,691 17.5%
Average interest earning assets 447,930 424,654 23,276 5.5%
Average interest bearing liabilities 360,921 349,959 10,962 3.1%
Average total assets 499,483 472,093 27,390 5.8%
Average equity 47,213 43,232 3,981 9.2%
Average yield earned (1) 7.19% 8.03% -0.84% -10.5%
Average rate paid 1.79% 3.41% -1.62% -47.5%
------------ ------------ ------------
Net interest spread 5.40% 4.62% 0.78% 16.9%
============ ============ ============
Net interest income to average
interest earning assets (net interest margin) 5.35% 4.53% 0.82% 18.1%
Return on average assets 0.86% 0.51% 0.35% 68.6%
Return on average equity 9.15% 5.52% 3.63% 65.8%
Efficiency ratio (2) 74.57% 78.54% -3.97% -5.1%
Notes:
(1) Tax equivalent at a 34% rate
(2) Non-interest expense divided by net interest income plus non-interest income
NET INTEREST INCOME. Net interest income before the loan loss provision
increased $1.2 million for the three-month period ended September 30, 2002 over
the same period in 2001. The increase was mainly due to an increase of $23.3
million in the volume of average earning assets offset by an 84 basis point
decrease in overall yields. Though the Company's cost of funds decreased to
1.79%, the volume of its interest-bearing
17
liabilities increased $11 million during the three-month period ended September
30, 2002 compared to the corresponding period ended September 30, 2001. As a
result, the Company's interest rate margin increased 82 basis points.
LOAN LOSS PROVISION. The loan loss provision during the three-month period ended
September 30, 2002 was $225,000 compared to $258,000 for the three-month period
ended September 30, 2001. The Company had net charge-offs of $144,000 during the
three-month period ended September 30, 2002, compared to net charge-offs of
$107,000 for the corresponding period in 2001. Additions to the loan loss
provision have increased the allowance for loan losses to $5.3 million as of
September 30, 2002, compared to $4.6 million as of September 30, 2001. The
Company's ratio of allowance for loan losses to total loans was 1.36% at
September 30, 2002, compared to 1.37% at September 30, 2001. Loans of
approximately $972,000 were put on non-accrual during the third quarter.
Non-performing assets (defined as loans on non-accrual status, 90 days or more
past due, and other real estate owned) either specifically reserved or
adequately collateralized totaled $5.5 million and $6.1 million at September 30,
2002 and 2001, respectively. Management believes that non-performing loans have
been adequately provided for in the allowance for loan losses.
NON-INTEREST INCOME. Non-interest income increased 20.8% to $1.3 million for the
three months ended September 30, 2002, as compared to $1.1 million for the same
period in 2001. Of this increase, $110,000 related to other income resulting
from a gain on sale of other real estate owned, $77,000 resulted from increased
account service fees and $73,000 related to increased investment service
commissions, while mortgage loan brokerage income declined $35,000.
NON-INTEREST EXPENSE. Non-interest expense increased $725,000 for the three
months ended September 30, 2002 as compared to the corresponding period in 2001.
Salaries and employee benefits increased $441,000 as a result of higher costs
associated with new branch personnel, severance costs incurred, increases in
commissions paid and employee benefits incurred during the three months ended
September 30, 2002 as compared to the corresponding period in 2001. Occupancy
and equipment expenses increased $315,000 for the three months ended September
30, 2002, as compared to the same period in 2001 and was attributed to
depreciation and other building charges resulting from new branch and office
facilities.
The Company's efficiency ratio was 74.57% during the third quarter 2002 compared
to 78.54% for the third quarter of 2001. The improvement resulted primarily from
increased net interest margins as deposit interest expense decreased.
EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
- --------------------------------------------------------------
The Company had net income of $3,024,000 for the nine months ended September 30,
2002, which was an increase of $1,172,000 (or 63.3%) compared to the same period
in 2001. This increase is due mainly to a $5.8 million increase in net interest
income and non-interest income offset by an increase of $4.4 million in
non-interest expense and applicable income taxes over the comparative nine-month
period ended September 30, 2001.
The following table presents information regarding yields on interest-earning
assets, expense on interest-bearing liabilities, net interest spread, net yields
on average interest-earning assets, return on average assets and return on
average equity for the periods indicated (dollars in thousands):
18
Analysis for the nine-month period ended Analysis for the nine-month period ended
September 30, 2002 and 2001 2002 2001 September 30, 2002 and 2002 2000
----------- ----------- ---------
Average fed funds sold and investments $ 64,330 $ 89,260 Average fed funds sold and investments $114,190
Average gross loans 375,787 291,776 Average gross loans 207,765
Average interest earning assets 440,117 381,036 Average interest earning assets 321,955
Average interest bearing liabilities 358,494 317,981 Average interest bearing liabilities 358,494
Average total assets 490,602 421,634 Average total assets 352,666
Average equity 46,670 38,411 Average equity 30,152
Average yield earned (1) 7.42% 8.31% Average yield earned (1) 9.20%
Average rate paid 1.99% 3.65% Average rate paid 5.31%
----------- ----------- ---------
Net interest spread 5.43% 4.66% Net interest spread 3.89%
=========== =========== =========
Net interest income to average Net interest income to average
interest earning assets interest earning assets
(net interest margin) 5.36% 4.58% (net interest margin) 3.80%
Return on average assets 0.82% 0.59% Return on average assets 0.36%
Return on average equity 8.66% 6.45% Return on average equity 4.24%
Efficiency ratio (2) 74.49% 77.16% Efficiency ratio (2) 79.83%
Notes: Notes:
(1) Tax equivalent at a 34% rate (1) Tax equivalent at a 34% rate
(2) Non-interest expense divided by net interest income plus non-interest income (2) Non-interest expense divided by net
interest income plus non-interest income
NET INTEREST INCOME. Net interest income before the loan loss provision
increased $4.6 million, or 35.4%, for the nine-month period ended September 30,
2002 over the same period in 2001. This increase resulted from an $84 million,
or 28.8%, growth in average gross loans outstanding in combination with an
improved net interest margin. While average yields on earning assets declined 89
basis points, the Company's cost of average deposits and borrowings decreased
166 basis points to 1.99%. These factors contributed to the Company's interest
rate margin increasing 78 basis points to 5.36% from 4.58% for the comparative
two periods.
LOAN LOSS PROVISION. The loan loss provision during the nine-month period ended
September 30, 2002 was $812,000 compared to $613,000 for the nine-month period
ended September 30, 2001. The Company had net charge-offs of $354,000 during the
nine-month period ended September 30, 2002, compared to net charge-offs of
$148,000 for the corresponding period in 2001. Additions to the loan loss
provision have increased the allowance for loan losses by $458,000 as of
September 30, 2002 compared to December 31, 2001. At September 30, 2002 the
allowance for loan losses amounted to 1.36% of outstanding loans. Management
believes that non-performing loans have been adequately provided for in the
allowance for loan losses to offset specific and inherent losses in the loan
portfolio.
NON-INTEREST INCOME. Non-interest income increased 44.4% to $3.9 million for the
nine months ended September 30, 2002, as compared to $2.7 million for the same
period in 2001. Of this increase, $360,000 resulted from account service fees,
$222,000 related to net gains on sold/called securities, $137,000 resulted from
an increase in mortgage loan brokerage fees and $134,000 came from other income
related to gains from sale of property including $110,000 from sale of other
real estate. In addition, a $319,000 (216%) increase came from commissions on
the sale of investment services products reflecting the success of the Bank's
relatively new Investment Services division despite the volatility of the stock
market this year.
NON-INTEREST EXPENSE. Non-interest expense increased $3.7 million for the nine
months ended September 30, 2002 as compared to the corresponding period in 2001
and includes a full nine months of northern California operations from the
former Timberline Bank in 2002, compared to just five months in 2001.
19
Salaries and employee benefits increased $2.3 million as a result of both the
company's growth and consolidation efforts as higher costs associated with new
branch personnel, severance and non-compete payments, as well as higher levels
of commissions paid and increased employee benefits costs that were incurred
during the nine months ended September 30, 2002 as compared to the corresponding
period in 2001. Severance and non-compete payments amounted to $332,000 for nine
months ending September 30, 2002 compared to $143,000 for the same period in
2001. Remaining severance and non-compete payments are on a diminishing payout
schedule through 2003. Occupancy and equipment expenses increased by $988,000
for the nine months ended September 30, 2002 as compared to the same period in
2001 as a result of new branch and office facility charges. Other non-interest
expense increased $477,000 and was primarily related to higher communications
expense and professional fees. Communications expenses including telephone,
postage and courier services increased $280,000 and related to the Bank's
general growth in operations and infrastructure. Professional fees increased
$287,000 resulting from a mix of professional services needs in support of the
Bank's growth as well as ongoing credit collection efforts.
The Company's efficiency ratio during the nine-month period ended September 30,
2002 was 74.49%, compared to 77.16% for the same period of 2001. Driving this
improvement was growth in the loan portfolio in combination with an improved net
interest margin. Although non-interest expense increased 30.2% ($3.7 million)
during the comparative period, management expects continued efficiencies as
results from non-recurring expense items and other efforts to streamline and
consolidate internal processes are fully realized.
LIQUIDITY AND CAPITAL RESOURCES.
- -------------------------------
LIQUIDITY. Liquidity enables the Company to meet customer demands for deposit
withdrawals and fund borrowing needs of its loan customers. The Company
maintains its liquidity position through maintenance of cash resources and the
stability of its core deposit base. Liquidity declined slightly during this
quarter as a result of the increase in loan volume. Excess cash was invested on
a short-term basis into federal funds sold and interest-earning deposits with
the FHLB. As of September 30, 2002, the Company had $33.6 million in federal
funds sold.
A further source of liquidity is the Company's ability to borrow funds by
maintaining a secured line of credit with the FHLB up to 15% of the Bank's total
assets. As of September 30, 2002, the Company had no overnight borrowings and
$25.1 million in long-term borrowings from the FHLB against the Company's credit
line, compared with $5.7 million at September 30, 2001. Other borrowings of
approximately $8.7 million relate to repurchase agreements for customer
overnight sweep accounts. The cost of all borrowed funds was approximately 3.01%
for the nine-month period ending September 30, 2002. The Company also has
established credit lines of approximately $20 million through correspondent
banks and the discount window with the Federal Reserve Bank of San Francisco.
At September 30, 2002, the Company had approximately $63.4 million in
outstanding commitments to extend credit for newly approved loans and available
funds for construction projects. Under the terms of some commitments, completion
of specified project benchmarks must be certified before funds may be drawn. In
addition, it is anticipated that a portion of other commitments will expire or
terminate without funding. Management believes that the Company's available
resources will be sufficient to fund these commitments in the normal course of
business.
CAPITAL RESOURCES. Federal regulators require that the Bank maintain certain
ratios relating to its risk-based capital. This requirement weighs balance sheet
and off-balance sheet items for their inherent risk. It requires minimum
standards for risk-based-capital by capital tier. As a minimum requirement, the
total risk-based capital ratio should be at least 8.00%, the Tier 1 capital
ratio should be at least 4.00%, and the leveraged capital ratio should be at
least 4.00%. At September 30, 2002, the Company's estimated regulatory capital
20
ratios were as follows: total risk-based capital ratio of 10.27%, Tier 1 capital
ratio of 9.04%, and leverage capital ratio of 7.95%. If the Company were fully
leveraged, further growth could be restricted to the level attainable through
generation and retention of net income or the Company could seek additional
capital from outside sources.
MARKET RISK. Market risk is the risk of loss from adverse changes in market
prices and rates. The Company's market risk arises principally from interest
rate risk in its lending, deposit and borrowing activities. Management actively
monitors and manages its interest rate risk exposure. Although the Company
manages other risks, as in credit quality and liquidity risk, in the normal
course of business, management considers interest rate risk to be a significant
market risk, which could have the largest material effect on the Company's
financial condition and results of operations. Other types of market risks, such
as foreign currency exchange rate risk and commodity price risk, do not arise in
the normal course of the Company's business activities. The Company had not
experienced a significant change in market risk at September 30, 2002 as
compared to December 31, 2001. The Company has experienced a reduction in its
cost of deposits due to the increase in non-interest bearing deposits and lower
relative cost savings and money market accounts while its higher relative cost
time deposits have declined, resulting in an improvement in its interest rate
margin.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. From time to time PremierWest or its wholly owned
subsidiary, PremierWest Bank (the "Bank"), are involved in various legal
proceedings that are incident to business. The following information is given
with respect to the more significant pending matters.
Bernard J. Woodward, et al vs. Bank of Southern Oregon (nka PremierWest Bank),
Black Oak Construction, Inc., et al; Jackson County Circuit Court, Oregon filed
March 1, 2001.
This matter involves a claim by the plaintiff alleging that the Bank deposited
checks payable to the plaintiff and Black Oak Construction, a bank customer, in
the amount of $930,840, without plaintiff's consent. Plaintiff is seeking return
of the proceeds, interest and costs and has indicated intent to seek punitive
damages. The Bank has denied liability and filed a counterclaim for
approximately $1.16 million for losses incurred on other loans to Black Oak
Construction. The dispute involves the right of the Bank depositing proceeds
from checks payable to Black Oak Construction thereby repaying certain
outstanding loans of Black Oak Construction in connection with a joint
construction project between the plaintiff and Black Oak Construction. The
Bank's counterclaim alleges the plaintiff intentionally caused Black Oak
Construction to under-bid other construction contracts. Discovery in the case is
not yet completed. No trial date has been set. Management believes its actions
were proper; however, a favorable outcome in the litigation cannot be assured.
Bank of Southern Oregon (nka PremierWest Bank) vs. Barry Fronek, Stanley Kelly,
et al; Jackson County Circuit Court, Oregon filed in 1998; on Appeal to the
Court of Appeals, State of Oregon.
The Bank brought suit against the defendant borrowers and guarantors for
collection of a loan owing to the Bank. After a trial in 2001, the Bank was
awarded an amount of $1,200,000 plus interest and attorney fees. When the Bank's
borrowers failed to pay the loan, defendant Stanley Kelly, as guarantor, paid
the total judgment in the amount of $1,475,000. However, Mr. Kelly has appealed
the judgment as it applied to him arguing, among other things, that his guaranty
was obtained by the Bank fraudulently. Management believes the judgment will be
confirmed although no assurances can be given that the appellate court will
uphold the decision of the trial court judge.
21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification of Chief Executive Officer and Chief Finanical Officer
pursuant to 18 U.S.C. Section 1350, Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8K
None.
SIGNATURES: Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: November 14 , 2002
PREMIERWEST BANCORP
/S/on file
- ----------------------------------------------------------------
Tom Anderson, Senior Vice President & Chief Financial Officer
/S/on file
- ----------------------------------------------------------------
John L. Anhorn, President & Chief Executive Officer
22
CERTIFICATION
- -------------
I, John Anhorn, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PremierWest Bancorp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ on file
JOHN ANHORN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
23
CERTIFICATION
- -------------
I, Tom Anderson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PremierWest Bancorp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ on file
TOM ANDERSON
SENIOR VICE PRESIDENT & Chief Financial Officer
24
Exhibit 99.1
------------
Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
In connection with the Quarterly Report on Form 10-Q of PremierWest Bancorp (the
"Company") dated November 14, 2002, as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), John Anhorn, as Chief Executive
Officer and President of the Company, and Tom Anderson, as Chief Financial
Officer, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
By /s/ JOHN ANHORN
John Anhorn
President and Chief Executive Officer
Date: November 14, 2002
By /s/ TOM ANDERSON
Tom Anderson
Senior Vice President & Chief Financial Officer
Date: November 14, 2002
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.
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