PremierWest earnings reflect costly expansion

PremierWest Bancorp's aggressive expansion into California's Central Valley and Central Oregon in recent years carried inherent risks.

But the Medford-based parent of PremierWest Bank forged ahead, figuring the long-term potential of acquiring Mid Valley Bank in January 2004 and Stockmans Bank within the past year would outweigh short-term hazards.

The bank, created when the Bank of Southern Oregon and Douglas National Bank merged in May 2000, has had steady growth and a string of stellar quarterly earnings reports. So Tuesday's second-quarter results — with the bank eking out a 3-cent-per-share profit — weren't necessarily pleasant for the institution's management.

"Earnings for both the most recent quarter and for the year to date are not acceptable," Chief Executive Officer John Anhorn said in a statement. "However, it is important to stress that the fundamental earning power of the bank was sufficient to absorb a significant increase in our loan loss reserve and still record income for the quarter."

Alongside banking giant Wachovia's $8.66 billion second-quarter loss and savings and loan titan Washington Mutual's $3.33 billion loss, announced Tuesday, PremierWest's earnings look pretty good. The company posted a net income of $648,000 for the quarter and $2.45 million, or 11 cents per share, for the first six months of 2008.

"I'm not jumping for joy, but I'm not ready to jump out of my one-story window either," said PremierWest President Jim Ford. "While things have slipped back from what any of us would like to see, from the perspective of the broader economy we feel good about negotiating (challenges) and coming out the other side."

Loan defaults in PremierWest's new territories led to a nearly 84 percent decline in earnings from the $3.9 million, or 21 cents per share, reported in the second quarter of 2007. For the first six months of fiscal 2008, net earnings have dropped 66.5 percent from the $7.3 million, or 39 cents per share, in the same period of 2007.

The bank charged off $4.8 million in bad loans and upped its loan loss provision an additional $5.2 million, while recovering $340,000 from previously charged-off loans during the quarter.

Anhorn said volatile real estate valuations and uncertain economic conditions have led to the bank taking a more aggressive approach with its bad loans.

"The critical thing is that our normal income from day-in and day-out core business of loaning money and taking deposits has been sufficient," Ford said. "Had our provisions not been larger than normal, we would have seen earnings equal to last year."

PremierWest shares fell 52 cents Tuesday, closing at $6.50.

"We're still trading above book value," Ford said.

Institutional investors such as money market and mutual funds own less than 15 percent of PremierWest's stock, far less than typical among publicly traded companies, Ford said. Insiders (management and board members) hold another 15 percent.

Reach reporter Greg Stiles at 776-4463 or e-mail

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