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NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The accompanying consolidated financial statements include the accounts of PremierWest Bancorp (the Company or PremierWest) and
its wholly-owned subsidiary, PremierWest Bank (the Bank).
The Bank offers a full range of financial products and services through a network
of 32 full service branch offices, 26 of which are located along the Interstate 5 freeway corridor between Roseburg, Oregon, and Sacramento, California. Of the 32 full service branch offices, 17 are located in Oregon (Jackson, Josephine, Deschutes,
Douglas and Klamath Counties) and 15 are located in California (Siskiyou, Shasta, Butte, Tehama, Sacramento, Nevada, Placer, and Yolo Counties). The Banks products and services include commercial, real estate, installment and mortgage loans;
checking, time deposit and savings accounts; mortgage loan brokerage services; and automated teller machines (ATM) and safe deposit facilities. The Bank has two subsidiaries: PremierWest Investment Services, Inc. and Blue Star
Properties, Inc. PremierWest Investment Services, Inc. operates throughout the Banks market area providing brokerage services for investment products including stocks, bonds, mutual funds and annuities. Blue Star Properties, Inc. serves solely
to hold real estate properties for the Company but is currently inactive. The offices of Premier Finance Company were closed during the second quarter of 2012 and the operations consolidated into the Bank. On September 28, 2012, Premier Finance
Company filed Articles of Dissolution with the Oregon Secretary of State.
In December 2004, the Company established PremierWest Statutory
Trust I and II (the Trusts), as wholly-owned Delaware statutory business trusts, for the purpose of issuing guaranteed individual beneficial interests in junior subordinated debentures (Trust Preferred Securities). The Trusts
issued $15.5 million in Trust Preferred Securities for the purpose of providing additional funding for operations and enhancing the Companys consolidated regulatory capital. A third trust, the Stockmans Financial Trust I, in the amount of
$15.5 million, was added in 2008 pursuant to the acquisition of Stockmans Financial Group. The Company has not included the Trusts in its consolidated financial statements; however, the junior subordinated debentures issued by the Company to the
Trusts are reflected in the Companys consolidated balance sheets.
During the second quarter of 2012, the Company consolidated nine of
its branches into existing nearby branches and sold two branches. Five of the consolidated branches were located in Oregon, and the other four consolidated branches were located in California. The two branches sold were located in California. The
decision to consolidate these branches and the projected reduction in expense followed an extensive branch network analysis with a focus on reducing expense, improving efficiency, and positively impacting the overall value of the Company. These
branches represented less than 10% of the total bank-wide deposits. Branch consolidation is projected to result in expense savings of approximately $1.9 million annually. The Company has incurred branch consolidation costs of approximately $1.7
million as of December 31, 2012.
The company issued a 1-for-10 reverse stock split on February 10, 2011. No stock dividend was
declared in 2012 or 2011. All per share amounts and calculations in the accompanying consolidated financial statements have been recalculated to reflect the effects of the reverse stock split.
Method of accounting and use of estimates
The Company prepares its consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America and prevailing practices within the banking industry. The Company utilizes the accrual method of accounting, which recognizes income when earned and expenses when incurred. In preparation of the
consolidated financial statements, all significant intercompany accounts and transactions have been eliminated.
The preparation of
consolidated financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect
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the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and
expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates made by management involve the calculation of the allowance for loan losses, valuation of impaired loans, the fair value of
available-for-sale investment securities, the value of other real estate owned, post-retirement benefit obligations, and determination of a deferred tax asset valuation allowance.
Cash and cash equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, money market funds, amounts due from banks and federal funds sold. Generally,
federal funds are sold for one-day periods. Cash and cash equivalents have an original maturity of 90 days or less.
The Bank maintains
balances in correspondent bank accounts, which at times may exceed federally insured limits. Management believes that its risk of loss associated with such balances is minimal due to the financial strength of correspondent banks. The Bank has not
experienced any losses in such accounts.
Investment securities
The Bank is required to specifically identify its investment
securities as available-for-sale, held-to-maturity or trading accounts.
Securities are classified as
available-for-sale if the Bank intends to hold those debt securities for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available-for-sale would be based on various factors such as
(1) changes in market interest rates and related changes in the prepayment risk, (2) needs for liquidity, (3) changes in the availability of and the yield on alternative instruments, and (4) changes in funding sources and terms.
Unrealized holding gains and losses, net of tax, on available-for-sale securities are reported as other comprehensive income and carried as accumulated comprehensive income or loss within shareholders equity until realized. Fair values for
these investment securities are based on quoted market prices. Premiums and discounts are recognized in interest income using the effective interest method. Realized gains and losses are determined using the specific-identification method and
included in earnings.
Securities are classified as held-to-maturity if the Bank has both the intent and ability to hold those debt securities
to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost adjusted for amortization of premium or accretion of discount computed using the effective
interest method.
PremierWest Bancorps investment policy does not permit Management to purchase securities for the purpose of trading.
Accordingly, no securities were classified as trading securities during the periods reported.
Upon transfers of securities from the
available-for-sale classification to the held-to-maturity classification, the Bank ceases to recognize unrealized gains and losses, net of deferred taxes, in other comprehensive income, and records the unrealized gain or loss at the time of
transfer, net of related deferred taxes, as a premium or discount on the related security. The unrealized gain or loss at the time of transfer is then amortized or accreted as an adjustment to yield from the date of transfer through the maturity
date of each security transferred. The amortization or accretion of the unrealized gain or loss reported in shareholders equity will offset or mitigate the effect on interest income resulting from the transfer of available-for-sale securities
to the held-to-maturity classification.
For debt securities, if the Company intends to sell the security or it is likely that it will be
required to sell the security before recovering its cost basis, the entire impairment loss would be recognized in earnings as an other-than-temporary impairment (OTTI). If we do not intend to sell the security and it is not likely that
we will be
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required to sell the security but we do not expect to recover the entire amortized cost basis of the security, only the portion of the impairment loss representing credit losses would be
recognized in earnings. The credit loss on a security is measured as the difference between the amortized cost basis and the present value of the cash flows expected to be collected. Projected cash flows are discounted by the original or current
effective interest rate depending on the nature of the security being measured for potential OTTI. The remaining impairment related to all other factors, the difference between the present value of the cash flows expected to be collected and fair
value, is recognized as a charge to other comprehensive income (OCI). Impairment losses related to all other factors are presented as separate categories within OCI. For investment securities held-to-maturity, this amount is accreted
over the remaining life of the debt security prospectively based on the amount and timing of future estimated cash flows. The accretion of the amount recorded in OCI increases the carrying value of the investment and does not affect earnings. If
there is an indication of additional credit losses, the security is re-evaluated according to the procedures described above. No OTTI losses were recognized in the years ended December 31, 2012, 2011 and 2010.
At each financial statement date, Management assesses each investment to determine if impaired investments are temporarily impaired or if the impairment
is other-than-temporary based upon the positive and negative evidence available. Evidence evaluated includes, but is not limited to, industry analyst reports, credit market conditions and interest rate trends. A decline in the market value of any
security below cost that is deemed other-than-temporary results in a charge to earnings and the corresponding establishment of a new cost basis for the security.
Restricted equity securities
The Banks investment in Federal Home Loan Bank of Seattle (FHLB) stock is recorded as a restricted equity security and carried at par value,
which approximates fair value. As a member of the FHLB system, the Bank is required to maintain a minimum level of investment in FHLB stock based on specific percentages of its outstanding mortgages, total assets, or FHLB advances. At
December 31, 2012 and 2011, the Bank met its minimum required investment. The Bank may request redemption at par value of any FHLB stock in excess of the minimum required investment. Stock redemptions are at the discretion of the FHLB.
As required of all members of the Federal Home Loan Bank of Seattle (FHLB) system, the Company maintains investment in the capital stock of
the FHLB in an amount equal to the greater of $500 or 0.5% of home mortgage loans and pass-through securities plus 5.0% of the outstanding balance of mortgage home loans sold to FHLB under the Mortgage Purchase Program. The FHLB system, the largest
government sponsored entity in the United States, is made up of 12 regional banks, including the FHLB of Seattle. Participating banks record the value of FHLB stock equal to its par value at $100 per share. The Bank holds an investment in Federal
Home Loan Bank of Seattle (FHLB) stock as a restricted equity security carried at par value. As a member of the FHLB system, the Bank is required to maintain a minimum level of investment in FHLB stock based on specific percentages of its
outstanding FHLB advances. The Bank views this investment as long-term. Thus, when evaluating it for impairment, the value is determined based on the ultimate recoverability of cost through redemption by the FHLB or from the sale to another member,
rather than by recognizing temporary declines in value. In November 2009, the Seattle FHLB reported it was classified as undercapitalized under the Prompt Corrective Action Rule by the Federal Housing Finance Agency (the FHFA), its
primary regulator. In 2012, the Seattle FHLB reported it was now considered adequately capitalized by the FHFA; however, the Seattle FHLB is unable to redeem stock or pay a dividend without FHFA approval under the terms of the October
2010 Consent Order. The Company has concluded that its investment in FHLB is not impaired as of December 31, 2012, and believes that it will ultimately recover the par value of its investment in this stock.
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The Bank also owns stock in Pacific Coast Bankers Bank (PCBB). The investment in PCBB
is carried at cost. Pacific Coast Bankers Bank operates under a special purpose charter to provide wholesale correspondent banking services to depository institutions. By statute, 100% of PCBBs outstanding stock is held by depository
institutions that utilize its correspondent banking services.
Investments in limited partnerships
The Bank has a minority
interest (less than 10%) in two limited partnerships that own and operate affordable housing projects. Investments in these projects serve as an element of the Banks compliance with the Community Reinvestment Act, and the Bank receives tax
benefits in the form of deductions for operating losses and tax credits. The tax credits may be used to reduce taxes currently payable or may be carried back one year or forward 20 years to recapture or reduce taxes. The credits are recorded in the
years they become available to reduce income taxes.
Mortgage loans held-for-sale
Mortgage loans held-for-sale are reported
at the lower of cost or market value. Gains or losses on the sale of loans that are held-for-sale are recognized at the time of sale and determined by the difference between net sale proceeds and the net book value of the loans less the estimated
fair value of any retained mortgage servicing rights. The Bank currently does not retain mortgage servicing rights.
Transfer of financial
assets
In the normal course of business, the Bank participates portions of loans to third parties in order to extend the Banks lending capacity or to mitigate risk. Upon completion of a transfer of a participating interest
accounted for as sale, the Bank allocates the previous carrying amount of the entire financial asset between the participating interest sold and the participating interest that continues to be held by the Bank. The Bank derecognizes the
participating interest sold and recognizes in earnings any gain or loss on the sale.
Loans and the allowance for loan
losses
Loans are stated at the amount of unpaid principal reduced by the allowance for loan losses, deferred loan fees, and restructuring concessions. The allowance for loan losses represents Managements recognition of the
assumed risks of extending credit and the quality of the existing loan portfolio. The allowance is established to absorb known and inherent losses in the loan portfolio as of the balance sheet date. The allowance is maintained at a level considered
adequate to provide for probable loan losses based on Managements assessment of various factors affecting the portfolio. Such factors include historical loss experience; review of problem loans; underlying collateral values and guarantees;
current economic conditions; legal representation regarding the outcome of pending legal action for collection of loans and related loan guarantees; and an overall evaluation of the quality, risk characteristics and concentration of loans in the
portfolio. The allowance is based on estimates and ultimate losses may vary from the current estimates. These estimates are reviewed periodically and as adjustments become necessary, they are reported in operations in the periods in which they
become known. The allowance is increased by provisions charged to operations and reduced by loans charged-off, net of recoveries.
In some
instances, the Company modifies or restructures loans to amend the interest rate and/or extend the maturity. Such amendments are generally consistent with the terms of newly booked loans reflecting current standards for amortization and interest
rates and do not represent concessions to the borrowers.
Various regulatory agencies, as an integral part of their examination process,
periodically review the Banks allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgment of the information available to them at the time of their examinations.
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NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
The Bank considers loans to be impaired when Management believes based on current information that it is
probable that all amounts due will not be collected according to the contractual terms. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loans effective interest rate,
the loans obtainable market price, or the fair value of the loans underlying collateral less estimated costs to sell. Since a significant portion of the Banks loans are collateralized by real estate, the Bank primarily measures
impairment based on the estimated fair value of the underlying collateral. In certain other cases, impairment is measured based on the present value of expected future cash flows discounted at the loans effective interest rate. Amounts deemed
impaired are either specifically allocated for in the allowance for loan losses or reflected as a partial charge-off of the loan balance. Smaller balance homogeneous loans (typically, installment loans) are collectively evaluated for impairment.
Accordingly, the Bank does not separately identify individual installment loans for impairment disclosures. Generally, the Bank evaluates a loan for impairment when it is placed on non-accrual status. All of the Banks impaired loans were on
non-accrual status at December 31, 2012. After considering the borrowers financial condition, the loans collateral position, collection efforts and other pertinent factors, impaired loans and other loans are charged to the allowance
when the Bank believes that collection of future payments of principal is not probable.
Loans are reported as troubled debt restructurings
(TDR) when the Bank grants a concession(s) to a borrower experiencing financial difficulties that it would not otherwise consider. Examples of such concessions include forgiveness of principal or accrued interest, extending the maturity
date(s) or providing a lower interest rate than would be normally available for a transaction of similar risk. As a result of these concessions, restructured loans are impaired as the Bank will not collect all amounts due, both principal and
interest, in accordance with the terms of the original loan agreement. Impairment reserves on non-collateral dependent restructured loans are measured by comparing the present value of expected future cash flows on the restructured loans discounted
at the interest rate of the original loan agreement to the loans carrying value. These impairment reserves are recognized as a specific component to be provided for in the allowance for loan losses.
Interest income on all loans is accrued as earned. The accrual of interest on impaired loans is discontinued when, in Managements opinion, the
borrower may be unable to make payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Non-accrual loans are returned to accrual status when the loans are paid current as to principal and interest
and future payments are expected to be made in accordance with the current contractual terms of the loan.
Loan origination and commitment
fees, net of certain direct loan origination costs, are capitalized as an offset to the outstanding loan balance and recognized as an adjustment of the yield of the related loan.
Premises and equipment
Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization of premises and equipment is computed by the
straight-line method over the shorter of the estimated useful lives of the assets or terms of underlying leases. Estimated useful lives range from 3 to 15 years for furniture, equipment, and leasehold improvements, and up to 40 years for building
premises. The required annual analysis of long-lived assets indicated that branch buildings, land parcels, and equipment classified as held-for-sale and included in accrued interest and other assets were impaired for the year ended December 31,
2012.
Core deposit intangibles
Core deposit intangibles are amortized to their estimated residual values over their
respective estimated useful lives and are also reviewed for impairment. The required annual analysis of the core deposit intangibles indicated that no impairment existed for the years ended December 31, 2012 and 2011.
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Other real estate owned and foreclosed assets
Other real estate (OREO),
acquired through foreclosure or deeds in lieu of foreclosure, is carried at the lower of cost or fair value, less estimated costs of disposal. When property is acquired, any excess of the loan balance over the fair value is charged to the allowance
for loan losses. Holding costs, subsequent write-downs to fair value, if any, or any disposition gains or losses are included in non-interest expense. The Bank had $25.4 million in other real estate at December 31, 2012 and $22.8 million at
December 31, 2011. The Bank held no other foreclosed assets at December 31, 2012, but held other foreclosed assets of approximately $372,000 at December 31, 2011.
Advertising
Advertising and promotional costs are generally charged to expense during the period in which they are incurred.
Goodwill
When goodwill exists, the Company performs a goodwill impairment analysis on an annual basis as of December 31 and on an interim basis when events or circumstances suggest
impairment may potentially arise. A significant amount of judgment is required in determining if indications of impairment have occurred including, but not limited to, a sustained and significant decline in the stock price and market capitalization
of the Company, a significant decline in the future cash flows expected by the Company, an adverse regulatory action, or a significant adverse change in the Companys business operating environment and other events.
Income taxes
Income taxes are accounted for using the asset and liability method. Deferred income tax assets and liabilities are
determined based on the tax effects of the differences between the book and tax bases of the various balance sheet assets and liabilities. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the
period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances
are established to reduce the net carrying amount of deferred tax assets if it is determined to be more likely than not that all or some of the deferred tax asset will not be realized. At December 31, 2012 and 2011, the net deferred tax asset
balance was zero, as the full amount of deferred tax assets was offset with a valuation allowance.
The Company had no unrecognized tax
benefits at December 31, 2012, 2011 and 2010. During the years ended December 31, 2012 and 2011, the Company recognized no interest and penalties. The Company files income tax returns in the U.S. Federal jurisdiction, California and
Oregon. The Company is no longer subject to U.S. or Oregon state examinations by tax authorities for years before 2009 and California state examinations for years before 2008.
Earnings (loss) per common share
Basic earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders (net income (loss) less dividends
declared on preferred stock and accretion of discount) by the weighted average number of common shares outstanding during the period, after giving retroactive effect to stock dividends and splits. Diluted earnings (loss) per common share is computed
similar to basic earnings (loss) per common share except that the numerator is equal to net income (loss) available to common shareholders and the denominator is increased to include the number of additional common shares that would have been
outstanding if dilutive potential common shares had been issued. Included in the denominator is the dilutive effect of stock options computed under the treasury stock method and the dilutive effect of convertible preferred stock as if converted to
common stock.
Preferred stock
In accordance with the relevant accounting pronouncements and guidance from the Securities and
Exchange Commissions (the SEC) Office of the Chief Accountant, the Company recorded the issuance of the Preferred Stock and detachable Warrant pursuant to the U.S. Department of Treasurys Troubled Asset Relief
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Capital Purchase Program (TARP) within shareholders equity on the Consolidated Balance Sheets. The Preferred Stock and detachable Warrant were initially recognized based on
their relative fair values at the date of issuance. As a result, the Preferred Stocks carrying value is at a discount to the liquidation value or stated value. In accordance with Increasing Rate Preferred Stock, the discount is
considered an unstated dividend cost that is amortized over the period preceding commencement of the perpetual dividend using the effective interest method, by charging the imputed dividend cost against retained earnings and increasing the carrying
amount of the Preferred Stock by a corresponding amount. The discount is therefore being amortized over five years using a 6.26% effective interest rate. The total stated dividends (whether or not declared) and unstated dividend cost combined
represents a periods total Preferred Stock dividend, which is deducted from net income to arrive at net loss available to common shareholders on the Consolidated Statements of Operations.
Stock-based compensation
The Company measures and recognizes as compensation expense the grant date fair market value for all share-based
awards. That portion of the grant date fair market value that is ultimately expected to vest is recognized as expense over the requisite service period, typically the vesting period, utilizing the straight-line attribution method.
The Company uses the Black-Scholes option-pricing model to value stock options. The Black-Scholes model requires the use of assumptions regarding the
risk-free interest rate, expected dividend yield, the weighted average expected life of the options and the historical stock price volatility.
The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
Expected dividend yield is based on Managements estimate at the time of grant. No cash dividends were declared during fiscal years 2012 or 2011. Going forward in fiscal 2013, the Board of Directors will review the dividend policy on a
quarter-by-quarter basis subject to regulatory approval. Cash dividends are not paid on unexercised options. The Company attempts to use historical data to estimate option exercise and employee termination behavior in order to estimate an expected
life for each option grant. The expected life falls between the vesting period or requisite service period and the contractual term for the option.
Cash flows from the tax benefits resulting from tax deductions in excess of the compensation expense recognized for stock options (excess tax benefits) are reported as financing cash flows. There were no
excess tax benefits classified as financing cash inflows for the years ended December 31, 2012, 2011, and 2010.
Comprehensive income
(loss)
Comprehensive income (loss) for the Company includes net income (loss) reported on the consolidated statements of operations, the amortization of unrealized gains for available-for-sale securities transferred to held-to-maturity, and
changes in the fair value of available-for-sale investments, which are reported as a component of shareholders equity.
Off-balance
sheet financial instruments
In the ordinary course of business, the Bank enters into off-balance sheet financial instruments consisting of commitments to extend credit, commercial letters of credit, and standby letters of credit. These
financial instruments are recorded in the consolidated financial statements when they are funded or related fees are incurred or received.
Fair value of financial instruments
Financial Accounting Standards Fair Value Measurements. defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair
value but does not expand the use of fair value in any new
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circumstances. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support
of this principle, Fair Value Measurements established a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:
Level 1 inputs
Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at
the measurement date.
Level 2 inputs
Inputs other than quoted prices included in Level 1 that are observable for the asset or
liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield
curves that are observable at commonly quoted intervals.
Level 3 inputs
Unobservable inputs for determining the fair values of
assets or liabilities that reflect an entitys own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
The Company used the following methods and significant assumptions to estimate fair value for its assets measured and carried at fair value on a recurring or non-recurring basis in the financial
statements:
Cash and cash equivalents
The carrying amounts of cash and short-term instruments approximate their fair value.
Therefore, the company believes the measurement of fair value of cash and cash equivalents is derived from Level 1 inputs.
Interest-bearing deposits with the Federal Home Loan Bank of Seattle (FHLB) and restricted equity securities
The carrying amount
approximates the estimated fair value and expected redemption values, and the Company uses these inputs to determine fair value. The Company has determined this is a Level 2 input.
Mortgage loans held-for-sale
Mortgage loans held-for-sale are reported at the lower of cost or market value. Cost generally approximates market value, given the short duration of these assets.
Gains or losses on the sale of loans held-for-sale are recognized at the time of the sale and determined by the difference between net sale proceeds and the net book value of the loans less the estimated fair value of any retained mortgage servicing
rights. The Company uses these inputs to determine fair value. Therefore, the Company has determined this is a Level 2 input.
Loans
Fair values for variable-rate commercial loans, certain mortgage loans (for example, commercial and one-to-four family residential),
and other consumer loans are based on carrying values. For fixed rate loans, projected cash flows are discounted back to their present value based on spreads derived from the current relationship between industry observed benchmark rates and
corresponding market indexes. Each pool of loans is then discounted to the Swap/LIBOR curve plus/minus this spread. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values based on current
market appraisals, less costs to sell, where applicable. The ALLL is considered to be a reasonable estimate of loan discount for credit quality concerns. Using these inputs, the Company has determined this is a Level 3 input.
Deposit liabilities
The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting
date (that is, their carrying amounts). The carrying amounts of variable-rate money market accounts, savings accounts and interest checking accounts approximate their fair values at the reporting
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date. Fair values for fixed-rate CDs are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated
expected monthly maturities on time deposits. The Company utilized a third-party provider to calculate fair value using these inputs, and has therefore determined this is a Level 2 input.
Short-term borrowings and securities sold under agreements to repurchase
The carrying amounts of federal funds purchased, securities sold under agreements to repurchase, and other short-term
borrowings maturing within 90 days approximate their fair values. Fair values of other short-term borrowings are estimated using discounted cash flow analyses based on the Banks current incremental borrowing rate for similar types of borrowing
arrangements. Using these inputs, the Company has determined this is a Level 2 input.
Long-term debt
The fair values of the
Banks long-term debt is estimated using discounted cash flow analyses based on the Banks current incremental borrowing rate for similar types of borrowing arrangements. The Company has determined this is a Level 2 input.
Off-balance sheet financial instruments
The Banks off-balance sheet financial instruments include unfunded commitments to extend credit
and standby letters of credit. The fair value of these instruments is not considered practicable to estimate because of the lack of quoted market prices and the inability to estimate fair value without incurring excessive costs. Given the
uncertainty of a commitment being drawn upon, it is not reasonable to estimate the fair value of these commitments; therefore, the Company has not made any disclosure on the fair value of off-balance sheet financial instruments.
Investment securities available-for-sale
Fair values for investment securities are based on quoted market prices or the market values for
comparable securities.
Impaired Loans
A loan is considered to be impaired when, based on current information and events, it is
probable that the Company will be unable to collect all amounts due (both interest and principal) according to the contractual terms of the loan agreement. Impaired loans are evaluated and valued at the time the loan is identified as impaired, at
the lower of cost or fair value. As a practical expedient, fair value may be measured based on a loans observable market price or the underlying collateral securing the loan. Collateral may be real estate or business assets including
equipment. The value of collateral is determined based on independent appraisals.
Other Real Estate Owned and Foreclosed
Assets
Real estate acquired through foreclosure, voluntary deed, or similar means is classified as other real estate owned (OREO) until it is sold. Foreclosed properties included as OREO are recorded at fair value less the cost
to sell which becomes the propertys new basis. Any write-downs based on the assets fair value at the date of acquisition are charged to the allowance for loan losses. After foreclosure, management periodically performs valuations such
that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell. Certain assets held within this balance sheet caption represent impaired real estate that has been adjusted to its estimated fair value
as a result of managements periodic impairment evaluations using property appraisals from independent real estate appraisers.
Recently issued accounting standards
In February 2013, the FASB issued Accounting Standards Update 2013-04, Liabilities (Topic 405):
Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date. This Standard provides guidance for the recognition, measurement, and disclosure of obligations
resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this ASU is fixed at the reporting date. The guidance requires an entity to measure those obligations as the sum of the amount
the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting
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entity expects to pay on behalf of its co-obligors. The guidance in this ASU also requires an entity to disclose the nature and amount of the obligation as well as other information about those
obligations. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments in this ASU should be applied retrospectively to all periods presented for those
obligations resulting from joint and several liability arrangements within the ASUs scope that exist at the beginning of an entitys fiscal year of adoption with early adoption permitted. The adoption of ASU No. 2013-04 is not expected to
have a material impact on the consolidated financial statements.
In February 2013, the FASB issued Accounting Standards Update 2013-02,
Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The new amendments will require an organization to present the effects on the line items of net income of significant
amounts reclassified out of accumulated other comprehensive income, but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period, and cross-reference to other disclosures
currently required under U.S. GAAP for other reclassification items to be reclassified directly to net income in the entirety in the same reporting period. The amendments are effective for reporting periods beginning after December 15, 2012 for
public companies with early adoption permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on the consolidated financial statements.
In January 2013, the FASB issued Accounting Standards Update ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. This
Standard clarifies that ordinary trade receivables are not in the scope of ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. Specifically, ASU 2011-11 applies only to derivatives, repurchase
agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in the FASB Accounting Standards Codification or subject to a master
netting arrangement or similar agreement. An entity is required to apply the amendments in ASU 2013-01 for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the required
disclosures retrospectively for all comparative periods presented. The effective date is the same as the effective date of ASU 2011-11. The adoption of ASU No. 2013-01 is not expected to have a material impact on the consolidated financial
statements.
In October 2012, the FASB issued Accounting Standards Update ASU No. 2012-06 Business Combinations (Topic
805)Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution. This Standard requires that when a reporting entity recognizes an
indemnification asset (in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs, the
reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. This Standard is effective for fiscal years, and interim periods
within those years, beginning on or after December 15, 2012. Early adoption is permitted. The amendments should be applied prospectively to any new indemnification assets acquired after the date of adoption and to indemnification assets
existing as of the date of adoption arising from a government-assisted acquisition of a financial institution. Certain transition disclosures are required. The adoption of ASU No. 2012-06 is not expected to have a material impact on the
consolidated financial statements.
In July 2012, the FASB issued Accounting Standards Update ASU No. 2012-02
IntangiblesGoodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This Standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 15,
2012. Early
87
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entitys financial statements for the most recent
annual or interim period have not yet been issued or, or nonpublic entitles, have not yet been made available for issuance. The adoption of ASU No. 2012-02 did not have a material impact on the consolidated financial statements.
In December 2011, the FASB issued Accounting Standards Update ASU No. 2011-12 Comprehensive Income (Topic 220)Deferral of the Effective
Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This Standard defers only those changes in Update 2011-05 that relate to the
presentation of reclassification adjustments. This standard is effective for public companies for fiscal years, and interim period within those years, beginning after December 15, 2011. The adoption of ASU No. 2011-12 did not have a
material impact on the consolidated financial statements.
In September 2011, the FASB issued Accounting Standards Update ASU No. 2011-08
IntangiblesGoodwill and Other (Topic 350): Testing for Goodwill Impairment. This Standard is intended to simplify how entities test goodwill for impairment. The amendments in the Update permit an entity to first assess qualitative
factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic
350. This standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of ASU No. 2011-08 did not have a material impact on the consolidated financial
statements.
In June 2011, the FASB issued Accounting Standards Update ASU No. 2011-05 Comprehensive Income (Topic
220)Presentation of Comprehensive Income. This Standard is intended to improve the overall quality of financial reporting by increasing the prominence of items reported in other comprehensive income (OCI), and additionally
align the presentation of OCI in financial statements prepared in accordance with U.S. GAAP with those prepared in accordance with IFRSs. This standard is effective for public companies for fiscal years, and interim period within those years,
beginning after December 15, 2011, and should be applied retrospectively. The adoption of ASU No. 2011-05 did not have a material impact on the consolidated financial statements.
In May 2011, the FASB issued Accounting Standards Update ASU No. 2011-04 Fair Value Measurement (Topic 820)Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements
in U.S. GAAP and IFRSs. This Standard is intended to permit the use of a premium or discount to an instruments market value when such a step is a standard practice. In some instances, the amendments permit instruments to be valued based
on a businesss net risk to the market or a trading partner. The amendments are to be applied prospectively, and will be effective for public companies for fiscal years and quarters that start after December 15, 2011. The adoption of ASU
No. 2011-04 did not have a material impact on the consolidated financial statements.
In April 2011, the FASB issued Accounting Standards
Update ASU No. 2011-03 Transfers and servicing (Topic 860)Reconsideration of Effective Control for Repurchase Agreements. This Standard is intended to improve the manner in which repo and other agreements that both entitle and
obligate a transferor to repurchase or redeem financial assets before their maturity are reported in the financial statements by modifying Topic 860. This standard is effective for the first interim or annual period beginning on or after
December 15, 2011, and should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date, with early adoption disallowed. The adoption of ASU No. 2011-03 did not have a
material impact on the consolidated financial statements.
88
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
In April 2011, the FASB issued Accounting Standards Update ASU No. 2011-02 Receivables (Topic
310)A Creditors Determination of Whether a Restructuring Is A Troubled Debt Restructuring. This Standard clarifies the accounting principles applied to loan modifications. ASU No. 2011-02 was issued to address the recording of
an impairment loss in FASB ASC 310, Receivables. The changes apply to a lender that modifies a receivable covered by Subtopic 310-40 ReceivablesTroubled Debt Restructurings by Creditors. This standard is effective for the first interim or
annual period beginning on or after June 15, 2011, and should be applied retrospectively. The adoption of ASU No. 2011-02 did not have a material impact on the consolidated financial statements.
In January 2011, the FASB issued Accounting Standards Update ASU No. 2011-01 Receivables (Topic 310)Deferral of the Effective Date of
Disclosures about Troubled Debt Restructurings in Update No. 2010-20. This standard temporarily delays the public entity effective date for disclosures related to troubled debt restructurings originally introduced in ASU No. 2010-20.
According to the current guidance in ASU No. 2010-20, public-entity creditors would have provided disclosures about troubled debt restructurings for periods beginning on or after December 15, 2010. That guidance is now effective for
interim and annual periods ending after June 15, 2011. This standard is effective upon issuance. This update requires a significant expansion of disclosures for troubled debt restructurings, but the adoption of the expanded disclosures is not
expected to have a material impact on the consolidated financial statements.
Reclassifications
Certain reclassifications have
been made to the 2011 and 2010 consolidated financial statements to conform to current year presentations. These reclassifications have no effect on previously reported net income (loss) applicable to common shareholders or net income (loss) per
share.
NOTE 2REGULATORY AGREEMENT, ECONOMIC CONDITIONS AND MANAGEMENTS PLAN
Based on the results of an examination completed during the third quarter of 2009, effective April 6, 2010, the Bank stipulated to
the issuance of a formal regulatory Consent Order with the Federal Deposit and Insurance Corporation (FDIC) and the Oregon Division of Finance and Corporate Securities (the DFCS), the Banks principal regulators,
primarily as a result of recent significant operating losses and increasing levels of adversely-classified loans. The Agreement imposes certain operating restrictions on the Bank, all of which we believe have been implemented by the Bank.
In addition, among the corrective actions required under the Consent Order, the Bank must retain qualified management, restrict dividends,
reduce adversely-classified loans, maintain an adequate allowance for loan losses, revise the strategic plan and various policies, as well as, maintain elevated capital levels. The Agreement also provides timelines and thresholds from the date of
issuance to achieve the aforementioned corrective actions. We believe the Bank has achieved compliance with all the requirements with the exception of the one relating to capital levels.
In order to proactively respond to the current regulatory environment and the Banks credit issues, Management initiated measures intended to increase regulatory capital ratios prior to entering into
the Agreement. Among the measures taken were the following:
|
|
|
Completion of equity issuances sufficient to raise the Companys regulatory capital ratios to levels in excess of those required by the Agreement
except for the 10.0% leverage ratio set by the Agreement.
|
|
|
|
Deleveraging the balance sheet with emphasis on reducing (1) non-performing loans through unfavorable renewal pricings, charge-offs, and
foreclosures as appropriate, (2) other real estate owned through sales, (3) higher-cost time deposits and public funds by lowering interest rates offered at renewal.
|
89
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2REGULATORY AGREEMENT, ECONOMIC CONDITIONS AND MANAGEMENTS PLAN(continued)
|
|
|
Evaluation of all business lines within the organization for possible gains upon disposition or significant cost-savings opportunities, as evidenced by
the Companys recently announced consolidation of eleven of its branches (see
Note 1)
.
|
We continue to focus on
improving capital ratios and credit quality.
On June 4, 2010, the Company entered into a Written Agreement (the Written
Agreement) with the Federal Reserve Bank of San Francisco and the DFCS, which routinely accompanies or follows an FDIC Consent Order, and is comparable to the Agreement described above. The Written Agreement provides that the Company will:
|
|
|
Provide quarterly progress reports as well as other reports and plans,
|
|
|
|
Take steps to ensure the Bank complies with the Agreement,
|
|
|
|
Obtain regulatory approval to pay dividends or to incur indebtedness, and
|
|
|
|
Obtain approvals for a variety of other routine items.
|
The Banks regulatory capital ratios were adversely affected by losses that occurred as a result of credit losses associated with the adverse state of the economy, and depressed real estate
valuations on our commercial real estate concentrations. Also, as a result of the Banks operating results and financial condition, the Bank recognized an impairment to goodwill and established a valuation allowance against deferred tax assets.
The Bank continues to have high loan concentrations in commercial real estate and in construction and development loans. If economic conditions were to worsen for these industry segments, our financial condition could suffer significant
deterioration. These circumstances led to Managements implementation of the measures summarized above.
There are no assurances
Managements plan, as developed and implemented to date, will successfully improve the Banks results of operation or financial condition or result in the termination of the Agreement and the Written Agreement. The economic environment in
the market areas and the duration of the downturn in the real estate market will have a significant impact on the implementation of the Banks business plans.
In anticipation of the requirements of the Agreement, on January 29, 2010, the Company filed an amendment to the Form S-1 Registration Statement with the United States Securities and Exchange
Commission announcing a proposed offering of up to 81,747,362 shares (8,174,736 shares, adjusted for 1-for-10 reverse stock split on February 10, 2011) of the Companys common stock. A prospectus was filed on February 1, 2010,
providing that prior to a public offering of the shares, existing shareholders of the Company each received a subscription right to purchase 3.3 shares of the Companys common stock at a subscription price of $0.44 per share ($4.40 per share,
adjusted for 1-for-10 reverse stock split on February 10, 2011). On April 7, 2010, the Company concluded its rights offering and the related public offering and issued approximately 75.6 million shares (7.6 million shares, adjusted
for 1-for-10 reverse stock split on February 10, 2011) with net proceeds of approximately $32.5 million, net of estimated offering costs of approximately $700,000.
NOTE 3CASH AND DUE FROM BANKS
The Bank was required to maintain an average reserve balance of approximately $3.9 million and $4.7 million at December 31, 2012
and 2011, respectively, with the Federal Reserve Bank or maintain such reserve balances in the form of cash. The Bank held cash and maintained average reserve balances with the Federal Reserve Bank in excess of the required amounts.
90
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4INVESTMENT SECURITIES
Investment securities at December 31, 2012 and December 31, 2011 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Estimated
fair value
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
137,675
|
|
|
$
|
920
|
|
|
$
|
(976
|
)
|
|
$
|
137,619
|
|
Mortgage-backed securities
|
|
|
102,297
|
|
|
|
4,345
|
|
|
|
(192
|
)
|
|
|
106,450
|
|
Obligations of states and political subdivisions
|
|
|
77,586
|
|
|
|
3,817
|
|
|
|
(242
|
)
|
|
|
81,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale
|
|
$
|
317,558
|
|
|
$
|
9,082
|
|
|
$
|
(1,410
|
)
|
|
$
|
325,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Community Reinvestment Act
|
|
$
|
4,949
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted equity securities
|
|
$
|
2,978
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Estimated
fair value
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
134,074
|
|
|
$
|
1,036
|
|
|
$
|
(694
|
)
|
|
$
|
134,416
|
|
Mortgage-backed securities
|
|
|
70,449
|
|
|
|
1,344
|
|
|
|
(20
|
)
|
|
|
71,773
|
|
U.S. Government and agency securities
|
|
|
39,899
|
|
|
|
1,194
|
|
|
|
|
|
|
|
41,093
|
|
Obligations of states and political subdivisions
|
|
|
64,423
|
|
|
|
2,652
|
|
|
|
(197
|
)
|
|
|
66,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale
|
|
$
|
308,845
|
|
|
$
|
6,226
|
|
|
$
|
(911
|
)
|
|
$
|
314,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Community Reinvestment Act
|
|
$
|
2,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted equity securities
|
|
$
|
3,255
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4INVESTMENT SECURITIES(continued)
The table below presents the gross unrealized losses and fair value of the Banks investment
securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2012 and December 31, 2011. At December 31, 2012, 50 investment securities
comprised the less than 12 months category and 4 investment securities comprised the 12 months or more category. At December 31, 2011, 35 investment securities comprised the less than 12 months category and
one investment security comprised the 12 months or more category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
At December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
76,300
|
|
|
$
|
(796
|
)
|
|
$
|
13,781
|
|
|
$
|
(180)
|
|
|
$
|
90,081
|
|
|
$
|
(976
|
)
|
Mortgage-backed securities
|
|
|
30,542
|
|
|
|
(192
|
)
|
|
|
|
|
|
|
|
|
|
|
30,542
|
|
|
|
(192
|
)
|
Obligations of states and political subdivisions
|
|
|
25,693
|
|
|
|
(242
|
)
|
|
|
|
|
|
|
|
|
|
|
25,693
|
|
|
|
(242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
132,535
|
|
|
$
|
(1,230
|
)
|
|
$
|
13,781
|
|
|
$
|
(180)
|
|
|
$
|
146,316
|
|
|
$
|
(1,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
At December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
76,461
|
|
|
$
|
(688
|
)
|
|
$
|
1,728
|
|
|
$
|
(6
|
)
|
|
$
|
78,189
|
|
|
$
|
(694
|
)
|
Mortgage-backed securities
|
|
|
7,318
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
7,318
|
|
|
|
(20
|
)
|
U.S. Government and agency securities
|
|
|
15,747
|
|
|
|
(197
|
)
|
|
|
|
|
|
|
|
|
|
|
15,747
|
|
|
|
(197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
99,526
|
|
|
$
|
(905
|
)
|
|
$
|
1,728
|
|
|
$
|
(6
|
)
|
|
$
|
101,254
|
|
|
$
|
(911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substantially all unrealized losses reflected above were the result of changes in interest rates subsequent to the
purchase of the securities. The investments with unrealized losses are not considered other-than-temporarily impaired because the decline in fair value is primarily attributable to the changes in interest rates rather than credit quality. The Bank
does not intend to sell the securities in this class and it is not likely that the Bank will be required to sell these securities before recovery of their amortized cost bases, which may include holding each security until maturity.
92
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4INVESTMENT SECURITIES(continued)
The amortized cost and estimated fair value of investment securities at December 31, 2012, by
maturity are shown below. The amortized cost and fair value of collateralized mortgage obligations and mortgage-backed securities are presented by expected average life, rather than contractual maturity. Expected maturities may differ from
contractual maturities because borrowers may have the right to prepay underlying loans without prepayment penalties.
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
At December 31, 2012
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
Due in one year or less
|
|
$
|
28,593
|
|
|
$
|
28,468
|
|
Due after one year through five years
|
|
|
187,577
|
|
|
|
191,727
|
|
Due after five years through ten years
|
|
|
78,422
|
|
|
|
81,162
|
|
Due after ten years
|
|
|
22,966
|
|
|
|
23,873
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
$
|
317,558
|
|
|
$
|
325,230
|
|
|
|
|
|
|
|
|
|
|
The following table presents the cash proceeds from the sales of securities and their associated gross realized gains and
gross realized losses that are in earnings for the years ended December 31, 2012, 2011, and 2010:
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
December 31,
2011
|
|
|
December 31,
2010
|
|
Gross realized gain on sale of securities
|
|
$
|
3,319
|
|
|
$
|
1,345
|
|
|
$
|
766
|
|
Gross realized loss on sale of securities
|
|
|
(215
|
)
|
|
|
(230
|
)
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain on sale of securities
|
|
$
|
3,104
|
|
|
$
|
1,115
|
|
|
$
|
732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of securities
|
|
$
|
178,267
|
|
|
$
|
179,998
|
|
|
$
|
221,489
|
|
At December 31, 2012, investment securities with an estimated fair market value of $157.2 million were pledged to
secure public deposits, certain nonpublic deposits and borrowings.
93
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5LOANS
Loans as of December 31, 2012 and 2011 consisted of the following:
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
Construction, Land Dev & Other Land
|
|
$
|
34,062
|
|
|
$
|
81,241
|
|
Commercial & Industrial
|
|
|
103,818
|
|
|
|
124,422
|
|
Commercial Real Estate Loans
|
|
|
395,959
|
|
|
|
449,347
|
|
Secured Multifamily Residential
|
|
|
19,290
|
|
|
|
21,792
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
41,151
|
|
|
|
47,912
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
20,666
|
|
|
|
24,034
|
|
Indirect Consumer
|
|
|
22,838
|
|
|
|
21,272
|
|
Other Loans
|
|
|
9,550
|
|
|
|
27,594
|
|
Overdrafts
|
|
|
193
|
|
|
|
264
|
|
|
|
|
|
|
|
|
|
|
Gross loans
|
|
|
647,527
|
|
|
|
797,878
|
|
Less: allowance for loan losses
|
|
|
(18,560
|
)
|
|
|
(22,683
|
)
|
Less: deferred fees and restructured loan concessions
|
|
|
(255
|
)
|
|
|
(462
|
)
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
628,712
|
|
|
$
|
774,733
|
|
|
|
|
|
|
|
|
|
|
The Banks market area consists principally of Jackson, Josephine, Deschutes, Douglas and Klamath counties of
Oregon, and Butte, Siskiyou, Shasta, Tehama, Yolo, Placer, and Sacramento counties of northern California. A substantial portion of the Banks loans are collateralized by real estate in these geographic areas and, accordingly, the ultimate
collectability of a substantial portion of the Banks loan portfolio is susceptible to changes in the respective local market conditions.
In the normal course of business, the Bank participates portions of loans to third parties in order to extend the Banks lending capability or to
mitigate risk. At December 31, 2012 and 2011, the portion of these loans participated to third parties (which are not included in the accompanying consolidated financial statements) totaled approximately $9.7 million and $10.0 million,
respectively.
NOTE 6ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY
The allowance for loan losses represents the Companys estimate of potential credit losses in its loan portfolio. The allowance
for loan losses is increased through periodic charges to earnings through provision for loan losses and represents the aggregate amount, net of loans charged-off and recoveries on previously charged-off loans, that is needed to establish an
appropriate reserve for credit losses. The allowance is estimated based on a variety of factors and using a methodology as described below:
|
|
|
The Company classifies loans into relatively homogeneous pools by loan type in accordance with regulatory guidelines for regulatory reporting purposes.
The Company regularly reviews all loans within each loan category to establish risk ratings for them that include Pass, Watch, Special Mention, Substandard, Doubtful and Loss. Pursuant to Accounting by Creditors for Impairment of a Loan,
the impaired portion of collateral dependent loans is charged-off. Other risk-related loans not considered impaired have loss factors applied to the various loan pool balances to establish loss potential for provisioning purposes.
|
|
|
|
Analyses are performed to establish the loss factors based on historical experience, as well as expected losses based on qualitative evaluations of
such factors as the economic trends and conditions, industry
|
94
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY(continued)
|
conditions, levels and trends in delinquencies and impaired loans, levels and trends in charge-offs and recoveries, among others. Minimum loss factors are then established based on a weighted
average of historical loss experience by risk classification within each loan category pool. The minimum or historical loss factor, whichever is larger, is applied to loan category pools segregated by risk classification to estimate the loss
inherent in the Companys loan portfolio pursuant to Accounting for Contingencies.
|
|
|
|
Additionally, impaired loans are evaluated for loss potential on an individual basis in accordance with Accounting by Creditors for Impairment of
a Loan, and specific reserves are established based on thorough analysis of collateral values where loss potential exists. When an impaired loan is collateral dependent and a deficiency exists in the fair value of real estate collateralizing
the loan in comparison to the associated loan balance, the deficiency is charged-off at that time. Impaired loans are reviewed no less frequently than quarterly.
|
|
|
|
In the event that a current appraisal to support the fair value of the real estate collateral underlying an impaired loan has not yet been received,
but the Company believes that the collateral value is insufficient to support the loan amount, an impairment reserve is recorded. In these instances, the receipt of a current appraisal triggers an updated review of the collateral support for the
loan and any deficiency is charged-off or reserved at that time. In those instances where a current appraisal is not available in a timely manner in relation to a financial reporting cut-off date, the Company discounts the most recent third-party
appraisal depending on a number of factors including, but not limited to, property location, local price volatility, local economic conditions, and recent comparable sales. In all cases, the costs to sell the subject property are deducted in
arriving at the fair value of the collateral. Any unpaid property taxes or similar expenses are expensed at the time the property is acquired by the Company.
|
In prior years, loss factors used to estimate loss potential within the loan portfolio were solely based on actual historical experience. Beginning in second quarter 2012, minimum loss factors were also
developed based on a weighted average of historical loss experience by risk classification within each loan category pool. The minimum or historical loss factor, whichever is larger, is now applied to loan category pools segregated by risk
classification to estimate the loss inherent in the Companys loan portfolio pursuant to Accounting for Contingencies. Similarly, the minimum or actual loss factor is used as a basis for establishing a nominal reserve on unfunded
balances (net available credit), depending on the loan category. This change in methodology had no material impact on the Companys total allowance for loan losses.
95
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY(continued)
Transactions in the allowance for loan losses for the years ended December 31 were as follows (in
thousands):
Allowance for Credit Losses and Recorded Investment in Financing Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction,
Land Dev
|
|
|
Comm &
Industrial
|
|
|
Comm Real
Estate
|
|
|
Comm Real
Estate Multi
|
|
|
Oth Lns Sec
by
1-4 Fam RE
|
|
|
Loans to
Individuals
|
|
|
Indirect
Consumer
|
|
|
Other Loans,
Concessions,
and Overdrafts
|
|
|
Total
|
|
As of and for the twelve months ended December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
4,473
|
|
|
$
|
4,678
|
|
|
$
|
8,582
|
|
|
$
|
242
|
|
|
$
|
1,425
|
|
|
$
|
1,253
|
|
|
$
|
1,736
|
|
|
$
|
294
|
|
|
$
|
22,683
|
|
Charge-offs and concessions
|
|
|
(6,714
|
)
|
|
|
(453
|
)
|
|
|
(1,743
|
)
|
|
|
|
|
|
|
(925
|
)
|
|
|
(1,446
|
)
|
|
|
(1,247
|
)
|
|
|
(1,552
|
)
|
|
|
(14,080
|
)
|
Recoveries
|
|
|
2,184
|
|
|
|
1,323
|
|
|
|
644
|
|
|
|
|
|
|
|
230
|
|
|
|
244
|
|
|
|
472
|
|
|
|
85
|
|
|
|
5,182
|
|
Provision
|
|
|
4,721
|
|
|
|
(3,328
|
)
|
|
|
(509
|
)
|
|
|
44
|
|
|
|
756
|
|
|
|
961
|
|
|
|
387
|
|
|
|
1,743
|
|
|
|
4,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
4,664
|
|
|
$
|
2,220
|
|
|
$
|
6,974
|
|
|
$
|
286
|
|
|
$
|
1,486
|
|
|
$
|
1,012
|
|
|
$
|
1,348
|
|
|
$
|
570
|
|
|
$
|
18,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
46
|
|
|
$
|
25
|
|
|
$
|
93
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
4,664
|
|
|
$
|
2,174
|
|
|
$
|
6,949
|
|
|
$
|
193
|
|
|
$
|
1,486
|
|
|
$
|
1,012
|
|
|
$
|
1,348
|
|
|
$
|
570
|
|
|
$
|
18,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
34,062
|
|
|
$
|
103,818
|
|
|
$
|
395,959
|
|
|
$
|
19,290
|
|
|
$
|
41,151
|
|
|
$
|
20,666
|
|
|
$
|
22,838
|
|
|
$
|
9,743
|
|
|
$
|
647,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
3,747
|
|
|
$
|
1,659
|
|
|
$
|
14,100
|
|
|
$
|
489
|
|
|
$
|
1,982
|
|
|
$
|
137
|
|
|
$
|
|
|
|
$
|
537
|
|
|
$
|
22,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
30,315
|
|
|
$
|
102,159
|
|
|
$
|
381,859
|
|
|
$
|
18,801
|
|
|
$
|
39,169
|
|
|
$
|
20,529
|
|
|
$
|
22,838
|
|
|
$
|
9,206
|
|
|
$
|
624,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY(continued)
Allowance for Credit Losses and Recorded Investment in Financing Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction,
Land Dev
|
|
|
Comm &
Industrial
|
|
|
Comm Real
Estate
|
|
|
Comm Real
Estate Multi
|
|
|
Oth Lns Sec
by
1-4 Fam RE
|
|
|
Loans to
Individuals
|
|
|
Indirect
Consumer
|
|
|
Other Loans,
Concessions,
and Overdrafts
|
|
|
Total
|
|
As of and for the twelve months ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
7,335
|
|
|
$
|
9,831
|
|
|
$
|
10,146
|
|
|
$
|
122
|
|
|
$
|
4,498
|
|
|
$
|
1,962
|
|
|
$
|
1,385
|
|
|
$
|
303
|
|
|
$
|
35,582
|
|
Charge-offs
|
|
|
(16,654
|
)
|
|
|
(3,786
|
)
|
|
|
(7,380
|
)
|
|
|
(56
|
)
|
|
|
(2,680
|
)
|
|
|
(1,474
|
)
|
|
|
(1,090
|
)
|
|
|
(936
|
)
|
|
|
(34,056
|
)
|
Recoveries
|
|
|
349
|
|
|
|
5,016
|
|
|
|
793
|
|
|
|
|
|
|
|
94
|
|
|
|
121
|
|
|
|
323
|
|
|
|
111
|
|
|
|
6,807
|
|
Provision
|
|
|
13,443
|
|
|
|
(6,383
|
)
|
|
|
5,023
|
|
|
|
176
|
|
|
|
(487
|
)
|
|
|
644
|
|
|
|
1,118
|
|
|
|
816
|
|
|
|
14,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
4,473
|
|
|
$
|
4,678
|
|
|
$
|
8,582
|
|
|
$
|
242
|
|
|
$
|
1,425
|
|
|
$
|
1,253
|
|
|
$
|
1,736
|
|
|
$
|
294
|
|
|
$
|
22,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
202
|
|
|
$
|
1,885
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
4,473
|
|
|
$
|
4,476
|
|
|
$
|
6,697
|
|
|
$
|
242
|
|
|
$
|
1,425
|
|
|
$
|
1,253
|
|
|
$
|
1,736
|
|
|
$
|
294
|
|
|
$
|
20,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
81,241
|
|
|
$
|
124,422
|
|
|
$
|
449,347
|
|
|
$
|
21,792
|
|
|
$
|
47,912
|
|
|
$
|
24,034
|
|
|
$
|
21,272
|
|
|
$
|
27,858
|
|
|
$
|
797,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
35,952
|
|
|
$
|
5,207
|
|
|
$
|
27,657
|
|
|
$
|
|
|
|
$
|
3,536
|
|
|
$
|
635
|
|
|
$
|
79
|
|
|
$
|
3,175
|
|
|
$
|
76,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
45,289
|
|
|
$
|
119,215
|
|
|
$
|
421,690
|
|
|
$
|
21,792
|
|
|
$
|
44,376
|
|
|
$
|
23,399
|
|
|
$
|
21,193
|
|
|
$
|
24,683
|
|
|
$
|
721,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY(continued)
The following tables summarize the Companys loans past due by type as of December 31, 2012
and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater
Than 90
Days
|
|
|
Total
Past Due
|
|
|
Current
|
|
|
Total
Loans
|
|
|
Recorded
Investment >
90
Days Past Due
and Accruing
Interest
|
|
December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,596
|
|
|
$
|
2,596
|
|
|
$
|
31,466
|
|
|
$
|
34,062
|
|
|
$
|
|
|
Commercial & Industrial
|
|
|
1,177
|
|
|
|
|
|
|
|
1,043
|
|
|
|
2,220
|
|
|
|
101,598
|
|
|
|
103,818
|
|
|
|
|
|
Commercial Real Estate Loans
|
|
|
314
|
|
|
|
329
|
|
|
|
3,456
|
|
|
|
4,099
|
|
|
|
391,860
|
|
|
|
395,959
|
|
|
|
|
|
Secured Multifamily Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,290
|
|
|
|
19,290
|
|
|
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
143
|
|
|
|
89
|
|
|
|
1,149
|
|
|
|
1,381
|
|
|
|
39,770
|
|
|
|
41,151
|
|
|
|
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
896
|
|
|
|
162
|
|
|
|
112
|
|
|
|
1,170
|
|
|
|
19,496
|
|
|
|
20,666
|
|
|
|
|
|
Indirect Consumer
|
|
|
1,009
|
|
|
|
135
|
|
|
|
|
|
|
|
1,144
|
|
|
|
21,694
|
|
|
|
22,838
|
|
|
|
|
|
Other Loans and Overdrafts
|
|
|
|
|
|
|
|
|
|
|
537
|
|
|
|
537
|
|
|
|
9,206
|
|
|
|
9,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,539
|
|
|
$
|
715
|
|
|
$
|
8,893
|
|
|
$
|
13,147
|
|
|
$
|
634,380
|
|
|
$
|
647,527
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
2,296
|
|
|
$
|
81
|
|
|
$
|
19,532
|
|
|
$
|
21,909
|
|
|
$
|
59,332
|
|
|
$
|
81,241
|
|
|
$
|
62
|
|
Commercial & Industrial
|
|
|
128
|
|
|
|
|
|
|
|
2,778
|
|
|
|
2,906
|
|
|
|
121,516
|
|
|
|
124,422
|
|
|
|
|
|
Commercial Real Estate Loans
|
|
|
967
|
|
|
|
|
|
|
|
14,845
|
|
|
|
15,812
|
|
|
|
433,535
|
|
|
|
449,347
|
|
|
|
|
|
Secured Multifamily Residential
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
242
|
|
|
|
21,550
|
|
|
|
21,792
|
|
|
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
302
|
|
|
|
230
|
|
|
|
1,019
|
|
|
|
1,551
|
|
|
|
46,361
|
|
|
|
47,912
|
|
|
|
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
600
|
|
|
|
112
|
|
|
|
620
|
|
|
|
1,332
|
|
|
|
22,702
|
|
|
|
24,034
|
|
|
|
3
|
|
Indirect Consumer
|
|
|
513
|
|
|
|
163
|
|
|
|
79
|
|
|
|
755
|
|
|
|
20,517
|
|
|
|
21,272
|
|
|
|
79
|
|
Other Loans and Overdrafts
|
|
|
250
|
|
|
|
1,228
|
|
|
|
1,697
|
|
|
|
3,175
|
|
|
|
24,683
|
|
|
|
27,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,298
|
|
|
$
|
1,814
|
|
|
$
|
40,570
|
|
|
$
|
47,682
|
|
|
$
|
750,196
|
|
|
$
|
797,878
|
|
|
$
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY(continued)
Impaired loans by type for the years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no Related Allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
7,004
|
|
|
$
|
3,747
|
|
|
$
|
|
|
|
$
|
9,784
|
|
|
$
|
|
|
Commercial & Industrial
|
|
|
1,275
|
|
|
|
1,275
|
|
|
|
|
|
|
|
2,046
|
|
|
|
|
|
Commercial Real Estate Loans
|
|
|
15,938
|
|
|
|
13,681
|
|
|
|
|
|
|
|
18,151
|
|
|
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
2,897
|
|
|
|
1,982
|
|
|
|
|
|
|
|
3,204
|
|
|
|
8
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
201
|
|
|
|
137
|
|
|
|
|
|
|
|
262
|
|
|
|
5
|
|
Indirect Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163
|
|
|
|
16
|
|
Other Loans
|
|
|
731
|
|
|
|
537
|
|
|
|
|
|
|
|
1,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,046
|
|
|
$
|
21,359
|
|
|
$
|
|
|
|
$
|
35,422
|
|
|
$
|
29
|
|
With a Related Allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
762
|
|
|
$
|
|
|
Commercial & Industrial
|
|
|
384
|
|
|
|
384
|
|
|
|
46
|
|
|
|
713
|
|
|
|
|
|
Commercial Real Estate Loans
|
|
|
419
|
|
|
|
419
|
|
|
|
25
|
|
|
|
2,915
|
|
|
|
|
|
Secured Multifamily Residential
|
|
|
489
|
|
|
|
489
|
|
|
|
93
|
|
|
|
333
|
|
|
|
|
|
Other Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,292
|
|
|
$
|
1,292
|
|
|
$
|
164
|
|
|
$
|
4,784
|
|
|
$
|
|
|
Total Impaired Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
7,004
|
|
|
$
|
3,747
|
|
|
$
|
|
|
|
$
|
10,546
|
|
|
$
|
|
|
Commercial & Industrial
|
|
|
1,659
|
|
|
|
1,659
|
|
|
|
46
|
|
|
|
2,759
|
|
|
|
|
|
Commercial Real Estate Loans
|
|
|
16,357
|
|
|
|
14,100
|
|
|
|
25
|
|
|
|
21,066
|
|
|
|
|
|
Secured Multifamily Residential
|
|
|
489
|
|
|
|
489
|
|
|
|
93
|
|
|
|
333
|
|
|
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
2,897
|
|
|
|
1,982
|
|
|
|
|
|
|
|
3,204
|
|
|
|
8
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
201
|
|
|
|
137
|
|
|
|
|
|
|
|
262
|
|
|
|
5
|
|
Indirect Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163
|
|
|
|
16
|
|
Other Loans
|
|
|
731
|
|
|
|
537
|
|
|
|
|
|
|
|
1,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans
|
|
$
|
29,338
|
|
|
$
|
22,651
|
|
|
$
|
164
|
|
|
$
|
40,206
|
|
|
$
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no Related Allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
55,821
|
|
|
$
|
35,952
|
|
|
$
|
|
|
|
$
|
40,510
|
|
|
$
|
5
|
|
Commercial & Industrial
|
|
|
4,668
|
|
|
|
3,545
|
|
|
|
|
|
|
|
1,766
|
|
|
|
|
|
Commercial Real Estate Loans
|
|
|
27,377
|
|
|
|
18,031
|
|
|
|
|
|
|
|
30,981
|
|
|
|
|
|
Secured Multifamily Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
|
|
|
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
4,661
|
|
|
|
3,536
|
|
|
|
|
|
|
|
3,566
|
|
|
|
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
1,483
|
|
|
|
635
|
|
|
|
|
|
|
|
191
|
|
|
|
|
|
Indirect Consumer
|
|
|
81
|
|
|
|
79
|
|
|
|
|
|
|
|
138
|
|
|
|
15
|
|
Other Loans
|
|
|
3,367
|
|
|
|
3,175
|
|
|
|
|
|
|
|
2,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
97,458
|
|
|
$
|
64,953
|
|
|
$
|
|
|
|
$
|
79,785
|
|
|
$
|
20
|
|
With a Related Allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,760
|
|
|
$
|
|
|
Commercial & Industrial
|
|
|
1,662
|
|
|
|
1,662
|
|
|
|
202
|
|
|
|
994
|
|
|
|
|
|
Commercial Real Estate Loans
|
|
|
15,131
|
|
|
|
9,626
|
|
|
|
1,885
|
|
|
|
9,012
|
|
|
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,990
|
|
|
|
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,793
|
|
|
$
|
11,288
|
|
|
$
|
2,087
|
|
|
$
|
15,820
|
|
|
$
|
|
|
Total Impaired Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
55,821
|
|
|
$
|
35,952
|
|
|
$
|
|
|
|
$
|
44,270
|
|
|
$
|
5
|
|
Commercial & Industrial
|
|
|
6,330
|
|
|
|
5,207
|
|
|
|
202
|
|
|
|
2,760
|
|
|
|
|
|
Commercial Real Estate Loans
|
|
|
42,508
|
|
|
|
27,657
|
|
|
|
1,885
|
|
|
|
39,993
|
|
|
|
|
|
Secured Multifamily Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
|
|
|
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
4,661
|
|
|
|
3,536
|
|
|
|
|
|
|
|
5,556
|
|
|
|
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
1,483
|
|
|
|
635
|
|
|
|
|
|
|
|
255
|
|
|
|
|
|
Indirect Consumer
|
|
|
81
|
|
|
|
79
|
|
|
|
|
|
|
|
138
|
|
|
|
15
|
|
Other Loans
|
|
|
3,367
|
|
|
|
3,175
|
|
|
|
|
|
|
|
2,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans
|
|
$
|
114,251
|
|
|
$
|
76,241
|
|
|
$
|
2,087
|
|
|
$
|
95,605
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY(continued)
The Company assigns risk ratings to loans based on internal review. These risk ratings are grouped and
defined as follows:
PassThe borrower is considered creditworthy and has the ability to repay the debt in the normal course of business.
Watch
This rating indicates that according to current information, the borrower has the capacity to perform according to terms;
however, elements of uncertainty (an uncharacteristic negative financial or other risk factor event) exist. Margins of debt service coverage are or have narrowed, and historical patterns of financial performance may be erratic although the overall
trends are positive. If secured, collateral value and adequate sources of repayment currently protect the loan. Material adverse trends have not developed at this time. Loans in this category can be to new and/or thinly capitalized companies with
limited proved performance history.
Special Mention
A Special Mention asset has potential weaknesses that deserve
Managements close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institutions credit position at some future date. Special Mention assets are not
adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. This rating is not a transitional grade by definition; however, an appropriate action plan is required to ensure timely risk rating change as
circumstances warrant.
Substandard
The loan is inadequately protected by the current worth and/or paying capacity of the obligor
or of the collateral pledged, if any. There are well-defined weaknesses that jeopardize the repayment of the debt. Although loss may not be imminent, if the weaknesses are not corrected, there is a good possibility that the Company will sustain a
loss. Loss potential, while existing in the aggregate amount of Substandard assets, does not have to exist in individual assets classified Substandard.
Loss
Loans classified as loss, are considered uncollectible and of such little value that the continuance as an active Company asset is not warranted. This rating does not mean that the loan
has no recovery or salvage value, but rather that the loan should be charged off now, even though partial or full recovery may be possible in the future.
Direct and indirect consumer loans are not risk rated, but designated as either Prime or High Risk Consumer (HRC) based on credit score at origination. However, consumer loans
greater than 90 days past due are reported as non-performing loans. These loans are charged-off when they are 120 days past due; however, if these loans are secured by real estate, the Company may choose to write these loans down to the fair value
of the collateral.
101
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY(continued)
The following table summarizes our loans by type and risk category as of December 31, 2012 and
December 31, 2011:
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
Construction,
Land Dev
|
|
|
Comm &
Industrial
|
|
|
Comm Real
Estate
|
|
|
Comm Real
Estate Multi
|
|
|
Oth Lns Sec
by 1-4 Fam RE
|
|
|
Loans to
Individuals
|
|
|
Other Loans
and Overdraft
|
|
|
Total
|
|
Pass
|
|
$
|
16,990
|
|
|
$
|
66,834
|
|
|
$
|
264,745
|
|
|
$
|
14,656
|
|
|
$
|
36,216
|
|
|
$
|
20,446
|
|
|
$
|
8,275
|
|
|
$
|
428,162
|
|
Watch
|
|
|
177
|
|
|
|
10,488
|
|
|
|
46,438
|
|
|
|
441
|
|
|
|
454
|
|
|
|
|
|
|
|
679
|
|
|
|
58,677
|
|
Special Mention
|
|
|
12,877
|
|
|
|
5,608
|
|
|
|
36,862
|
|
|
|
3,644
|
|
|
|
1,456
|
|
|
|
|
|
|
|
|
|
|
|
60,447
|
|
Substandard
|
|
|
4,018
|
|
|
|
20,888
|
|
|
|
47,914
|
|
|
|
549
|
|
|
|
3,025
|
|
|
|
220
|
|
|
|
789
|
|
|
|
77,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,062
|
|
|
$
|
103,818
|
|
|
$
|
395,959
|
|
|
$
|
19,290
|
|
|
$
|
41,151
|
|
|
$
|
20,666
|
|
|
$
|
9,743
|
|
|
|
624,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Indirect Consumer Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
647,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity
|
|
|
|
|
|
|
Consumer
|
|
Performing
|
|
$
|
22,760
|
|
Nonperforming
|
|
|
78
|
|
|
|
|
|
|
Total
|
|
$
|
22,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
Construction,
Land Dev
|
|
|
Comm &
Industrial
|
|
|
Comm Real
Estate
|
|
|
Comm Real
Estate Multi
|
|
|
Oth Lns Sec
by 1-4 Fam RE
|
|
|
Loans to
Individuals
|
|
|
Other Loans
and Overdraft
|
|
|
Total
|
|
Pass
|
|
$
|
23,558
|
|
|
$
|
73,312
|
|
|
$
|
273,068
|
|
|
$
|
9,246
|
|
|
$
|
37,145
|
|
|
$
|
9,063
|
|
|
$
|
22,822
|
|
|
$
|
448,214
|
|
Watch
|
|
|
303
|
|
|
|
7,832
|
|
|
|
55,246
|
|
|
|
5,740
|
|
|
|
490
|
|
|
|
|
|
|
|
725
|
|
|
|
70,336
|
|
Special Mention
|
|
|
17,232
|
|
|
|
6,098
|
|
|
|
51,243
|
|
|
|
6,564
|
|
|
|
2,926
|
|
|
|
|
|
|
|
|
|
|
|
84,063
|
|
Substandard
|
|
|
40,148
|
|
|
|
37,180
|
|
|
|
69,790
|
|
|
|
242
|
|
|
|
7,351
|
|
|
|
14,971
|
|
|
|
4,311
|
|
|
|
173,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
81,241
|
|
|
$
|
124,422
|
|
|
$
|
449,347
|
|
|
$
|
21,792
|
|
|
$
|
47,912
|
|
|
$
|
24,034
|
|
|
$
|
27,858
|
|
|
|
776,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Indirect Consumer Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
797,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity
|
|
|
|
|
|
|
Consumer
|
|
Performing
|
|
$
|
21,193
|
|
Nonperforming
|
|
|
79
|
|
|
|
|
|
|
Total
|
|
$
|
21,272
|
|
|
|
|
|
|
102
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY(continued)
Troubled Debt Restructurings (TDR)
At December 31, 2012 and 2011, loans of
$24.0 million and $51.7 million, respectively, were classified as restructured loans. The restructurings were granted in response to borrower financial difficulty, and provide for a modification of loan repayment terms. As of December 31, 2012
and 2011, no available commitments were outstanding on troubled debt restructurings.
Modification Categories
The Company offers a variety of modifications to borrowers. The modification categories offered can generally be described in the following categories:
Rate Modification
A modification in which the interest rate is changed.
Term Modification
A modification in which the maturity date, timing of payments, or frequency of payments is changed.
Interest Only Modification
A modification in which the loan is converted to interest only payments for a period of time.
Payment Modification
A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.
Combination Modification
Any other type of modification, including the use of multiple categories above.
All TDRs on accrual and nonaccrual status are evaluated for loss potential on an individual basis in accordance with Company policy for impaired
loans. The loans determined to be collateral dependent are carried at fair value based on current appraisals. Given our allowance for loan loss (ALLL) methodology, TDR modifications and defaults have no additional effect on the reserve.
The following tables summarize the Companys troubled debt restructured loans by type, geographic region, and maturities as of
December 31, 2012:
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
Restructured
loans
|
|
|
|
Southern Oregon
|
|
|
Mid Oregon
|
|
|
Northern
California
|
|
|
Sacramento
Valley
|
|
|
Totals
|
|
|
Number of
Loans
|
|
Construction, Land Dev & Other Land
|
|
$
|
|
|
|
$
|
1,758
|
|
|
$
|
302
|
|
|
$
|
1,324
|
|
|
$
|
3,384
|
|
|
|
10
|
|
Commercial & Industrial
|
|
|
3,229
|
|
|
|
|
|
|
|
569
|
|
|
|
211
|
|
|
|
4,009
|
|
|
|
8
|
|
Commercial Real Estate Loans
|
|
|
5,662
|
|
|
|
8,535
|
|
|
|
153
|
|
|
|
|
|
|
|
14,350
|
|
|
|
9
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
1,399
|
|
|
|
|
|
|
|
297
|
|
|
|
515
|
|
|
|
2,211
|
|
|
|
11
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
$
|
10,290
|
|
|
$
|
10,318
|
|
|
$
|
1,321
|
|
|
$
|
2,050
|
|
|
$
|
23,979
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY(continued)
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
Year of Maturity
|
|
Amount
|
|
|
|
|
|
2013
|
|
$
|
10,122
|
|
2014
|
|
|
4,252
|
|
2015
|
|
|
4,358
|
|
2016
|
|
|
851
|
|
2017
|
|
|
202
|
|
Thereafter
|
|
|
4,194
|
|
|
|
|
|
|
Total
|
|
$
|
23,979
|
|
|
|
|
|
|
The following table presents troubled debt restructurings by accrual or nonaccrual status as of December 31, 2012
and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
Restructured loans
|
|
|
|
Accrual Status
|
|
|
Non-accrual
Status
|
|
|
Total
Modifications
|
|
Construction, Land Dev & Other Land
|
|
$
|
|
|
|
$
|
3,384
|
|
|
$
|
3,384
|
|
Commercial & Industrial
|
|
|
3,625
|
|
|
|
384
|
|
|
|
4,009
|
|
Commercial Real Estate Loans
|
|
|
5,964
|
|
|
|
8,386
|
|
|
|
14,350
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
863
|
|
|
|
1,348
|
|
|
|
2,211
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
|
|
|
|
25
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
$
|
10,452
|
|
|
$
|
13,527
|
|
|
$
|
23,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Restructured loans
|
|
|
|
Accrual Status
|
|
|
Non-accrual
Status
|
|
|
Total
Modifications
|
|
Construction, Land Dev & Other Land
|
|
$
|
1,452
|
|
|
$
|
28,361
|
|
|
$
|
29,813
|
|
Commercial & Industrial
|
|
|
1,289
|
|
|
|
3,740
|
|
|
|
5,029
|
|
Commercial Real Estate Loans
|
|
|
1,118
|
|
|
|
13,258
|
|
|
|
14,376
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
211
|
|
|
|
2,239
|
|
|
|
2,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
$
|
4,070
|
|
|
$
|
47,598
|
|
|
$
|
51,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012, there were 14 borrowers with loans designated as TDRs that met the criteria for
placement back on accrual status. This criteria is a minimum of six months of continuous satisfactory (less than 30 days past-due) payment performance under existing or modified terms, and this payment performance would be expected to continue as
documented by analysis based on current financial statements and/or tax returns.
104
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY(continued)
The following tables present newly restructured loans at the net active principal balance on the date of
the restructuring by type of modification that occurred during the twelve months ended December 31, 2012 and 2011, respectively. No modification terms included principal forgiveness in the newly restructured loans that occurred during these
periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2012
|
|
|
|
Interest Only
|
|
|
Term
|
|
|
Combination
|
|
|
Total
Modifications
|
|
Construction, Land Dev & Other Land
|
|
$
|
|
|
|
$
|
107
|
|
|
$
|
291
|
|
|
$
|
398
|
|
Commercial & Industrial
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
48
|
|
Commercial Real Estate Loans
|
|
|
|
|
|
|
2,679
|
|
|
|
4,155
|
|
|
|
6,834
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
|
|
|
|
671
|
|
|
|
660
|
|
|
|
1,331
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
$
|
|
|
|
$
|
3,560
|
|
|
$
|
5,106
|
|
|
$
|
8,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2011
|
|
|
|
Interest Only
|
|
|
Term
|
|
|
Combination
|
|
|
Total
Modifications
|
|
Construction, Land Dev & Other Land
|
|
$
|
|
|
|
$
|
2,325
|
|
|
$
|
4,858
|
|
|
$
|
7,183
|
|
Commercial & Industrial
|
|
|
48
|
|
|
|
78
|
|
|
|
3,390
|
|
|
|
3,516
|
|
Commercial Real Estate Loans
|
|
|
|
|
|
|
10,247
|
|
|
|
960
|
|
|
|
11,207
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
133
|
|
|
|
|
|
|
|
351
|
|
|
|
484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
$
|
181
|
|
|
$
|
12,650
|
|
|
$
|
9,559
|
|
|
$
|
22,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table represents restructured loans that defaulted during the twelve months ended December 31, 2012
and 2011 and within 12 months following their date of restructure:
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
|
December 31,
2012
|
|
|
December 31,
2011
|
|
Construction, Land Dev & Other Land
|
|
$
|
|
|
|
$
|
12,606
|
|
Commercial Real Estate Loans
|
|
|
2,522
|
|
|
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
|
|
|
|
2,233
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
$
|
2,522
|
|
|
$
|
14,839
|
|
|
|
|
|
|
|
|
|
|
105
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7PREMISES AND EQUIPMENT
Premises and equipment at December 31 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Land and improvements
|
|
$
|
12,677
|
|
|
$
|
13,552
|
|
Buildings and leasehold improvements
|
|
|
35,188
|
|
|
|
39,250
|
|
Furniture and equipment
|
|
|
17,570
|
|
|
|
20,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,435
|
|
|
|
73,106
|
|
Less accumulated depreciation and amortization
|
|
|
(24,529
|
)
|
|
|
(26,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
40,906
|
|
|
|
46,208
|
|
Construction in progress
|
|
|
9
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net of accumulated depreciation and amortization
|
|
$
|
40,915
|
|
|
$
|
46,272
|
|
|
|
|
|
|
|
|
|
|
Branch buildings, land parcels, and equipment classified as held-for-sale are included in accrued interest and other
assets. These assets have a book value of $1.2 million, which approximates market value. The buildings and equipment were listed for sale after the branch consolidation was completed during the first quarter of 2012. The land parcels had been held
for future branch development and are now listed for sale. An impairment charge of $719,000 to reduce the book value to the fair market value was reported in the statement of operations for the year ended December 31, 2012.
Depreciation expense totaled $2.2 million, $2.8 million, and $2.9 million for the years ended December 31, 2012, 2011 and 2010, respectively.
At December 31, 2012, there were no new construction contracts for new branches.
NOTE 8CORE DEPOSIT INTANGIBLES
At December 31, 2012 and 2011, PremierWest had $1.4 million and $2.0 million of core deposit intangibles, respectively, net of
accumulated amortization of $5.9 million and $5.3 million, respectively. For each of the years ending December 31, 2012, 2011 and 2010, PremierWest recorded amortization expense related to these core deposit intangibles totaling $547,000,
$499,000, and $959,000 respectively.
The table below presents the estimated amortization expense for the core deposit intangibles acquired in
all mergers for each of the next five years:
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
Year
|
|
Estimated
Amount
|
|
2013
|
|
|
602
|
|
2014
|
|
|
291
|
|
2015
|
|
|
167
|
|
2016
|
|
|
172
|
|
2017
|
|
|
211
|
|
|
|
|
|
|
|
|
$
|
1,443
|
|
|
|
|
|
|
106
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Current expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
15
|
|
|
$
|
|
|
|
$
|
(345
|
)
|
State
|
|
|
53
|
|
|
|
70
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
|
|
70
|
|
|
|
(292
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(4,434
|
)
|
|
|
(6,257
|
)
|
|
|
(957
|
)
|
State
|
|
|
(711
|
)
|
|
|
(1,190
|
)
|
|
|
(580
|
)
|
Valuation allowance
|
|
|
5,145
|
|
|
|
7,447
|
|
|
|
1,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
68
|
|
|
$
|
70
|
|
|
$
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes results in effective tax rates that are different than the federal income tax statutory
rate. Differences for the years ended December 31 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
Expected federal income tax provision at statutory rate
|
|
$
|
(3,968
|
)
|
|
|
35.00
|
%
|
|
$
|
(5,243
|
)
|
|
|
35.00
|
%
|
|
$
|
(1,689
|
)
|
|
|
35.00
|
%
|
State income taxes, net of federal effect
|
|
|
(661
|
)
|
|
|
5.83
|
%
|
|
|
(881
|
)
|
|
|
5.88
|
%
|
|
|
(338
|
)
|
|
|
7.01
|
%
|
Effect of non-taxable interest income, net
|
|
|
(92
|
)
|
|
|
0.81
|
%
|
|
|
(120
|
)
|
|
|
0.80
|
%
|
|
|
(160
|
)
|
|
|
3.32
|
%
|
Effect of non-taxable increases in the cash surrender value of life insurance
|
|
|
(195
|
)
|
|
|
1.72
|
%
|
|
|
(203
|
)
|
|
|
1.36
|
%
|
|
|
(217
|
)
|
|
|
4.50
|
%
|
Stock-based compensation
|
|
|
9
|
|
|
|
-0.08
|
%
|
|
|
17
|
|
|
|
-0.11
|
%
|
|
|
91
|
|
|
|
-1.90
|
%
|
Increase in valuation allowance
|
|
|
5,145
|
|
|
|
-45.37
|
%
|
|
|
7,447
|
|
|
|
-49.71
|
%
|
|
|
1,963
|
|
|
|
-40.68
|
%
|
Estimated impact of Section 382
|
|
|
8
|
|
|
|
-0.07
|
%
|
|
|
(331
|
)
|
|
|
2.21
|
%
|
|
|
832
|
|
|
|
-17.24
|
%
|
Other, net
|
|
|
(178
|
)
|
|
|
1.57
|
%
|
|
|
(616
|
)
|
|
|
4.10
|
%
|
|
|
(348
|
)
|
|
|
7.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
68
|
|
|
|
-0.59
|
%
|
|
$
|
70
|
|
|
|
-0.47
|
%
|
|
$
|
134
|
|
|
|
-2.77
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in the valuation allowance is due to net operating losses established during the year due to taxable losses
incurred and the impact of the Banks preliminary Internal Revenue Code Section 382 analysis.
Pursuant to Sections 382 and 383 of
the Internal Revenue Code, annual use of net operating loss and credit carryforwards may be limited in the event a cumulative change in ownership of more than 50 percent occurs within a three-year period. We determined that such an ownership change
occurred as of March 19, 2010 as a result of stock issuances. This ownership change resulted in limitations on the utilization of tax attributes, including net operating loss carryforwards and tax credits. Approximately $6.3 million of our
Oregon net operating loss carryforwards and $165,000 of Oregon tax credits have been effectively eliminated. Pursuant to Section 382, a portion of the limited net operating loss carryforwards and credits becomes available for use each year.
Approximately $3.7 million, $2.6 million, and $1.1 million of the restricted federal and Oregon net operating losses and tax credits and California net operating loss carryforwards, respectively, will become available each year during future years
to offset taxable income.
107
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9INCOME TAXES(continued)
The Banks deferred tax assets and valuation allowance have been reduced by $0.4 million to reflect
the estimated impact of Section 382 limitations on the utilization of the Oregon net operating loss carryforwards and tax credits. The impact is also reflected in the reconciliation of the income tax (benefit) provision for the years 2010
through 2012.
The components of the net deferred tax asset as of December 31 were approximately as follows (in thousands):
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
8,182
|
|
|
$
|
9,217
|
|
Benefit plans
|
|
|
4,998
|
|
|
|
3,638
|
|
Intangibles
|
|
|
1,386
|
|
|
|
1,453
|
|
State tax credits
|
|
|
368
|
|
|
|
480
|
|
Net operating loss
|
|
|
24,373
|
|
|
|
20,995
|
|
Other
|
|
|
10,020
|
|
|
|
8,883
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
49,327
|
|
|
|
44,666
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Net unrealized gains on investment securities available-for-sale
|
|
|
2,948
|
|
|
|
2,005
|
|
FHLB stock dividends
|
|
|
358
|
|
|
|
357
|
|
Premises and equipment
|
|
|
2,370
|
|
|
|
2,753
|
|
Loan origination costs
|
|
|
995
|
|
|
|
981
|
|
Prepaids
|
|
|
546
|
|
|
|
610
|
|
Deferred revenue
|
|
|
|
|
|
|
10
|
|
Other
|
|
|
331
|
|
|
|
373
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
7,548
|
|
|
|
7,089
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset subtotal
|
|
|
41,779
|
|
|
|
37,577
|
|
Valuation allowance
|
|
|
(41,779
|
)
|
|
|
(37,577
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
A $55.2 million federal net operating loss carryforward is available to offset future federal taxable income. This net
operating loss will begin to expire in 2029 if not utilized in an earlier period. After the impact of the estimated Section 382 analysis, an Oregon net operating loss carryforward of $67.3 million is available to offset future Oregon taxable
income, which will begin to expire in 2023 if not utilized in an earlier period. After the impact of the estimated Section 382 analysis, a California net operating loss carryforward of $28.5 million is available to offset future California
taxable income which will begin to expire in 2028 if not utilized in an earlier period. Federal general business credits of $1.2 million are available to offset future taxable income and will begin to expire in 2028. Federal alternative minimum tax
credits of $503,000 are available to offset future federal income tax. These credits have no expiration.
After the impact of the estimated
Section 382 analysis, the state tax credits include purchased tax credits totaling $73,000 and $163,000 at December 31, 2012 and 2011, respectively. These purchased tax credits consist of State of Oregon Business Energy Tax Credits
(BETC) that will be utilized to offset future Oregon income taxes. The
108
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9INCOME TAXES(continued)
Company made BETC purchases in 2006 through 2012. The purchased credits expire after 8 years but are expected to be utilized within 5 years of purchase. Additional state tax credits include
California Hiring credits and California Low-Income Housing credits. Neither of these credits has an expiration period; however, the California Hiring credit is dependent upon the Company continuing to transact business in the related Enterprise
Zone.
The 2012 increase in the net deferred tax asset valuation allowance of approximately $4.2 million included the effect of $943,000
related to unrealized gains and losses on securities available-for-sale that was allocated to other comprehensive income.
Management
believes, based upon the Banks expected performance, that it is more likely than not that the deferred tax assets will not be recognized in the normal course of operations within the next business cycle and, accordingly, Management has reduced
the entire net deferred tax asset by a corresponding valuation allowance.
The Bank holding company was notified in 2011 that tax years 2008
and 2009 would be subject to an IRS audit. This audit was required because the Bank received a refund greater than $2 million dollars from amending returns for those years to utilize an net operating loss carryback. This audit was concluded during
the third quarter 2012 resulting in changes between tax years for the carryback and carryforward of the net operating loss deductions, but with no additional cash paid for taxes in the current year. The IRS has submitted their audit report to the
congressional Joint Committee on Taxation. Approval of their report is still pending, although no changes are anticipated.
NOTE 10TIME DEPOSITS
Time deposits of $100,000 and over totaled approximately $127.3 million and $168.3 million at December 31, 2012 and 2011,
respectively.
At December 31, 2012, the scheduled annual maturities for all time deposits were as follows (in thousands):
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
Years ending December 31, 2013
|
|
$
|
222,369
|
|
2014
|
|
|
57,707
|
|
2015
|
|
|
16,368
|
|
2016
|
|
|
22,719
|
|
2017
|
|
|
9,786
|
|
Thereafter
|
|
|
346
|
|
|
|
|
|
|
|
|
$
|
329,295
|
|
|
|
|
|
|
The Company had $241,000 brokered deposits at December 31, 2012 and 2011.
NOTE 11FEDERAL FUNDS PURCHASED
The Bank maintains Federal funds lines with correspondent banks and the Federal Reserve discount window as a backup source of
liquidity. Federal funds purchased generally mature within one to four days from the transaction date. The Federal Funds purchased balance at both December 31, 2012 and 2011 was zero. The Bank had approximately $15.0 million of Federal Funds
lines available to draw against with correspondent banks. In addition, certain qualifying loans totaling approximately $15.8 million were pledged to provide for an additional available borrowing capacity of approximately $9.0 million with the
Federal Reserve discount window as of December 31, 2012.
109
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12FEDERAL HOME LOAN BANK BORROWINGS AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Bank had no long-term borrowings outstanding with the Federal Home Loan Bank (FHLB) at December 31, 2012 or 2011.
The Bank paid the FHLB borrowings in full during 2011. The Bank also participates in the Cash Management Advance (CMA) program with the FHLB. CMA borrowings are short-term borrowings that mature within one day and accrue interest at the
variable rate as published by the FHLB. As of December 31, 2012 and 2011, the Bank had no outstanding CMA borrowings. All outstanding borrowings with the FHLB are collateralized as provided for under the Advances, Security and Deposit Agreement
between the Bank and the FHLB and include the Banks FHLB stock and any funds or investment securities held by the FHLB that are not otherwise pledged for the benefit of others. At December 31, 2012, the Company maintained a line of credit
with the FHLB of Seattle with available credit of $55.7 million and was in compliance with its related collateral requirements.
During the
first quarter of 2011, the Company began a program to sell securities under agreements to repurchase. At December 31, 2012, the Bank had $5.4 million securities sold under agreements to repurchase with a maximum balance at any month end during
the year of $7.3 million, a weighted average yearly balance of $5.0 million, and interest of 0.30% during the year. At December 31, 2011, the Bank had $4.2 million securities sold under agreements to repurchase with a maximum balance at any
month end during the year of $6.9 million, a weighted average yearly balance of $3.8 million, and an interest range of 0.30% to 0.50% during the year.
NOTE 13JUNIOR SUBORDINATED DEBENTURES
On December 30, 2004, the Company established two wholly-owned statutory business trusts (PremierWest Statutory Trust I and
PremierWest Statutory Trust II) that were formed to issue junior subordinated debentures and related common securities. On August 25, 2005, Stockmans Financial Group established a wholly-owned statutory business trust (Stockmans
Financial Trust I) to issue junior subordinated debentures and related common securities. Following the acquisition of Stockmans Financial Group, the Company became the successor-in-interest to Stockmans Financial Trust I. Common stock issued
by the Trusts and held as an investment by the Company are recorded in other assets in the consolidated balance sheets.
Following are the
terms of the junior subordinated debentures as of December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust Name
|
|
Issue Date
|
|
Issued
Amount
|
|
|
Rate
|
|
|
Maturity
Date
|
|
Redemption
Date
|
PremierWest Statutory
Trust I
|
|
December
2004
|
|
$
|
7,732,000
|
|
|
|
LIBOR + 1.75%(1)
|
|
|
December
2034
|
|
December
2009
|
PremierWest Statutory
Trust II
|
|
December
2004
|
|
|
7,732,000
|
|
|
|
LIBOR + 1.79%(2)
|
|
|
March
2035
|
|
March
2010
|
Stockmans Financial
Trust I
|
|
August
2005
|
|
|
15,464,000
|
|
|
|
LIBOR + 1.42%(3)
|
|
|
September
2035
|
|
September
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,928,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
PremierWest Statutory Trust I was bearing interest at the fixed rate of 5.65% until mid-December 2009, at which time it changed to a variable rate of 3-month LIBOR
(0.311% at December 27, 2012) plus 1.75% or 2.061%, adjusted quarterly, through the final maturity date in December 2034.
|
(2)
|
PremierWest Statutory Trust II was bearing interest at the fixed rate of 5.65% until March 2010, at which time it changed to the variable rate of 3-month LIBOR (0.308%
at December 17, 2012) plus 1.79% or 2.098%, adjusted quarterly, through the final maturity date in March 2035.
|
110
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13JUNIOR SUBORDINATED DEBENTURES(continued)
(3)
|
Stockmans Financial Trust I was bearing interest at the fixed rate of 5.93% until September 2010, at which time it changed to the variable rate of 3-month LIBOR (0.308%
at December 17, 2012) plus 1.42% or 1.728%, adjusted quarterly, through the final maturity date in September 2035.
|
The
Oregon Department of Consumer and Business Services, which supervises banks and bank holding companies through its Division of Finance and Corporate Securities, and the Federal Reserve have policies that encourage banks and bank holding companies to
pay dividends from current earnings, and have the general authority to limit the dividends paid by banks and bank holding companies, respectively. The Company does not expect to be in a position to pay interest payments on trust preferred securities
without regulatory approval or until the Bank is considered well-capitalized and has satisfied conditions in its regulatory agreement (see Note 2). The Company is permitted to defer such interest payments for up to 20 consecutive
quarters, but during a deferral period it is prohibited from making dividend payments on its capital stock. The amount of accrued and unpaid interest was approximately $3.0 million as of December 31, 2012. At December 31, 2012, the Company
had deferred payment of interest for 13 consecutive quarters.
NOTE 14OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
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 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.
A summary of the Banks off-balance sheet financial instruments at December 31 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
December 31,
2011
|
|
Commitments to extend credit
|
|
$
|
69,716
|
|
|
$
|
72,637
|
|
Standby letters of credit
|
|
|
5,924
|
|
|
|
6,062
|
|
Overdraft protection for demand deposit accounts
|
|
|
230
|
|
|
|
270
|
|
|
|
|
|
|
|
|
|
|
Total off-balance sheet financial instruments
|
|
$
|
75,870
|
|
|
$
|
78,969
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The Bank evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Bank upon extension of credit, is based on
Managements credit evaluation of the counterparty. Collateral held for commitments varies but may include accounts receivable, inventory, property and equipment, residential real estate or income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These guarantees
are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held, if required, varies
as specified above.
111
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14OFF-BALANCE SHEET FINANCIAL INSTRUMENTS(continued)
The Bank also maintains a reserve against these off-balance sheet financial instruments. The amount of
the reserve was $311,000 at December 31, 2012 which was an increase of $213,000 from December 31, 2011. This increase was incurred to enhance our provision for off-balance sheet credit risk as part of a revision of the Companys
allowance for loan and lease losses methodology.
NOTE 15TRANSACTIONS WITH RELATED PARTIES
Certain officers and directors (and the companies with which they are associated) are customers of, and have had banking transactions
with, the Bank in the ordinary course of business. All loans and commitments to lend to such parties are generally made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with
other persons. In the opinion of Management, these transactions do not involve more than the normal risk of collectability or present any other unfavorable features.
An analysis of the activity with respect to loans outstanding to directors and executive officers of the Bank and their affiliates for the years ended December 31 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Beginning balance
|
|
$
|
20,771
|
|
|
$
|
24,058
|
|
Additions
|
|
|
141
|
|
|
|
424
|
|
Repayments
|
|
|
(2,262
|
)
|
|
|
(3,711
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
18,650
|
|
|
$
|
20,771
|
|
|
|
|
|
|
|
|
|
|
Deposits held for executive officers and directors at December 31, 2012 and 2011, were approximately $4.4 million
and $4.0 million, respectively.
NOTE 16COMMITMENTS AND CONTINGENCIES
Operating lease commitments
As of December 31, 2012, the Bank leased certain properties from unrelated third parties.
Future minimum lease commitments pursuant to these operating leases are as follows (in thousands):
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
Years ending December 31, 2013
|
|
$
|
705
|
|
2014
|
|
|
543
|
|
2015
|
|
|
528
|
|
2016
|
|
|
359
|
|
2017
|
|
|
342
|
|
Thereafter
|
|
|
1,882
|
|
|
|
|
|
|
|
|
$
|
4,359
|
|
|
|
|
|
|
Rental expense for all operating leases was $775,000, $1.0 million, and $1.2 million for the years ended
December 31, 2012, 2011, and 2010, respectively.
Legal contingencies
In the ordinary course of business, the Bank may become
involved in litigation arising from normal banking activities. Based on currently available information, Management believes that the ultimate
112
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16COMMITMENTS AND CONTINGENCIES(continued)
outcome of these matters, individual and in the aggregate, will not have a material adverse effect on our financial position or overall trends in results of operations. However, litigation is
subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages or an injunction prohibiting us from selling one or more products. If an unfavorable ruling were to occur, there exists the
possibility of a material adverse impact on the financial position and results of operations of the period in which the ruling occurs or in future periods.
NOTE 17BENEFIT PLANS
401(k) profit sharing plan
The Bank maintains a 401(k) profit sharing plan (the Plan) that covers substantially all
full-time employees. Employees may make voluntary tax deferred contributions to the Plan, and the Banks contributions to the Plan are at the discretion of the Board of Directors, not to exceed the amount deductible for federal income tax
purposes. Employees vest in the Banks contributions to the Plan over a period of six years. Total amounts charged to operations under the Plan were approximately $162,000, $189,000, and $205,000 for the years ended December 31, 2012, 2011
and 2010, respectively.
Executive supplemental retirement and severance plans
In connection with previous acquisitions of United
Bancorp, Timberline Bancshares, Inc., Mid Valley Bank and Stockmans Bank, the Company entered into or assumed various severance, non-compete, deferred compensation, retirement agreements, and continuing benefit agreements with previous executives
and Board members of the acquired companies. These plans provide for retirement benefits that increase annually until each executive reaches retirement age and will be paid out over a period ranging from 15 years to life. The deferred compensation
plan provides interest on income previously earned for which receipt was deferred for tax purposes. As of December 31, 2012 and 2011, the Banks recorded liability pursuant to these agreements was $12.3 million and $8.9 million
respectively. Payments on these plans are made monthly and will continue until the liabilities are paid in full. The expenses related to these agreements were $4.1 million, $684,000, and $936,000 for the years ended December 31, 2012, 2011 and
2010, respectively. To support its obligations under these arrangements, the Bank has acquired bank-owned life insurance policies. These policies had aggregate cash surrender values of $16.4 million and $15.9 million as of December 31, 2012 and
2011, respectively. A death benefit payout on bank-owned life insurance policies of $241,000 was received in 2011. The income attributed to the increase in the cash surrender value of the bank-owned life insurance policies was $488,000, $508,000,
and $542,000 for the years ended December 31, 2012, 2011, and 2010, respectively.
During 2012, a liability of $2.8 million was recorded
to recognize post-retirement health insurance benefits (PRBO) committed in prior years to certain current and former directors and officers. The PRBO liability represents the actuarial calculation of the present value of vested benefits
expected to be paid to individuals during the retirement period based on the expected retirement date and term of benefits.
113
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18BASIC AND DILUTED LOSS PER COMMON SHARE
The following summarizes the calculations for basic and diluted loss per common share, after giving retroactive effect for stock
dividends and the 1-for-10 reverse stock split, for the years ended December 31, (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
Available to Common
Shareholders
(Numerator)
|
|
|
Weighted Average
Shares
(Denominator)
|
|
|
Per Share
Amount
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per common share (loss available to common shareholders net of $2.5 million preferred share dividends declared and
accretion of discount)
|
|
$
|
(13,935
|
)
|
|
|
10,034,741
|
|
|
$
|
(1.39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per common share
|
|
$
|
(13,935
|
)
|
|
|
10,034,741
|
|
|
$
|
(1.39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per common share (loss available to common shareholders net of $2.6 million preferred share dividends declared and
accretion of discount)
|
|
$
|
(17,616
|
)
|
|
|
10,035,241
|
|
|
$
|
(1.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per common share
|
|
$
|
(17,616
|
)
|
|
|
10,035,241
|
|
|
$
|
(1.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per common share (loss available to common shareholders net of $2.5 million preferred share dividends declared and
accretion of discount)
|
|
$
|
(7,492
|
)
|
|
|
8,318,042
|
|
|
$
|
(0.90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per common share
|
|
$
|
(7,492
|
)
|
|
|
8,318,042
|
|
|
$
|
(0.90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012, 2011, and 2010, stock options for approximately 62,000, 75,000, and 85,000 shares,
respectively, were not included in the computation of diluted earnings per share as their inclusion would have been anti-dilutive.
NOTE 19PREFERRED STOCK
On February 13, 2009, in exchange for an aggregate purchase price of $41.4 million, the Company issued and sold to the United
States Department of the Treasury pursuant to the Troubled Asset Relief Program Capital Purchase Program (TARP) the following: (i) 41,400 shares of the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series B, no par
value per share, and liquidation preference of $1,000 per share and (ii) a Warrant to purchase up to 109,039 shares of the Companys common stock, no par value per share, at an exercise price of $57.00 per share, subject to certain
anti-dilution and other adjustments. The Warrant may be exercised for up to ten years after it is issued.
In connection with the issuance and
sale of the Companys securities, the Company entered into a Letter Agreement including the Securities Purchase Agreement-Standard Terms, dated February 13, 2009, with the United States Department of the Treasury (the TARP
Agreement). The TARP Agreement contains limitations on the payment of quarterly cash dividends on the Companys common stock in excess of $0.057 per share and on the Companys ability to repurchase its common stock. The TARP
Agreement also grants the holders of the Series B Preferred Stock, the Warrant and the common stock to be issued under the Warrant registration rights, and subjects the Company to executive compensation limitations included in the Emergency Economic
114
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19PREFERRED STOCK(continued)
Stabilization Act of 2008 as amended by the American Recovery and Reinvestment Act of 2009. Participants in the TARP Capital Purchase Program are required to have in place limitations on the
compensation of Senior Executive Officers and other employees.
The Series B Preferred Stock (Preferred Stock) will bear
cumulative dividends at a rate of 5.0% per annum for the first five years and 9.0% per annum thereafter, in each case, applied to the $1,000 per share liquidation preference, but will only be paid when, as and if declared by the
Companys Board of Directors out of funds legally available. The Preferred Stock has no maturity date and ranks senior to the Companys common stock with respect to the payment of dividends and distributions and amounts payable in the
event of liquidation, dissolution and winding up of the Company.
In February 2009, following passage of the American Recovery and
Reinvestment Act of 2009, the program terms were changed and the Company is no longer required to conduct a qualified equity offering prior to retirement of the Series B Preferred Stock; however, prior approval of the Companys primary federal
regulator is required.
The Preferred Stock is not subject to any contractual restrictions on transfer. The holders of the Preferred Stock
have no general voting rights, and have only limited class voting rights including authorization or issuance of shares ranking senior to the Preferred Stock, any amendment to the rights of the Preferred Stock, or any merger, exchange or similar
transaction which would adversely affect the rights of the Preferred Stock. If dividends on the Preferred Stock are not paid in full for six dividend periods, whether or not consecutive, the Preferred Stock holders will have the right to elect two
directors. The right to elect directors will end when full dividends have been paid for four consecutive dividend periods. The Preferred Stock is not subject to sinking fund requirements and has no participation rights.
While payments have not been made since the third quarter of 2009, or the last thirteen quarters, the Company has continued to accrue dividends through
the fourth quarter of 2012. As of December 31, 2012, accrued and unpaid dividends totaled approximately $7.1 million and are included within accrued interest and other liabilities on the balance sheet.
NOTE 20STOCK OPTION PLAN
At December 31, 2012, PremierWest Bancorp had one active equity incentive plan the 2011 Stock Incentive Plan (2011
Plan). Upon the recommendation of the Compensation Committee, the Board of Directors adopted the PremierWest Bancorp 2011 Plan effective February 24, 2011, subject to shareholder approval, which was received at the Annual Shareholder
Meeting on May 26, 2011. The 2011 Plan authorizes the issuance of up to 500,000 shares of common stock, all of which were available for issuance at December 31, 2011. With the adoption of the 2011 Plan, no further grants will be made under
the 2002 Plan. At December 31, 2012, there were unexercised grants totaling 48,213 shares, all of which had been made under the 1992 Plan or the 2002 Plan.
The 2011 Plan allows for stock options to be granted at an exercise price of not less than the fair value of PremierWest Bancorp stock on the date of issuance, for a term not to exceed ten years. The
Compensation Committee establishes the vesting schedule for each grant; historically the Committee has utilized graded vesting schedules over two, five and seven year periods. Upon exercise of stock options or issuance of restricted stock grants, it
is the Companys policy to issue new shares of common stock.
115
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20STOCK OPTION PLAN(continued)
During the year ended December 31, 2012, stock option activity was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contractual Term
(Years)
|
|
|
Aggregate
Intrinsic Value
(in thousands)
|
|
Stock options outstanding, 12/31/2011
|
|
|
74,743
|
|
|
$
|
91.75
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(5,145
|
)
|
|
|
93.82
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(7,456
|
)
|
|
|
51.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding, 12/31/2012
|
|
|
62,142
|
|
|
|
96.40
|
|
|
|
3.19
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercisable, 12/31/2012
|
|
|
48,213
|
|
|
$
|
96.83
|
|
|
|
2.64
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PremierWest Bancorp measures and recognizes as compensation expense the grant date fair market value for all share-based
awards. That portion of the grant date fair market value that is ultimately expected to vest is recognized as expense over the requisite service period, typically the vesting period, utilizing the straight-line attribution method. This standard
requires companies to estimate the fair market value of stock-based payment awards on the date of grant using an option-pricing model. The Company uses the Black-Scholes option-pricing model to value its stock options. The Black-Scholes model
requires the use of assumptions regarding the historical volatility of the Companys stock price, its expected dividend yield, the risk-free interest rate and the weighted average expected life of the options.
The following schedule reflects the weighted-average assumptions included in this model as it relates to the valuation of options granted for the periods
indicated:
|
|
|
|
|
|
|
2010
|
|
Risk-free interest rate
|
|
|
2.5
|
%
|
Expected dividend
|
|
|
0.00
|
%
|
Expected life, in years
|
|
|
7.0
|
|
Expected volatility
|
|
|
64
|
%
|
There were no stock options granted or restricted stock grants during the year ended 2012 or 2011. There were 500
restricted stock grants forfeited during the year ended December 31, 2012. There were 750 restricted stock grants issued during the year ended 2011. As of December 31, 2012, there were 750 restricted stock grants outstanding, all expected
to fully vest between 2016 and 2018.
The weighted-average grant date fair value of restricted stock grants for the year ended 2011 was $3.30.
The weighted-average grant date fair value of stock options granted during the year ended 2010 was $5.70.
The following table presents the
unrecognized stock-based compensation as of or for the years ended December 31, 2012, 2011, and 2010. No stock options were exercised for the years ended December 31, 2012 or 2011. At December 31, 2012, unrecognized stock-based
compensation expense for stock options and restricted stock grants will be expensed over a weighted-average period of approximately 1.0 years and 2.7 years, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Unrecognized stock-based compensation
|
|
$
|
184,383
|
|
|
$
|
320,222
|
|
|
$
|
459,222
|
|
Unrecognized restricted stock awards
|
|
$
|
1,795
|
|
|
$
|
2,154
|
|
|
$
|
|
|
116
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20STOCK OPTION PLAN(continued)
Accounting for Share-Based Payment requires that the cash flows from the tax benefits
resulting from tax deductions in excess of the compensation expense recognized for stock options (excess tax benefits) be reported as financing cash flows. There were no excess tax benefits classified as financing cash inflows for the years ended
December 31, 2012, 2011, and 2010.
Stock-based compensation expense recognized under the standard was $116,000 with a related tax
benefit of $46,000 for the year ended December 31, 2012, compared to stock-based compensation expense of $146,000, with a related tax benefit of $58,400, for the year ended December 31, 2011, and $372,000, with a related tax benefit of
$148,800, for the year ended December 31, 2010.
Information regarding the number, weighted-average exercise price and weighted-average
remaining contractual life of options by range of exercise price at December 31, 2012, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Exercisable Options
|
|
Exercise Price Range
|
|
Number of
Options
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Life (Years)
|
|
|
Number of
Options
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Life (Years)
|
|
$0.00 $50.00
|
|
|
515
|
|
|
$
|
35.03
|
|
|
|
6.39
|
|
|
|
93
|
|
|
$
|
41.13
|
|
|
|
6.16
|
|
$50.01 $75.00
|
|
|
6,486
|
|
|
|
53.89
|
|
|
|
0.80
|
|
|
|
6,082
|
|
|
|
53.32
|
|
|
|
0.48
|
|
$75.01 $90.00
|
|
|
21,271
|
|
|
|
86.40
|
|
|
|
3.94
|
|
|
|
12,815
|
|
|
|
84.50
|
|
|
|
3.01
|
|
$90.01 $125.00
|
|
|
27,398
|
|
|
|
101.09
|
|
|
|
3.06
|
|
|
|
22,751
|
|
|
|
98.55
|
|
|
|
2.76
|
|
$125.01 $150.00
|
|
|
684
|
|
|
|
131.84
|
|
|
|
4.05
|
|
|
|
684
|
|
|
|
131.84
|
|
|
|
4.05
|
|
$150.01 $175.00
|
|
|
5,788
|
|
|
|
159.81
|
|
|
|
3.25
|
|
|
|
5,788
|
|
|
|
159.81
|
|
|
|
3.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,142
|
|
|
$
|
96.40
|
|
|
|
3.19
|
|
|
|
48,213
|
|
|
$
|
96.83
|
|
|
|
2.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 21REGULATORY MATTERS
Federal bank regulatory agencies use risk-based capital adequacy guidelines in the examination and regulation of banks and
bank holding companies that are designed to make capital requirements more sensitive to differences in risk profiles among banks and bank holding companies.
Under the guidelines, an institutions capital is divided into Tier 1 capital and Tier 2 capital. Tier 1 capital generally consists of common stockholders equity, surplus and undivided profits.
Tier 2 capital generally consists of the allowance for loan losses, hybrid capital instruments and subordinated debt. The sum of Tier 1 capital and Tier 2 capital represents total capital.
The adequacy of an institutions capital is determined primarily by analyzing risk-weighted assets. The guidelines assign risk weightings to assets to quantify the relative risk of each asset and to
determine the minimum capital required to support that risk. An institutions risk-weighted assets are then compared with its Tier 1 capital and total capital to arrive at a Tier 1 risk-based ratio and a total risk-based ratio, respectively.
The guidelines also utilize a leverage ratio, which is Tier 1 capital as a percentage of average total assets, less intangibles.
Under the
guidelines, 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. The categories range from
well-capitalized to critically undercapitalized. Institutions that are undercapitalized or lower are subject to certain mandatory supervisory corrective
117
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21REGULATORY MATTERS(continued)
A bank is deemed to be
well-capitalized
if the bank:
|
|
|
has a total risk-based capital ratio of 10.0 percent or greater; and
|
|
|
|
has a Tier 1 risk-based capital ratio of 6.0 percent or greater; and
|
|
|
|
has a leverage ratio of 5.0 percent or greater; and
|
|
|
|
is not subject to any written agreement or order issued by the FDIC.
|
A bank is deemed to be
adequately capitalized
if the bank:
|
|
|
has a total risk-based capital ratio of 8.0 percent or greater; and
|
|
|
|
has a Tier 1 risk-based capital ratio of 4.0 percent or greater; and
|
|
|
|
has a leverage ratio of 4.0 percent or greater (or 3.0 percent in certain circumstances); and
|
|
|
|
does not meet the definition of a well-capitalized bank.
|
Although the Bank meets the quantitative guidelines set forth above to be deemed well-capitalized, the Bank remains subject to the Agreement with the FDIC and, therefore, is deemed to be
adequately capitalized. Pursuant to the Agreement with the FDIC, as discussed in Note 2 Regulatory Agreement, Economic Condition, and Management Plan, the Bank was required to increase and maintain its Tier 1 capital
in such an amount as to ensure a leverage ratio of 10% or more by October 3, 2010, well in excess of the 5% requirement set forth in regulatory guidelines. The 10% leverage ratio was not achieved by October 3, 2010. Management believes
that, while not achieving this target in the timeframe required, the Company has demonstrated progress, taken prudent actions and maintained a good-faith commitment to reaching the requirements of the Agreement. Management continues to work toward
achieving all requirements contained in the regulatory agreements in as expeditious a manner as possible.
PremierWests and the
Banks actual and required capital amounts and ratios are presented in the following tables (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Actual
|
|
|
Regulatory
Minimum To Be
Adequately
Capitalized
|
|
|
Regulatory
Minimum To Be
Well-Capitalized
Under the Consent
Order Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital (to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
86,143
|
|
|
|
7.48
|
%
|
|
$
|
46,067
|
|
|
|
³
4.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
$
|
103,002
|
|
|
|
8.95
|
%
|
|
$
|
46,010
|
|
|
|
³
4.0
|
%
|
|
$
|
57,512
|
|
|
|
³
5.0
|
%
|
Tier 1 capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
86,143
|
|
|
|
10.70
|
%
|
|
$
|
32,213
|
|
|
|
³
4.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
$
|
103,002
|
|
|
|
12.80
|
%
|
|
$
|
32,199
|
|
|
|
³
4.0
|
%
|
|
$
|
48,299
|
|
|
|
³
6.0
|
%
|
Total capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
104,422
|
|
|
|
12.97
|
%
|
|
$
|
64,427
|
|
|
|
³
8.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
$
|
113,173
|
|
|
|
14.06
|
%
|
|
$
|
64,398
|
|
|
|
³
8.0
|
%
|
|
$
|
80,498
|
|
|
|
³
10.0
|
%
|
118
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21REGULATORY MATTERS(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Regulatory
Minimum To Be
Adequately
Capitalized
|
|
|
Regulatory
Minimum To Be
Well-Capitalized
Under the Consent
Order Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital (to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
103,410
|
|
|
|
8.01
|
%
|
|
$
|
51,670
|
|
|
|
³
4.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
$
|
112,578
|
|
|
|
8.72
|
%
|
|
$
|
51,614
|
|
|
|
³
4.0
|
%
|
|
$
|
64,517
|
|
|
|
³
5.0
|
%
|
Tier 1 capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
103,410
|
|
|
|
10.80
|
%
|
|
$
|
38,299
|
|
|
|
³
4.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
$
|
112,578
|
|
|
|
11.77
|
%
|
|
$
|
38,273
|
|
|
|
³
4.0
|
%
|
|
$
|
57,409
|
|
|
|
³
6.0
|
%
|
Total capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
119,162
|
|
|
|
12.45
|
%
|
|
$
|
76,598
|
|
|
|
³
8.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
$
|
124,672
|
|
|
|
13.03
|
%
|
|
$
|
76,546
|
|
|
|
³
8.0
|
%
|
|
$
|
95,682
|
|
|
|
³
10.0
|
%
|
NOTE 22FAIR VALUE MEASUREMENTS
The Company bases fair value on the assumptions market participants would use when pricing the asset or liability. In support of this
principle, the Company establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.
The fair value
hierarchy is as follows:
Level 1 inputs
Unadjusted quoted prices in active markets for identical assets or liabilities that the
entity has the ability to access at the measurement date.
Level 2 inputs
Inputs other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability, such
as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 inputs
Unobservable inputs for
determining the fair values of assets or liabilities that reflect an entitys own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
The following disclosures are made in accordance with the provisions of Disclosures About Fair Value of Financial Instruments, which requires
the disclosure of fair value information about financial instruments where it is practicable to estimate that value. In cases where quoted market values are not available, the Bank primarily uses present value techniques to estimate the fair values
of its financial instruments. Valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used. Accordingly, the estimates provided herein do not
necessarily indicate amounts that could be realized in a current market exchange.
In addition, as the Bank normally intends to hold the
majority of its financial instruments until maturity, it does not expect to realize many of the estimated amounts disclosed. The disclosures also do not include estimated fair value amounts for items that are not defined as financial instruments but
have significant value. These include such off-balance sheet items as core deposit intangibles on acquired deposits. The Bank does not believe that it would be practicable to estimate a representational fair value for these types of items as of the
periods presented.
119
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22FAIR VALUE MEASUREMENTS(continued)
The Company used the following methods and significant assumptions to estimate fair value for its assets
measured and carried at fair value on a recurring basis in the financial statements:
Investment securities
available-for-sale
Securities classified as available-for-sale are reported at fair value utilizing Level 1 and 2 inputs. However, as practically expedient, all securities are reported as utilizing Level 2 inputs. Fair values for investment
securities are based on quoted market prices or the market values for comparable securities. The Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include
dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bonds terms and conditions, among other things.
Available-for-sale securities are the only balance sheet category the Company accounts for at fair value on a recurring basis.
The following
table presents information about these securities and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Fair Value Measurements
At
December 31, 2012, Using
|
|
Description
|
|
Fair Value
12/31/2012
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Other Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
137,619
|
|
|
$
|
|
|
|
$
|
137,619
|
|
|
$
|
|
|
Mortgage-backed securities
|
|
|
106,450
|
|
|
|
|
|
|
|
106,450
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
|
81,161
|
|
|
|
|
|
|
|
81,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
325,230
|
|
|
$
|
|
|
|
$
|
325,230
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At December 31,
2011, Using
|
|
Description
|
|
Fair Value
12/31/2011
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Other Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
134,416
|
|
|
$
|
|
|
|
$
|
134,416
|
|
|
$
|
|
|
Mortgage-backed securities
|
|
|
71,773
|
|
|
|
|
|
|
|
71,773
|
|
|
|
|
|
U.S. Government and agency securities
|
|
|
41,093
|
|
|
|
|
|
|
|
41,093
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
|
66,878
|
|
|
|
|
|
|
|
66,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
314,160
|
|
|
$
|
|
|
|
$
|
314,160
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company used the following methods and significant assumptions to estimate fair value for its assets measured and
carried at fair value on a non-recurring basis in the financial statements.
Impaired Loans
A loan is considered to be impaired
when, based on current information and events, it is probable that the Company will be unable to collect all amounts due (both interest and principal) according to the contractual terms of the loan agreement. Non-performing loans are evaluated and
valued at the time the loan is
120
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22FAIR VALUE MEASUREMENTS(continued)
identified as impaired, at the lower of cost or fair value less selling costs (net realizable value). As a practical expedient, fair value may be measured based on a loans
observable market price or the underlying collateral securing the loan. Collateral may be real estate or business assets including equipment. The value of collateral is generally determined based on independent appraisals.
Other Real Estate and Foreclosed Assets
Other real estate and foreclosed assets (OREO) acquired through foreclosure or deeds in
lieu of foreclosure are carried at fair value, less costs to sell, or estimated net realizable value utilizing current property appraisal valuations. When property is acquired, any excess of the loan balance over the estimated net realizable value
is charged to the allowance for loan losses. Holding costs, subsequent write-downs to net realizable value, if any, or any disposition gains or losses are included in non-interest expense. The Bank had $25.4 million and $22.8 million in OREO at
December 31, 2012, and December 31, 2011, respectively.
The following table presents the fair value measurement for non-earning
assets as of December 31, 2012, and December 31, 2011, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Fair Value Measurements
As of
December 31, 2012, Using
|
|
Description
|
|
Fair Value
12/31/2012
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Other Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
Total period
losses included
in earnings
|
|
Other real estate owned and foreclosed assets
|
|
$
|
25,357
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
25,357
|
|
|
$
|
(4,261
|
)
|
Loans measured for impairment, net of specific reserves
|
|
|
13,920
|
|
|
|
|
|
|
|
|
|
|
|
13,920
|
|
|
|
(6,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired assets measured at fair value
|
|
$
|
39,277
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
39,277
|
|
|
$
|
(11,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
As of
December 31, 2011, Using
|
|
Description
|
|
Fair Value
12/31/2011
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Other Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
Total period
losses included
in earnings
|
|
Other real estate owned and foreclosed assets
|
|
$
|
22,829
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
22,829
|
|
|
$
|
(8,950
|
)
|
Loans measured for impairment, net of specific reserves
|
|
|
36,525
|
|
|
|
|
|
|
|
|
|
|
|
36,525
|
|
|
|
(19,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired assets measured at fair value
|
|
$
|
59,354
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
59,354
|
|
|
$
|
(28,627
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22FAIR VALUE MEASUREMENTS(continued)
As of December 31, 2012, and 2011, all non-performing loans were considered impaired and were
measured for impairment. The table below shows the detail of the various categories of impaired loans:
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
As of December 31,
2012
|
|
|
As of December 31,
2011
|
|
Impaired loans with charge-offs to date (1)
|
|
$
|
13,066
|
|
|
$
|
27,324
|
|
Impaired loans with specific reserves
|
|
|
1,018
|
|
|
|
7,600
|
|
Impaired loans with both specific reserves and charge-offs loan-to-date (1)
|
|
|
|
|
|
|
3,688
|
|
|
|
|
|
|
|
|
|
|
Subtotal impaired loans with specific reserves and/or charge-offs loan-to-date
|
|
|
14,084
|
|
|
|
38,612
|
|
Specific reserves associated with impaired loans
|
|
|
(164
|
)
|
|
|
(2,087
|
)
|
|
|
|
|
|
|
|
|
|
Total fair value of loans measured for impairment, net of specific reserves
|
|
$
|
13,920
|
|
|
$
|
36,525
|
|
|
|
|
|
|
|
|
|
|
Impaired loans without charge-offs or specific reserves
|
|
$
|
8,567
|
|
|
$
|
37,629
|
|
Loans with specific reserves and/or charge-offs loan-to-date
|
|
|
14,084
|
|
|
|
38,612
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
22,651
|
|
|
$
|
76,241
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents loans reduced for charge-offs incurred from inception of the loans
|
As this standard excludes certain financial instruments and all non-financial instruments from its disclosure requirements, any aggregation of the fair value amounts presented in the following table would
not represent the underlying value of the Bank.
The following tables present information about the level in the fair value hierarchy for the
Companys assets and liabilities that are not measured on a recurring basis as of December 31, 2012 and 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
December 31,
2012
|
|
|
Fair Value at December 31, 2012
|
|
|
|
Carrying Value
|
|
|
Total Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
80,252
|
|
|
$
|
80,252
|
|
|
$
|
80,252
|
|
|
$
|
|
|
|
$
|
|
|
Interest-bearing certificates of deposit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(original maturities greater than 90 days)
|
|
|
1,500
|
|
|
|
1,500
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
Investment securities - CRA
|
|
|
4,949
|
|
|
|
4,949
|
|
|
|
|
|
|
|
4,949
|
|
|
|
|
|
Restricted equity investments
|
|
|
2,978
|
|
|
|
2,978
|
|
|
|
|
|
|
|
2,978
|
|
|
|
|
|
Loans held-for-sale
|
|
|
371
|
|
|
|
371
|
|
|
|
|
|
|
|
371
|
|
|
|
|
|
Loans
|
|
|
647,527
|
|
|
|
649,254
|
|
|
|
|
|
|
|
|
|
|
|
649,254
|
|
Accrued interest receivable
|
|
|
4,069
|
|
|
|
4,069
|
|
|
|
4,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,006,184
|
|
|
$
|
1,009,601
|
|
|
$
|
|
|
|
$
|
1,009,601
|
|
|
$
|
|
|
Securities sold under agreements to repurchase
|
|
|
5,353
|
|
|
|
5,353
|
|
|
|
|
|
|
|
5,353
|
|
|
|
|
|
Junior subordinated debentures
|
|
|
30,928
|
|
|
|
9,146
|
|
|
|
|
|
|
|
|
|
|
|
9,146
|
|
Accrued interest payable
|
|
|
3,176
|
|
|
|
3,176
|
|
|
|
3,176
|
|
|
|
|
|
|
|
|
|
122
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22FAIR VALUE MEASUREMENTS(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
December 31,
2011
|
|
|
Fair Value at December 31, 2011
|
|
|
|
Carrying Value
|
|
|
Total Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
71,349
|
|
|
$
|
71,349
|
|
|
$
|
71,349
|
|
|
$
|
|
|
|
$
|
|
|
Interest-bearing certificates of deposit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(original maturities greater than 90 days)
|
|
|
1,500
|
|
|
|
1,500
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
Investment securities - CRA
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
Restricted equity investments
|
|
|
3,255
|
|
|
|
3,255
|
|
|
|
|
|
|
|
3,255
|
|
|
|
|
|
Loans held-for-sale
|
|
|
810
|
|
|
|
810
|
|
|
|
|
|
|
|
810
|
|
|
|
|
|
Loans
|
|
|
797,878
|
|
|
|
799,218
|
|
|
|
|
|
|
|
|
|
|
|
799,218
|
|
Accrued interest receivable
|
|
|
4,567
|
|
|
|
4,567
|
|
|
|
4,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,127,749
|
|
|
$
|
1,133,695
|
|
|
$
|
|
|
|
$
|
1,133,695
|
|
|
$
|
|
|
Securities sold under agreements to repurchase
|
|
|
4,241
|
|
|
|
4,241
|
|
|
|
|
|
|
|
4,241
|
|
|
|
|
|
Junior subordinated debentures
|
|
|
30,928
|
|
|
|
12,999
|
|
|
|
|
|
|
|
|
|
|
|
12,999
|
|
Accrued interest payable
|
|
|
2,536
|
|
|
|
2,536
|
|
|
|
2,536
|
|
|
|
|
|
|
|
|
|
NOTE 23PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for PremierWest (parent company only) is presented as follows (in thousands):
CONDENSED BALANCE SHEETS
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
836
|
|
|
$
|
1,075
|
|
Investment in subsidiary
|
|
|
112,117
|
|
|
|
119,883
|
|
Other assets
|
|
|
1,442
|
|
|
|
1,609
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
114,395
|
|
|
$
|
122,567
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Junior subordinated debentures
|
|
$
|
30,928
|
|
|
$
|
30,928
|
|
Other liabilities
|
|
|
10,106
|
|
|
|
7,274
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
41,034
|
|
|
|
38,202
|
|
SHAREHOLDERS EQUITY
|
|
|
73,361
|
|
|
|
84,365
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
114,395
|
|
|
$
|
122,567
|
|
|
|
|
|
|
|
|
|
|
123
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 23PARENT COMPANY FINANCIAL INFORMATION(continued)
CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Operating income
|
|
$
|
37
|
|
|
$
|
21
|
|
|
$
|
46
|
|
Interest expense
|
|
|
(766
|
)
|
|
|
(615
|
)
|
|
|
(1,102
|
)
|
Other operating expense
|
|
|
(555
|
)
|
|
|
(471
|
)
|
|
|
(759
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in undistributed net loss of subsidiary
|
|
|
(1,284
|
)
|
|
|
(1,065
|
)
|
|
|
(1,815
|
)
|
Undistributed net loss of subsidiary
|
|
|
(10,123
|
)
|
|
|
(13,986
|
)
|
|
|
(3,144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(11,407
|
)
|
|
|
(15,051
|
)
|
|
|
(4,959
|
)
|
PREFERRED STOCK DIVIDENDS AND DISCOUNT ACCRETION
|
|
|
2,528
|
|
|
|
2,565
|
|
|
|
2,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS
|
|
$
|
(13,935
|
)
|
|
$
|
(17,616
|
)
|
|
$
|
(7,492
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(11,407
|
)
|
|
$
|
(15,051
|
)
|
|
$
|
(4,959
|
)
|
Adjustments to reconcile net income to net cash from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed net loss of subsidiary
|
|
|
10,123
|
|
|
|
13,986
|
|
|
|
3,144
|
|
Other, net
|
|
|
929
|
|
|
|
590
|
|
|
|
2,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(355
|
)
|
|
|
(475
|
)
|
|
|
1,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Bank subsidiary
|
|
|
|
|
|
|
|
|
|
|
(32,503
|
)
|
Advances made to Bank subsidiary
|
|
|
|
|
|
|
|
|
|
|
1,462
|
|
Repayment of advances made to Bank subsidiary
|
|
|
|
|
|
|
|
|
|
|
(1,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
(32,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for fractional shares in connection with 1-for-10 reverse stock split
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
32,503
|
|
Other, net
|
|
|
116
|
|
|
|
|
|
|
|
(750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
116
|
|
|
|
(1
|
)
|
|
|
31,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(239
|
)
|
|
|
(476
|
)
|
|
|
280
|
|
CASH AND CASH EQUIVALENTS, Beginning of year
|
|
|
1,075
|
|
|
|
1,551
|
|
|
|
1,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, End of year
|
|
$
|
836
|
|
|
$
|
1,075
|
|
|
$
|
1,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124
PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24SUBSEQUENT EVENT
On October 29, 2012, PremierWest Bancorp entered into an Agreement and Plan of Merger (the Merger Agreement) with
Starbuck Bancshares, Inc., a Minnesota corporation (Starbuck), and Pearl Merger Sub Corp., an Oregon corporation and a newly formed subsidiary of Starbuck (Merger Sub). The Merger Agreement provides that, upon the terms and
subject to the conditions set forth therein, including regulatory and shareholder approval, PremierWest will merge (the Merger) with and into Merger Sub, with Merger Sub as the surviving corporation. The parties contemplate in the Merger
Agreement that immediately following the Merger, PremierWest Bank will merge with and into AmericanWest Bank, a wholly owned subsidiary of Starbuck, with AmericanWest Bank as the surviving bank. The Board of Directors of each of PremierWest,
Starbuck and Merger Sub adopted and approved the Merger Agreement and the transactions contemplated thereby, and the parties have received all necessary regulatory approvals. A copy of the Merger Agreement is included as Exhibit 2.1 to PremierWest
Bancorps Form 8-K filed October 30, 2012.
A special meeting of shareholders was held on February 19, 2013, asking
shareholders to consider and vote on the approval of the Merger Agreement. The meeting was adjourned until March 13, 2013, to provide the Company with additional time to solicit proxies from its shareholders. The reconvened special meeting of
shareholders held March 13, 2013, was further adjourned until March 28, 2013 to provide additional time to solicit proxies on the merger proposal.
125