PremierWest feels the pain of loan losses

May 13, 2009 (Mail Tribune - McClatchy-Tribune Information Services via COMTEX) -- PRWT | Quote | Chart | News | PowerRating -- The continuing need to set aside reserves for potential bad loans gouged PremierWest Bancorp's bottom line for the first quarter of 2009.

The Medford-based parent of PremierWest Bank reported a first quarter loss of $3.98 million, or 17 cents per share, compared to a $1.73 million profit during the first quarter of 2008.

PremierWest saw its 2008 earnings drained away when it had to restate fourth-quarter 2008 earnings earlier this year. Regulators required PremierWest to boost its loan loss reserve, leading to an $11.3 million fourth-quarter loss.

The bank set aside $10.7 million for bad loans during the first quarter, down from $23.5 million in the previous three months.

"The biggest thing is that we have much higher provision for loan losses," said PremierWest Bank President Jim Ford. "We've changed our methodology. As a result, we're effectively taking a more conservative position on the valuation of future loan losses, which tells us to put more into our loss provision."

The rough going likely is to continue, Ford said, as long as the real-estate market between Eugene and Sacramento remains sluggish.

"Part of it is that real-estate prices are so depressed," Ford said. "There are not enough deals and homes. Lot and commercial values have all come down. All financial institutions are having to re-evaluate how much to write off if a loan went bad."

The amount of nonperforming loans climbed 244 percent, to $84 million, PremierWest reported, largely because of 15 borrowers that either have fallen behind or ceased making payments.

"It isn't a Sacramento deal or Rogue Valley deal. One is no better off than the other," Ford said. "It's not as if these people were unknown to us or if we took undue risk."

Bank executives think they have already recorded all losses they will experience from most of the loans, and continue working to resolve others. With total loan loss reserves pegged at $25.6 million, if PremierWest can't unravel failing loans, it likely will see continued erosion of profits.

"Throughout the U.S., some (business) inventories are at their lowest historical point," Ford said. "Consumer demand may require people going back to work. We have to rebuild that low level of inventory to see better economic times. We won't know if we're out of a recession for two or three quarters, just like we don't know we're in one for two or three quarters."

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