PremierWest Bancorp said today it will seek as much as $41 million from the Treasury Department as part of the Capital Purchase Program instituted by the federal government last year.

PremierWest Bancorp said today it will seek as much as $41 million from the Treasury Department as part of the Capital Purchase Program instituted by the federal government last year.

Jim Ford, president and chief executive officer of the Medford-based bank holding company, called it a preemptive move.

"Primarily, we're just making sure that as an institution we continue to be healthy and viable so that we can continue to lend money in the communities we serve," Ford said.

PremierWest is currently considered "well capitalized" by banking standards with capital of more than 10 percent compared to its risk-based assets such as commercial and consumer loans and other financial instruments.

"We don't know if regulators are going to raise the level of what is well capitalized," Ford said. "We've been hearing regulators may change that ratio limit to 12 percent. Right now, we're over 11 percent."

The CPP is part of the Troubled Assets Relief Program instituted last October. Under the program, the government purchases stock equal to 3 percent of the bank's capital and assets.

Ford said PremierWest applied for the program two months ago. It has now been approved and will close the deal sometime in the first quarter.

How much of the $41 million the bank will seek hasn't been decided. But unlike a line of credit, Ford said, it's a one shot deal. For example, if a bank asked for a $25 million infusion, that would be the total, even if more was available.

Under the program rules, the government will be issued shares of preferred stock guaranteeing a 5 percent dividend.

"The way we looked at it, even the largest banks are having a difficult time raising capital, and this is a pretty good cost for capital in some pretty uncertain times," Ford said.

The Treasury infusion is for a 10-year period. After five years, the dividend jumps to 9 percent. Ford said most banking institutions think of the program as a temporary capital infusion and plan to replace it in five years.

"There are some incentives to replace the capital in three years," Ford said. "It's no different than when this institution issued preferred stock a few years ago and converted it to common stock in November."

Preferred shares are first in line to receive dividends before common shares.

— Greg Stiles