PremierWest Bancorp said Monday it will seek as much as $41 million from the Department of the Treasury as part of the Capital Purchase Program instituted by the federal government in 2008.

PremierWest Bancorp said Monday it will seek as much as $41 million from the Department of the Treasury as part of the Capital Purchase Program instituted by the federal government in 2008.

Jim Ford, president and chief executive officer of the Medford-based bank holding company, called it a pre-emptive 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 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 Capital Purchase Program is part of the Troubled Assets Relief Program approved by Congress last October. Ford said PremierWest applied for the program two months ago, and has now been approved.

The bank expects to close the deal sometime in the first quarter of 2009, Ford said.

How much of the $41 million the bank will seek hasn't been decided. Ford said that unlike a line of credit, banks can make only one request for capital. For example, if a bank asked for a $25 million infusion, that would be the total, even if more money was still 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," Ford said, "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."

The Treasury infusion is for 10 years. 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," he 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.

Ford said some banking institutions have cut off lending to certain sectors.

"In the last two quarters, we grew the number of both consumer and business accounts — checking and money market accounts," Ford said. "There may not be as many lending opportunities out there, because people are not borrowing or they have cash flow problems and can't qualify."

"PremierWest is still making loans in any type of solid, good lending arrangement that makes sense," he said. "It's pretty common for savvy business people to slow down and take stock and make sure their cash position is solid enough before they borrow. All last year and back to 2007 there were borrowers sitting on the sidelines waiting for indications things were going to get better before they started borrowing again. The extra cash makes sure we can go after business with people that are not PremierWest customers, who are borrowing and depositing at other institutions."

PremierWest shares rose 7 cents to 4.47 in Monday trading.

Reach reporter Greg Stiles at 776-4463 or e-mail business@mailtribune.com.