PremierWest Bancorp's 2008 earnings plunged 95.7 percent to $648,000, as the Medford-based bank braced for as much as a $10 million increase in loan losses. The performance comes on the heels of a record $15.1 million profit in 2007.

PremierWest Bancorp's 2008 earnings plunged 95.7 percent to $648,000, as the Medford-based bank braced for as much as a $10 million increase in loan losses. The performance comes on the heels of a record $15.1 million profit in 2007.

The parent company of PremierWest Bank said Monday it lost $3.09 million in the fourth quarter of 2008, or 14 cents per share, compared to earnings of $1.3 million in the final three months of 2007.

Despite that, company officials say the bank is on solid ground with strong capitalization and a nearly 30 percent increase in deposits, the latter the result of an acquisition.

Its nonperforming assets climbed to $71.9 million, or 4.84 percent of total assets, and provision for loan losses grew by $10.1 million to $23.15 million — the largest since PremierWest came into being in 2000. That move led to the quarterly loss, PremierWest President and Chief Executive Officer Jim Ford said.

"Since we conservatively set our sights, we set the money aside for our loan-loss reserve," Ford said.

"Had we not elected to do that, we would have had substantially more profits. The way we look at it, our core earnings were sufficient to allow us to have a very large (loan loss) provision for the year. For a lot of banks, that would not be the case."

The loan loss-reserve counts as an expense, but is still money on hand.

"You deduct it when you charge off loans where you can't get 100 pennies on the dollar," Ford said. "Part of the (reserve) covers that and part of it covers the rest of the portfolio."

PremierWest charge-offs of nonperforming loans during the quarter totaled $8.5 million. Recoveries during the fourth quarter of 2008 of previously charged-off loans totaled $306,000. The bank said it remained "well-capitalized" in regulators' eyes with a risk-based capital ratio of 11.43 percent. Earlier in the week, PremierWest announced it was participating in the Treasury Department's Capital Purchase Program, giving it access to as much as $41 million. The extra capital assured it would stay well-capitalized should regulators raise requirements.

Between the end of 2007 and 2008, PremierWest deposits grew 29.5 percent to $1.21 billion, primarily because of the acquisition of Stockman Financial Group a year earlier. However, during the fourth quarter, deposits declined $14.6 million or 1.2 percent from Sept. 30 balances.

While the economic slowdown has imperiled repayment of some loans, layoffs haven't so far created ripples.

"We actually grew the number of consumer and business accounts during the third and fourth quarters," Ford said. "If people stay unemployed for an extended time, it might show up in car and household loans. There are some lagging effects for banks with credit card companies, but we don't have a credit card portfolio."

With the economy struggling to find solid ground, Ford doesn't see earnings in a long-term decline.

"We don't give forward guidance," Ford said. "But we have been pretty darn conservative with just 1.81 percent of our assets in loan loss reserves.(correction; see below) We feel pretty good about our position."

Nonperforming loans totaled $67.5 million, or 5.33 percent of total loans, at the end of 2008 compared to $58.8 million, or 4.64 percent of total loans, at the end of September.

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

Correction: The original version of this story made an incorrect reference to the percentage and the type of account involved. This version has been corrected.