With a regulatory order headed its way, PremierWest Bancorp is trying to get out in front of its capital problems.
The $1.56 billion-asset company in Medford, Ore., announced Monday that it would try to raise as much as $17.3 million in capital through a public stock offering.
PremierWest's latest capital-raising effort comes after the sale this month of $18.7 million through a rights offering to existing shareholders, including insiders.
Should the latest effort succeed, PremierWest would become one of only a few Pacific Northwest banking companies to pull off a recapitalization, experts said.
The combined $36 million capital boost would return PremierWest's bank unit to well-capitalized status and could precede the enforcement action it has been awaiting since the bank dropped below well-capitalized status in the third quarter of 2009.
Yet analysts said the $36 million may not ultimately be enough to buffer PremierWest from its problem assets.
James M. Ford, the company's president and chief executive officer, said in an interview that the company has not lost sight of the long term but right now is focused on survival.
"This is the one time we are going to raise capital," he said, "so we are raising a sufficient amount of capital to satisfy our needs. If further capital is needed, we will evaluate it then. Right now, we are focused on this quarter and next quarter. In times like this, you have to literally focus on what can be accomplished that day."
Still, analysts applauded the company's attempt to right the ship, even if it ultimately proves temporary.
"The fact that they got their existing shareholders on board is encouraging and bodes well for the rest of the offering," said Richard Levenson, the president of Western Financial Corp., an investment bank in San Diego. "Should they complete it, they will have succeeded where others haven't. That's good news."
It's not a given that the public offering will succeed, however. The company has set a March 31 deadline but left an opening to extend the offering to the end of April. PremierWest is approaching the offering on a "best efforts" basis, meaning it is selling as many shares as it can rather than sticking to the typical all-or-nothing playbook for stock offerings. Experts said companies employ this approach when they are unable to find an underwriter willing to take on the risk. In such a scenario, an investment bank commits to selling a certain number of shares, even if it can't sell the whole allotment.
"It is very much a 'sell what you can' approach," said Tim O'Brien, an analyst in San Francisco at the Sandler O'Neill & Partners LP investment bank. "For them, any dollar raised is a dollar good, though."
O'Brien said the offering's pricing should help. At 44 cents per share, the price is a 40% discount to PremierWest's stock close on Friday. Since the offering was announced Monday, the stock price has tumbled to about 50 cents per share.
"I think we could see interest from existing investors to buy more," O'Brien said. "I think it could also attract interest from short-sellers."
Ford acknowledged that the sale will dilute existing shareholders but said its pricing was based on the rights offering and is calculated to raise the money the company needs.
"When you have to raise capital, you have to set the price where you can actually raise the capital," he said.
The $36 million would raise the bank's total risk-based capital ratio to 11.26%, from 8.53% at Dec. 31, according to data from Foresight Analytics LLC.
Though that would be a step in the right direction, O'Brien questioned whether it will ultimately be sufficient to address the company's credit problems.
As of Dec. 31, PremierWest's nonperforming assets were $128 million, or 8.37% of total assets, up 47% from a year earlier.
"They still have a sizable amount of nonperformers, and those numbers haven't come down," O'Brien said.
Like many struggling banks in the Pacific Northwest, PremierWest's problems stem from its exposure to residential construction and commercial real estate loans. Nearly a dozen banks have failed in the region since the beginning of 2009, and experts have said that another dozen could be headed toward failure.
Though the company's credit issues remain challenging, Ford said the number of substandard loans — its internal classification for loans that could pose further problems — has flattened out.
At the end of the fourth quarter, "substandard loans" totaled $181.2 million, down 6.25% from the second quarter.
Ford said reducing problem assets is a priority and will remain so as PremierWest completes a formal agreement with the Federal Deposit Insurance Corp. and the Oregon Division of Finance and Corporate Securities.
Frank Bonaventure, a principal at Ober, Kaler, Grimes & Shriver and a former senior counsel at the Office of the Comptroller of the Currency, said raising capital in anticipation of the order could lighten the hammer blow coming down on the company, though he added that it would not change the requirement to reduce problem assets.
"It won't stop the order from coming in," Bonaventure said. "But bringing in capital ahead of time could result in a softer tone in that area."
