pab bankshares, inc. - SNL Financial

As of December 31, 2009
Contractual
Maturities
Expected
Cash Flows Difference
(Dollars in Thousands)
Due in one year or less $ - $24,467 $24,467
Due after one year through five years 857 47,282 46,425
Due after five years through ten years 16,626 23,200 6,574
Due after ten years 94,058 16,592 (77,466)
Total $ 111,541 $ 111,541 $ -
Our liquidity from investments is somewhat limited since we pledge certain investments to secure public deposits and
certain borrowing arrangements. At December 31, 2009, approximately 81.9% of our $111.5 million investment portfolio
was pledged as collateral to others.
Borrowings
During 2008, we faced aggressive advertising for deposits from competitors offering higher interest rates in our North
Georgia and Florida markets. During the second half of 2008, we decided not to compete in those markets for these
higher-priced deposits, and we reduced our excess liquidity to limit the impact on our earnings in the declining-rate
environment. We elected to use brokered deposits and advances from the FHLB, which then were at lower rates than
those market retail deposits, to fund our balance sheet in the first half of 2008. Then, during the third quarter of 2008, as
concerns over global market instability and economic weakness increased, we further used brokered deposits to build up
our liquidity and strengthen our balance sheet. During this time, brokered deposits increased by $171 million, and
advances from the FHLB increased $23.4 million during 2008. (The total increase in brokered deposits excludes retail
deposits placed in the Certificate of Deposit Account Registry Service, or CDARS, reciprocal deposits program. CDARS
deposits must be classified as brokered deposits under applicable regulations.). However, during 2009 we began to reduce
our reliance on these funding sources as we began to see stabilized rates in our local retail markets. During 2009, we
reduced our brokered deposits by $73.6 million and reduced our advances from the FHLB by $19.6 million. We also
issued $20.0 million of three year unsecured debt at an interest rate of 2.74% under the FDIC’s Temporary Liquidity
Guarantee Program during 2009. At December 31, 2009, we had $14.9 million in available secured credit line with the
FHLB.
As of December 31, 2009, the Bank did not meet the regulatory capital ratios required to meet “well-capitalized”
standards. Accordingly, we are unable to renew any brokered certificates of deposit or attract new brokered certificates of
deposit without prior regulatory approval. Further, the Written Agreement required us to submit to our banking regulators
a timetable to reduce our reliance on borrowing and short-term wholesale funding, including brokered deposits, and we are
currently meeting the timetable we submitted. In the future, we plan to rely primarily on retail deposits in our North
Georgia, South Georgia and Florida markets to fund our banking operations. Regulatory restrictions on the rates offered
for deposit accounts in our markets took effect in January 2010 and we believe those restrictions will help reduce
aggressive pricing of many of our competitors in North Georgia and Florida and eventually result in lowering our cost of
funds in these markets.
On October 5, 2006, PAB Bankshares Capital Trust II (“PAB Trust II”) issued $10 million of Floating Rate Capital
Securities, also referred to as “trust preferred securities”. We formed PAB Trust II, a statutory business trust created under
the laws of the State of Delaware, for the sole purpose of issuing the trust preferred securities and investing the proceeds in
Floating Rate Junior Subordinated Debentures (the “Trust II Debentures”) issued by us. The interest rates on both the trust
preferred securities and the Trust II Debentures are reset quarterly at the three-month London Interbank Offered Rate
(“LIBOR”) plus 1.63% (1.88% at December 31, 2009). We entered into agreements which, taken collectively, fully,
irrevocably and unconditionally guarantee, on a subordinated basis, all of PAB Trust II’s obligations under the trust
preferred securities. PAB Trust II’s sole asset is the Trust II Debentures issued by us. The Trust II Debentures will mature
on December 31, 2036, but are callable at par at our option in whole or in part anytime on or after December 31, 2011.
The proceeds from the issuance of these trust preferred securities qualify as Tier 1 capital under the risk-based capital
guidelines established by the Federal Reserve.
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