pab bankshares, inc. - SNL Financial

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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. 46
On September 4, 2009, the Company began exercising its right to defer quarterly interest payments for its Debentures. We have provided notice of our deferral of the two interest payments from September 30, 2009 to December 31, 2009. We expect to defer the interest payments into the foreseeable future. During this period of deferral, the Company is precluded from repurchasing shares of common stock and from paying dividends on outstanding common stock. We will continue to accrue for the interest payable after the deferral period in our consolidated statement of income (loss). Contractual Obligations Summarized below are our contractual obligations as of December 31, 2009. 1 year Over 1 Over 3 More than Contractual Obligations Total or less to 3 years to 5 years 5 years (Dollars in Thousands) FHLB Advances $ 90,140 $ 5,658 $40,745 $24,371 $19,366 Operating Lease Obligations 1,097 345 521 231 - Other Borrowings 20,000 - 20,000 - - Guaranteed Preferred Beneficial Interests in Debentures 10,310 - - - 10,310 $ 121,547 $ 6,003 $61,266 $24,602 $29,676 Off-Balance Sheet Financing Our financial statements do not reflect various commitments and contingent liabilities that arise in the normal course of business. These off-balance sheet financial instruments include commitments to extend credit and standby letters of credit. These financial instruments are included in the financial statements when funds are distributed or the instruments become payable. We use the same credit policies in making these commitments as we do for on-balance sheet instruments. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit and credit card commitments is represented by the contractual amount of those instruments. At December 31, 2009, we had outstanding commitments to extend credit through open lines of credit of approximately $89.1 million and outstanding standby letters of credit of approximately $3.7 million. In June 2006, we entered into a $50 million notional amount, 3-year, 8.25% Prime rate floor contract to hedge against interest rate risk in a declining rate environment. In January 2008, we entered into a $25 million notional amount, 3-year 5.75%/6.50% Prime rate collar contract and a $25 million notional amount, 5-year 6.00%/7.25% Prime rate collar contract and in April 2008, we entered into a $25 million notional amount, 3-year 2.975% 1-month LIBOR cap contract to further hedge against interest rate risk. In April 2009, we terminated the two Prime rate collar contracts. The Prime rate floor contract expired July 1, 2009. At December 31, 2009, the only derivative contract outstanding is the LIBOR cap contract. Notional amounts provide the basis for calculating payments between counterparties and do not represent amounts to be exchanged between parties, and are not a measure of financial risk. The risk of loss with our counterparty is limited to a small fraction of the notional amount. We only deal with counterparties that have investment grade credit ratings, are well capitalized and are approved by our Board of Directors. Due to these factors, we feel our credit risk exposure under these hedging arrangements at December 31, 2009 was not material. Commitments of Capital At December 31, 2009, there were no binding commitments for material capital expenditures outstanding. Stockholders’ Equity We are required to comply with capital adequacy standards established by our regulatory agencies. At December 31, 2009, the Bank had the requisite capital level to qualify as “adequately capitalized” under the regulatory framework for prompt corrective action. See the section titled “Capital Adequacy” under the caption “Supervision and Regulation” in Item 1 of this Report for more information on the regulatory capital adequacy standards. The following table summarizes our consolidated regulatory capital ratios at December 31, 2009, 2008 and 2007. Minimum Regulatory 2009 2008 2007 Requirement Total Capital to Risk Weighted Assets 8.1% 10.3% 11.3% 8.0% Tier 1 Capital to Risk Weighted Assets 6.8% 9.0% 10.0% 4.0% Tier 1 Capital to Average Assets (Leverage Ratio) 4.7% 7.0% 8.5% 4.0% 47
Page 1 and 2: 2009 Annual Report
Page 3 and 4: UNITED STATES SECURITIES AND EXCHAN
Page 5 and 6: TABLE OF CONTENTS Item Page Caution
Page 7 and 8: PART I ITEM 1. BUSINESS General PAB
Page 9 and 10: North Georgia During the fourth qua
Page 11 and 12: Supervision and Regulation The bank
Page 13 and 14: Payment of Dividends PAB is a legal
Page 15 and 16: An institution that is categorized
Page 17 and 18: USA Patriot Act of 2001 In October
Page 19 and 20: If our allowance for loan losses is
Page 21 and 22: Our net interest income could be ne
Page 23 and 24: We may need to raise additional cap
Page 25 and 26: If we fail to continue to meet all
Page 27 and 28: Performance Graph The following gra
Page 29 and 30: GAAP Reconciliation and Management
Page 31 and 32: The three primary reasons for this
Page 33 and 34: At December 31, 2009, commercial re
Page 35 and 36: Average Balances, Interest and Yiel
Page 37 and 38: Loan Portfolio We make both secured
Page 39 and 40: A summary of loans from each market
Page 41 and 42: The following table summarizes our
Page 43 and 44: The first component of the allowanc
Page 45 and 46: Summary of Loan Loss Experience The
Page 47: The following table summarizes our
Page 51 and 52: Provision for Loan Losses The provi
Page 53 and 54: Income Taxes The provision for inco
Page 55 and 56: We have reduced the level of asset-
Page 57 and 58: MANAGEMENT’S REPORT ON INTERNAL C
Page 59 and 60: Because of its inherent limitations
Page 61 and 62: PAB BANKSHARES, INC. AND SUBSIDIARI
Page 69 and 70: NOTES TO CONSOLIDATED FINANCIAL STA
Page 99 and 100:
NOTES TO CONSOLIDATED FINANCIAL STA
Page 101 and 102:
Page 103 and 104:
Page 105 and 106:
Page 107 and 108:
Page 109 and 110:
JAMES W. GODBEE, JR Certified Publi
Page 111 and 112:
KENNITH D. MCLEOD Certified Public
Page 113 and 114:
The Audit Committee is a separately
Page 115 and 116:
SECTION 16(a) BENEFICIAL OWNERSHIP
Page 117 and 118:
Compensation Benchmarks and Use of
Page 119 and 120:
The following table summarizes in t
Page 121 and 122:
Base Salaries The Company’s philo
Page 123 and 124:
Page 125 and 126:
(1) The listed stock option grants
Page 127 and 128:
Potential Payments Upon Termination
Page 129 and 130:
Page 131 and 132:
(5) Includes 1,659,310 shares owned
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All related party transactions set
Page 135 and 136:
10.5 Rescission Agreement, dated De
Page 137 and 138:
SIGNATURES Pursuant to the requirem
Page 139 and 140:
Shareholder Information Corporate O
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