pab bankshares, inc. - SNL Financial

Stockholders’ equity represented 4.1% of total assets at December 31, 2009, a decrease compared to 6.8% at December 31,
2008. Total stockholders’ equity has decreased $41.0 million, or 44.8%, since December 31, 2008. This decrease is
primarily the net result of our net loss of $51.2 million, a $3.0 million decrease in accumulated other comprehensive gains,
offset by the $12.8 million of new stock issued. We did not declare a dividend for the year 2009 or in the third or fourth
quarters of 2008. However, we paid a $0.142 per common share cash dividend for the first quarter of 2008 and a $0.093
per common share cash dividend for the second quarter of 2008. We also declared a 2% stock dividend in the second
quarter of 2008. In setting our dividend on a quarterly basis, we evaluate our capital adequacy and the quality of our
earnings, and we estimate our capital requirements and our earnings outlook for the next year. Based on these evaluations,
we suspended our quarterly dividend in the third quarter of 2008 and we do not intend to pay a common stock dividend in
2010 due to continued pressure on earnings and capital. Under the terms of the written agreement with the Federal
Reserve Board, the company is restricted from paying dividends or repurchasing shares of its common stock without prior
written approval of the Federal Reserve Board.
RESULTS OF OPERATIONS
We reported a net loss of $51.2 million, or $4.78 loss per diluted share, for the year ended December 31, 2009, compared
to a net loss of $5.9 million, or $0.63 loss per diluted share, for 2008. The $45.3 million decrease in net loss is the net
result of a $6.5 million decrease in net interest income, a $33.1 million increase in the provision for loan losses, and a
$10.0 million increase in other expenses, offset by a $4.2 million decrease in income tax expense. During 2009, we
reported a $6.0 million decrease in net interest income caused by nonperforming loans, a $5.1 million net loss realized on
other real estate owned, and a $3.8 million increase in deposit insurance expense. At December 31, 2009, the Company
recorded an $11.1 million valuation allowance on its deferred tax assets that will be reversed when the Company returns to
a level of sustained profitability. Our return on average assets (“ROA”) and return on average equity (“ROE”) for the year
ended December 31, 2009 were -3.92% and -57.41%, respectively, compared to a -0.48% ROA and a -6.10% ROE for
2008.
The reasons for these changes are discussed in more detail below.
Net Interest Income
The primary component of a financial institution’s profitability is net interest income, or the difference between the
interest income earned on assets, primarily loans and investments, and interest paid on liabilities, primarily deposits and
other borrowed funds. Our net interest income for 2009, on a tax equivalent basis, decreased by $6.78 million, or 19.1%,
over 2008. Interest income (on a tax equivalent basis) decreased $11.43 million, or 16.0%, and interest expense decreased
by $4.65 million, or 12.8%, during 2009. The decrease in interest income is the result of a 116 basis point decline in the
average yield on our earning assets during the year, from 6.15% in 2008 to 4.99% in 2009, offset by a $39.7 million
increase in the average balance of those earning assets. The decrease in interest expense is the result of a 62 basis point
decline in the average rate paid on our interest-bearing liabilities, from 3.49% in 2008 to 2.87% in 2009, offset by a $62.0
million increase in the average balance of those interest-bearing liabilities.
Our net interest income for 2008, on a tax equivalent basis, decreased by $7.69 million, or 17.8%, over 2007. Interest
income (on a tax equivalent basis) decreased $13.68 million, or 16.0%, and interest expense decreased by $5.99 million, or
14.2%, during 2008. The decrease in interest income is the result of a 163 basis point decline in the average yield on our
earning assets during the year, from 7.78% in 2007 to 6.15% in 2008, offset by a $68.7 million increase in the average
balance of those earning assets. The decrease in interest expense is the result of a 90 basis point decline in the average rate
paid on our interest-bearing liabilities, from 4.39% in 2007 to 3.49% in 2008, offset by a $76.8 million increase in the
average balance of those interest-bearing liabilities.
The net interest margin is net interest income expressed as a percentage of average earning assets. Our net interest margin
decreased from 3.04% in 2008 to 2.38% in 2009, a 66 basis point decline. The reduction in short-term interest rates during
the fourth quarter of 2007 and first quarter of 2008 caused our earning assets to re-price downwards faster than our
interest-bearing liabilities re-priced downwards. The reduction of interest income due to our nonperforming assets also
negatively impacted the net interest margin by 49 basis points during 2009, which was significantly higher than the 31
basis point impact in 2008. We do not expect our net interest margin to materially decrease in 2010, as compared to 2009
levels, considering the increase in our nonperforming assets, the interest rate environment and the narrowing spreads on
our earning assets that we endured in 2009.
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