pab bankshares, inc. - SNL Financial

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Advertising Costs Advertising costs are expensed as incurred. Reclassification Certain amounts in the 2008 consolidated financial statements have been reclassified to conform to the 2009 presentation. Fair Value of Financial Instruments Fair values of financial instruments are estimates using relevant market information and other assumptions, as more fully disclosed in Note 25. Fair value estimates involve uncertainties and matters of significant judgment. Changes in assumptions or in market conditions could significantly affect the estimates. Recent Accounting Standards Effective July 1, 2009, the Company adopted a new accounting guidance related to U.S. GAAP (FASB ASC 105, Generally Accepted Accounting Principles). This guidance establishes FASB ASC as the source of authoritative U.S. GAAP recognized by FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. FASB ASC supersedes all existing non-SEC accounting and reporting standards. All other nongrandfathered, non-SEC accounting literature not included in FASB ASC has become nonauthoritative. FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (ASUs), which will serve to update FASB ASC, provide background information about the guidance, and provide the basis for conclusions on the changes to FASB ASC. FASB ASC is not intended to change U.S. GAAP or any requirements of the SEC. This guidance is effective for the Company as of December 31, 2009. Effective April 1, 2009, the Company adopted new accounting guidance related to recognition and presentation of otherthan-temporary impairment (FASB ASC 320-10). This recent accounting guidance amends the recognition guidance for other-than-temporary impairments of debt securities and expands the financial statement disclosures for other-thantemporary impairment losses on debt and equity securities. The recent guidance replaced the “intent and ability” indication in current guidance by specifying that (a) if a company does not have the intent to sell a debt security prior to recovery and (b) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When an entity does not intend to sell the security, and it is more likely than not, the entity will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income. For held-to-maturity debt securities, the amount of an other-than-temporary impairment recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary impairment should be amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security. The Company adopted accounting guidance related to fair value measurements and disclosures (FASB ASC 820, Fair Value Measurements and Disclosures). This guidance defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The effect of adoption was not material. FASB issued ASU 2009-05 (FASB ASC 820) which describes the valuation techniques companies should use to measure the fair value of liabilities for which there is limited observable market data. If a quoted price in an active market is not available for an identical liability, an entity should use one of the following approaches: (1) the quoted price of the identical liability when traded as an asset, (2) quoted prices for similar liabilities or similar liabilities when traded as an asset, or (3) another valuation technique that is consistent with the accounting guidance in FASB ASC for fair value 70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) measurements and disclosures. When measuring the fair value of liabilities, this guidance reiterates that companies should apply valuation techniques that maximize the use of relevant observable inputs, which is consistent with existing accounting provisions for fair value measurements. In addition, this guidance clarifies when an entity should adjust quoted prices of identical or similar assets that are used to estimate the fair value of liabilities. This guidance is effective for the Company as of December 31, 2009 with adoption applied prospectively. In addition, the following accounting pronouncements were issued by FASB, but are not yet effective: FASB issued accounting guidance (FASB Statement No. 166) which modifies certain guidance contained in the Transfers and Servicing topic of FASB ASC (FASB ASC 860). This standard eliminates the concept of qualifying special purpose entities, provides guidance as to when a portion of a transferred financial asset can be evaluated for sale accounting, provides additional guidance with regard to accounting for transfers of financial assets, and requires additional disclosures. This guidance is effective for the Company as of January 1, 2010, with adoption applied prospectively for transfers that occur on or after the effective date. NOTE 2. REGULATORY OVERSIGHT, CAPITAL ADEQUACY, OPERATING LOSSES, LIQUIDITY AND MANAGEMENT’S PLANS Regulatory Oversight The Company and the Bank are currently operating under heightened regulatory scrutiny and have entered into a Written Agreement with the Federal Reserve Bank of Atlanta and the Georgia Department of Banking and Finance on July 14, 2009. The Written Agreement places certain requirements and restrictions on the Bank. Under the terms of the Written Agreement, the Bank is required to prepare and submit written plans and reports to the regulators that address strengthening the Bank’s credit risk management practices, improving loan underwriting and loan administration, improving asset quality, including improving the Bank’s position on problem loans through repayment, additional collateral or other means; reviewing and revising as necessary the Bank’s allowance for loan and lease losses policy; maintaining sufficient capital at the Bank; revising and implementing a profitability plan and comprehensive budget to improve and sustain the Bank’s earnings; and improving the Bank’s liquidity position and funds management practices. The Company submitted the requested plans to the regulators for their review on August 26, 2009. The Company may supplement these plans and reports in the future in response to comments and requests from our regulators. While the Written Agreement remains in place, the Company may not pay dividends and may not increase debt or redeem any shares of our stock without the prior written consent of the regulators. Since the Bank entered into the Written Agreement, it has aggressively taken steps to address the components of the Written Agreement. The Bank has taken an active role in working with the Federal Reserve and the Georgia Department to improve its financial condition and are addressing the items included in the Written Agreement on a continuing basis, including establishing new commercial real estate loan concentration limits, new policies on the use of interest reserves, and comprehensive underwriting criteria for commercial credit analysis. The Bank has also developed plans to strengthen its problem asset management function and to reduce the level of problem assets on its balance sheet over a period of time. The Bank is in ongoing dialogue with its regulators to remain in compliance with the terms of the Written Agreement. Failure to adequately address the Written Agreement may result in actions by the banking regulators including, the eventual appointment of a receiver or conservator of the Bank’s assets. Capital Adequacy As of December 31, 2009, the Bank was considered “adequately capitalized,” not “well capitalized,” under regulatory guidelines. Management is pursuing a number of strategic alternatives to improve the capital ratios of the Bank and to reduce the level of classified assets. Current market conditions for banking institutions, the overall uncertainty in financial markets and the Bank’s high level of non-performing assets are potential barriers to the success of these strategies. If current adverse market factors continue for a prolonged period of time, new adverse market factors emerge, and/or the Bank is unable to successfully execute its plans or adequately address regulatory concerns in a sufficiently timely manner, it could have a material adverse effect on the Bank’s business, results of operations and financial position. 71
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2009 Annual Report
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UNITED STATES SECURITIES AND EXCHAN
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TABLE OF CONTENTS Item Page Caution
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PART I ITEM 1. BUSINESS General PAB
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North Georgia During the fourth qua
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Supervision and Regulation The bank
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Payment of Dividends PAB is a legal
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An institution that is categorized
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USA Patriot Act of 2001 In October
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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 and 48: The following table summarizes our
Page 49 and 50: On September 4, 2009, the Company b
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 71: NOTES TO CONSOLIDATED FINANCIAL STA
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
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The following table summarizes in t
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(1) The listed stock option grants
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Potential Payments Upon Termination
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The following table summarizes in t
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(5) Includes 1,659,310 shares owned
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All related party transactions set
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10.5 Rescission Agreement, dated De
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SIGNATURES Pursuant to the requirem
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Shareholder Information Corporate O
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