pab bankshares, inc. - SNL Financial

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.
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