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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2002-Commission File Number 1-11823
_____________
PAB BANKSHARES, INC.
(A Georgia Corporation)
IRS Employer Identification Number: 58-1473302
3250 NORTH VALDOSTA ROAD, VALDOSTA, GEORGIA 31602
TELEPHONE NUMBER: (229) 241-2775
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock at September
30, 2002 was 9,430,413 shares.
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TABLE OF CONTENTS
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Page
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PART I FINANCIAL INFORMATION
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Item 1. Consolidated Financial Statements (Unaudited)
Statements of Condition . . . . . . . . . . . . . . . . . . . 3
Statements of Income . . . . . . . . . . . . . . . . . . . . . 4
Statements of Comprehensive Income . . . . . . . . . . . . . . 5
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . .10
Item 3. Qualitative and Quantitative Disclosures About Market Risk . . .16
Item 4. Controls and Procedures . . . . . . . . . . . . . . . . . . . .17
PART II OTHER INFORMATION
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Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . None
Item 2. Changes in Securities and Use of Proceeds . . . . . . . . . . None
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . None
Item 4. Submissions of Matters to a Vote of Security Holders . . . . None
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . None
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
CERTIFICATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-2-
PART I. FINANCIAL INFORMATION
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
- -----------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
2002 2001
--------------- --------------
(UNAUDITED)
ASSETS
Cash and due from banks $ 26,532,571 $ 28,188,779
Interest-bearing deposits in other banks 404,808 15,940,115
Federal funds sold 40,274,000 24,205,000
Investment securities 98,469,016 113,454,135
Loans 553,457,598 637,825,571
Allowance for loan losses (12,425,704) (15,765,373)
--------------- --------------
Net loans 541,031,894 622,060,198
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Premises and equipment 22,971,816 23,508,083
Goodwill 5,984,604 5,984,604
Cash value of bank-owned life insurance policies 9,822,668 9,471,936
Foreclosed assets 966,483 1,311,933
Other assets 11,130,923 15,018,471
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Total assets $ 757,588,783 $ 859,143,254
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 85,885,098 $ 81,493,517
Interest-bearing 529,529,455 638,904,142
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Total deposits 615,414,553 720,397,659
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Federal funds purchased and securities sold under
agreements to repurchase 18,964,849 15,708,621
Advances from the Federal Home Loan Bank 36,568,574 38,228,478
Guaranteed preferred beneficial interests in debentures
(trust preferred securities) 10,000,000 10,000,000
Other liabilities 6,591,337 9,436,613
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Total liabilities 687,539,313 793,771,371
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Stockholders' equity:
Preferred stock, no par value, 1,500,000 shares authorized,
no shares issued - -
Common stock, no par value, 98,500,000 shares authorized,
9,430,413 and 9,409,913 shares issued 1,217,065 1,217,065
Additional paid-in capital 28,785,476 28,657,351
Retained earnings 38,970,022 34,917,898
Accumulated other comprehensive income 1,076,907 579,569
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Total stockholders' equity 70,049,470 65,371,883
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Total liabilities and stockholders' equity $ 757,588,783 $ 859,143,254
=============== ==============
See accompanying notes to consolidated financial statements.
-3-
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ------------------------
2002 2001 2002 2001
----------- ------------ ----------- -----------
INTEREST INCOME
Interest and fees on loans $10,306,013 $13,506,679 $32,438,478 $41,449,091
Interest and dividends on investment securities:
Taxable 1,065,323 1,373,936 3,720,168 4,026,563
Nontaxable 78,180 47,968 180,980 144,412
Other interest income 169,675 524,990 385,372 2,602,123
----------- ------------ ----------- -----------
Total interest income 11,619,191 15,453,573 36,724,998 48,222,189
----------- ------------ ----------- -----------
INTEREST EXPENSE
Interest on deposits 3,904,190 7,857,626 13,642,637 24,396,086
Interest on federal funds purchased and securities sold
under agreements to repurchase 74,763 154,235 223,909 430,483
Interest on Federal Home Loan Bank advances 501,455 757,779 1,513,682 2,574,661
Interest on other borrowings 146,908 106,501 466,251 365,886
----------- ------------ ----------- -----------
Total interest expense 4,627,316 8,876,141 15,846,479 27,767,116
----------- ------------ ----------- -----------
Net interest income 6,991,875 6,577,432 20,878,519 20,455,073
Provision for loan losses 512,583 487,833 1,487,417 1,068,500
----------- ------------ ----------- -----------
Net interest income after provision for loan losses 6,479,292 6,089,599 19,391,102 19,386,573
----------- ------------ ----------- -----------
OTHER INCOME
Service charges on deposit accounts 1,346,718 1,529,559 3,986,168 4,255,402
Other fee income 447,008 355,999 1,373,855 1,085,074
Securities transactions, net 29,949 2,143 58,009 2,124
Equity in earnings of unconsolidated subsidiary - 149,425 - 403,431
Gain (loss) on disposal of assets 9,729 (4,770) 5,468 9,227
Other noninterest income 178,215 166,600 747,505 800,295
----------- ------------ ----------- -----------
Total other income 2,011,619 2,198,956 6,171,005 6,555,553
----------- ------------ ----------- -----------
OTHER EXPENSES
Salaries and employee benefits 3,510,429 3,591,038 10,266,039 10,611,592
Occupancy expense of premises 443,925 401,252 1,262,187 1,162,268
Furniture and equipment expense 597,416 638,523 1,781,443 1,864,215
Amortization of goodwill and other intangibles - 88,936 - 322,244
Other noninterest expense 1,555,091 1,731,197 4,861,737 5,050,866
----------- ------------ ----------- -----------
Total other expenses 6,106,861 6,450,946 18,171,406 19,011,185
----------- ------------ ----------- -----------
Income before income tax expense 2,384,050 1,837,609 7,390,701 6,930,941
Income tax expense 733,561 526,335 2,302,167 2,100,617
----------- ------------ ----------- -----------
Net income $ 1,650,489 $ 1,311,274 $ 5,088,534 $ 4,830,324
=========== ============ =========== ===========
Earnings per common share:
Basic $ 0.18 $ 0.14 $ 0.54 $ 0.51
=========== ============ =========== ===========
Diluted $ 0.18 $ 0.14 $ 0.54 $ 0.51
=========== ============ =========== ===========
Weighted-average shares outstanding:
Basic 9,430,413 9,494,641 9,425,530 9,495,981
=========== ============ =========== ===========
Diluted 9,453,930 9,565,999 9,456,796 9,566,468
=========== ============ =========== ===========
Dividends declared per share $ - $ 0.11 $ 0.11 $ 0.33
=========== ============ =========== ===========
See accompanying notes to consolidated financial statements.
-4-
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net income $1,650,489 $1,311,274 $5,088,534 $4,830,324
Other comprehensive income:
Unrealized holding gains arising during
the period, net of tax of $142,054 and $304,148 for
the quarter and $275,853 and $735,348 for the year 275,752 577,232 535,624 1,333,199
Reclassification adjustment for gains included in
net income, net of tax of $10,183 and $729 for
the quarter and $19,723 and $722 for the year (19,766) (1,414) (38,286) (1,402)
----------- ----------- ----------- -----------
255,986 575,818 497,338 1,331,797
----------- ----------- ----------- -----------
Comprehensive income $1,906,475 $1,887,092 $5,585,872 $6,162,121
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
-5-
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
- ------------------------------------------------------------------------------------------------
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,088,534 $ 4,830,324
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion, net 2,033,950 2,033,061
Provision for loan losses 1,487,417 1,068,500
Net realized gain on securities transactions (58,009) (2,124)
Net gain on disposal of assets (5,468) (9,227)
Net gain on sale of branch office (100,000) -
Equity in earnings of unconsolidated subsidiary - (403,431)
Dividends received from unconsolidated subsidiary - 350,000
Increase in cash value of bank-owned life insurance (350,732) (225,281)
Net decrease in accrued interest receivable, prepaid
expenses and other assets 3,764,362 609,731
Net decrease in accrued interest payable, accrued
expenses and other liabilities (1,800,835) (1,660,871)
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Net cash provided by operating activities 10,059,219 6,590,682
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CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in interest-bearing deposits in other banks 15,535,307 (620,716)
(Increase) decrease in Federal funds sold (16,069,000) 9,037,000
Activities on securities available for sale:
Purchases (52,708,281) (49,536,066)
Proceeds from sales and calls 46,490,803 13,991,942
Proceeds from maturities and paydowns 22,058,066 18,091,818
Purchase of restricted and other equity securities (980,150) (637,600)
Redemption of restricted and other equity securities 540,500 85,000
Net (increase) decrease in loans 68,511,099 (64,090,216)
Net proceeds from sale of branch office 7,748,200 -
Purchase of premises and equipment (2,722,505) (2,669,337)
Proceeds from disposal of assets 1,049,969 1,034,497
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Net cash provided by (used in) investing activities 89,454,008 (75,313,678)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (100,818,724) 71,950,141
Net increase in Federal funds purchased and
securities sold under repurchase agreements 3,256,228 6,305,762
Advances from the Federal Home Loan Bank - 700,000
Payments on Federal Home Loan Bank advances (1,659,904) (15,649,165)
Dividends paid (2,075,160) (3,138,745)
Proceeds from the exercise of stock options 128,125 171,875
Acquisition of stock under stock repurchase plans - (439,150)
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Net cash provided by (used in) financing activities (101,169,435) 59,900,718
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Net decrease in cash and due from banks (1,656,208) (8,822,278)
Cash and due from banks at beginning of period 28,188,779 29,697,335
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Cash and due from banks at end of period $ 26,532,571 $ 20,875,057
============== =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 17,514,628 $ 19,850,785
============== =============
Taxes $ 3,832,311 $ 3,666,300
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NONCASH INVESTING AND FINANCING TRANSACTIONS:
Increase in unrealized gains on securities available for sale $ 753,323 $ 439,325
============== =============
See accompanying notes to consolidated financial statements.
-6-
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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NOTE 1. NATURE OF BUSINESS
PAB Bankshares, Inc. (the "Company") is a bank holding company whose
business is primarily conducted by its wholly-owned commercial bank
subsidiary, The Park Avenue Bank of Valdosta, Georgia (the "Bank"). Through
the Bank, the Company offers a broad range of commercial and consumer
banking products and services to customers located in the market areas
served by the Bank's 18 offices in Georgia and Florida. The Company and the
Bank are subject to the regulations of certain federal and state agencies
and are periodically examined by those regulatory agencies.
In addition to the Bank, the Company owns an investment advisory services
subsidiary, PAB Financial Services, LLC ("PAB Financial"). PAB Financial
offers brokerage, insurance, annuity, and investment planning services to
its customers. On July 23, 2002, the Company's Board of Directors approved
a plan of reorganization wherein PAB Financial would be liquidated, and its
assets, liabilities, and business services would be assigned to the Bank.
PAB Financial would then become an operating division of the Bank. This
plan of reorganization is subject to required regulatory approval.
On April 30, 2002, the Company completed its charter consolidation plan
with the merger of First Community Bank of Southwest Georgia into the Bank.
On May 20, 2002, the Board of Directors adopted a resolution requested by
the Federal Reserve Bank of Atlanta, which, among other things, restricts
the Company from redeeming its capital stock, paying dividends, modifying
existing debt agreements, or incurring additional debt without the prior
approval of its banking regulators. The resolution is the result of a
recent examination that found the Bank to be in less than satisfactory
condition due primarily to serious weaknesses identified in the asset
quality of the Bank's loan portfolio. This resolution shall remain in
effect until removed by the regulators.
NOTE 2. BASIS OF PRESENTATION
The accompanying consolidated financial information of the Company is
unaudited; however, such information reflects all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the financial position and results of
operations. The results of operations for the three months and nine months
ended September 30, 2002 are not necessarily indicative of the results that
may be expected for the full year. These statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates. We believe that our determination of the
allowance for loan losses and the fair value of assets, including the
impairment of goodwill, affect our most significant judgments and estimates
used in the preparation of our consolidated financial statements. Estimates
and assumptions are reviewed periodically and the effects of revisions are
reflected in the consolidated financial statements in the period they are
determined to be necessary.
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Significant intercompany transactions and balances
are eliminated in consolidation.
-7-
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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NOTE 3. STOCKHOLDERS' EQUITY
On February 25, 2002, the Company declared a cash dividend of $0.11 per
share payable to shareholders of record as of March 31, 2002. The dividends
were paid on April 15, 2002.
During the nine months ended September 30, 2002, the Company received
$128,125 on the exercise of stock options for 20,500 shares of the
Company's common stock.
NOTE 4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ----------------------
2002 2001 2002 2001
----------- ---------- ---------- ----------
Basic earnings per share:
Net income $ 1,650,489 $1,311,274 $5,088,534 $4,830,324
----------- ---------- ---------- ----------
Weighted average common shares outstanding 9,430,413 9,494,641 9,425,530 9,495,981
----------- ---------- ---------- ----------
Earnings per common share $ 0.18 $ 0.14 $ 0.54 $ 0.51
=========== ========== ========== ==========
Diluted earnings per share:
Net income $ 1,650,489 $1,311,274 $5,088,534 $4,830,324
----------- ---------- ---------- ----------
Weighted average common shares outstanding 9,430,413 9,494,641 9,425,530 9,495,981
Effect of dilutive stock options 23,517 71,358 31,266 70,487
----------- ---------- ---------- ----------
Weighted average diluted common
shares outstanding 9,453,930 9,565,999 9,456,796 9,566,468
----------- ---------- ---------- ----------
Earnings per common share $ 0.18 $ 0.14 $ 0.54 $ 0.51
=========== ========== ========== ==========
-8-
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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NOTE 5. RECENT ACCOUNTING DEVELOPMENTS
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 142, Goodwill and Other Intangible
Assets. Under the provisions of SFAS 142, goodwill and identified
intangible assets with indefinite useful lives are not subject to
amortization. Rather they are subject to impairment testing on an annual
basis, or more often if events or circumstances indicate that there may be
impairment. Identified intangible assets that have a finite useful life are
amortized over that life in a manner that reflects the estimated decline in
the economic value of the identified intangible asset and are reviewed for
impairment when events or circumstances indicate that there may be
impairment.
The Company adopted the provisions of SFAS 142 on January 1, 2002. Under
the provisions of SFAS 142, all amortization of goodwill and identified
intangible assets with indefinite useful lives ceased. Also under SFAS 142,
all goodwill and identified intangible assets with an indefinite useful
life must be tested for impairment as of January 1, 2002, and annually
thereafter. This test involves assigning tangible assets and liabilities,
identified intangible assets and goodwill to reporting units and comparing
the fair value of each reporting unit to its carrying value. If the fair
value is less than the carrying value, a further test is required to
measure the amount of goodwill impairment.
The Company's initial impairment evaluation as of January 1, 2002, under
the new standard indicated that none of the Company's goodwill was
impaired. Pursuant to SFAS 142, the Company has elected to perform its
annual impairment testing during the fourth quarter of each year. The
Company had $5,984,604 in goodwill recorded on its books at September 30,
2002.
-9-
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements of PAB Bankshares, Inc. ("PAB", and also referred to in
this Report as "the Company", "we", "us", or "our") in this Quarterly Report on
Form 10-Q, including, without limitation, matters discussed under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operation," may constitute "forward-looking statements" within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements about the
competitiveness of the banking industry, potential regulatory obligations, our
charter consolidation plan, our entrance and expansion into higher growth
markets, our other business strategies and other statements that are not
historical facts. When we use words in this Report like "anticipate", "believe",
"intend", "expect", "estimate", "could", "should", "will" and similar
expressions, you should consider them as identifying forward-looking statements,
although we may use other phrasing. These forward-looking statements are based
upon management's beliefs as well as on assumptions by and data currently
available to management. These forward-looking statements are not guarantees of
future performance, and a variety of factors could cause the Company's actual
results to differ materially from the anticipated or expected results expressed
in these forward-looking statements. Factors that may cause actual results to
differ materially from those expressed or implied by such forward-looking
statements include, among others, the following possibilities: (1) competitive
pressures among depository and other financial institutions may increase
significantly; (2) changes in the interest rate environment may reduce margins;
(3) general economic conditions may be less favorable than expected, resulting
in, among other things, a deterioration in credit quality and/or a reduction in
demand for credit; (4) legislative or regulatory changes, including changes in
accounting standards, may adversely affect the businesses in which we are
engaged; (5) costs or difficulties related to the integration of our businesses,
including our charter consolidations, and our merger partners may be greater
than expected; (6) expected cost savings associated with mergers may not be
fully realized or realized within the expected time frame; (7) deposit
attrition, customer loss or revenue loss following mergers and charter
consolidations may be greater than expected; (8) competitors may have greater
financial resources and develop products that enable such competitors to compete
more successfully than us; (9) adverse changes may occur in the bond and equity
markets; and (10) restrictions or conditions imposed by our regulators on our
operations may make it more difficult for us to achieve our goals. Many of such
factors are beyond our ability to control or predict, and readers are cautioned
not to put undue reliance on such forward-looking statements. We disclaim any
obligation to update or revise any forward-looking statements contained in this
Report, whether as a result of new information, future events or otherwise.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion and analysis of the consolidated financial condition
and results of operations of the Company should be read in conjunction with the
Annual Consolidated Financial Statements and related Notes included in the
Company's 2001 Annual Report on Form 10-K, and is qualified in its entirety by
the foregoing and other more detailed financial information appearing elsewhere.
Historical results of operations and the percentage relationships among any
amounts included, and any trends which may appear to be inferred, should not be
taken as being necessarily indicative of trends in operations or results of
operations for any future periods.
FINANCIAL CONDITION
The Company's balance sheet has been in a period of contraction since the end of
2001. Since year end, total assets have declined $101.5 million, or 11.8%, from
$859.1 million to $757.6 million. Total loans have decreased $84 million, or
13.2%, and total deposits have decreased $105 million, or 14.6%. Of those
decreases, $10.4 million in loans and $4.3 million in deposits were sold with
our Richmond Hill branch office in January 2002. Overall, our residential
mortgage loan portfolio is down $29 million, or 16.9%, since year end due
primarily to the high level of mortgage refinancing activity. Our consumer loans
are down $14.5 million, or 26.6%, for the year. Loans for commercial purposes
(including commercial real estate and construction and development loans) are
down $42.9 million, or 11.7%. The decline in consumer and commercial loans is
primarily the result of the following factors: (1) a few of our South Georgia
markets have been in an economic recession and there has been a corresponding
slow down in loan demand; (2) new loan growth in our other South Georgia markets
has been hampered by our internal focus on improving asset quality, turnover in
senior lenders, and a more conservative underwriting philosophy resulting from
our most recent regulatory examination; (3) payoffs of some large out-of-market
-10-
participation loans were not replaced; and (4) net charge-offs of $4.7 million
in those categories for the year-to-date. Loan growth has been positive in our
new markets in Metro Atlanta and Ocala, Florida, but not at a pace to replenish
the contraction in our South Georgia Markets. In July, we opened a new branch
office in Oakwood, Hall County, Georgia. In October, we opened a loan production
office in Duluth, Gwinnett County, Georgia. We plan to launch a construction
lending division from the Duluth office during the fourth quarter. Also, during
the fourth quarter, we plan to re-enter the consumer/ retail loan markets in
South Georgia with the installation of a new consumer credit-scoring
application.
Without any net new loans driving asset growth this year, we have reduced the
liability side of our balance sheet by allowing time deposits to either roll off
the balance sheet or into other deposit accounts at maturity. Time deposits have
declined by a net $107 million, or 24.9%, since year end. At the same time, we
have continued to focus on building customer relationships and seeking core
deposits. Balances in demand and savings accounts have increased $2.3 million,
or 0.8%, since year end. However, excluding nearly $13 million in tax deposits
that were withdrawn from the Bank in early January, demand and savings deposits
have increased by approximately $15 million, or 5.5%, since year end. The
loan-to-deposit ratio at quarter end was at 89.9% compared to 88.5% at year end.
Total stockholders' equity was $70 million, or $7.43 per outstanding common
share, at quarter end compared to $6.95 per share at year end. Stockholders'
equity as a percentage of total assets has improved from 7.61% at year end to
9.25% on September 30, 2002 due to the contraction of the balance sheet and the
regulatory restriction on dividend payments adopted during the second quarter of
this year. See "Liquidity and Capital Resources" below for more information on
our regulatory capital requirements.
RESULTS OF OPERATIONS
For the third quarter of 2002, net income increased 25.9% to $1.65 million, or
18 cents per diluted share, compared to $1.31 million, or 14 cents per diluted
share, earned during the same period in 2001. Net interest income was $6.99
million, a 6.3% increase compared to $6.58 million earned in 2001. The provision
for loan losses was $513,000, a slight increase over the $488,000 provided in
2001. Noninterest income was $2.01 million, an 8.5% decrease compared to $2.20
million earned in 2001. Noninterest expense was $6.11 million, a 5.3% decrease
from $6.45 million in 2001. Income tax expense was $734,000, a slight increase
over $526,000 provided in 2001.
For the year to date, net income has increased 5.4% to $5.09 million, or 54
cents per diluted share, compared to $4.83 million, or 51 cents per diluted
share, earned during the same period in 2001. Net interest income was $20.88
million, a slight increase compared to $20.46 million earned in 2001. The
provision for loan losses was $1.49 million, a 39.2% increase over the $1.07
million provided in 2001. Noninterest income was $6.17 million, a 5.9% decrease
from $6.56 million earned in 2001. Noninterest expense was $18.17 million, a
4.4% decrease from $19.01 million in 2001. Income tax expense was $2.30 million,
a 9.6% increase compared to $2.10 million provided in 2001.
The reasons for these changes are discussed in more detail below.
Net Interest Income
- ---------------------
For the third quarter of 2002, net interest income (on a taxable-equivalent
basis) was $7.03 million, a 6.5% increase compared to $6.60 million earned
during the same period last year. However, total interest income (on a
taxable-equivalent basis) was $11.66 million, a 24.7% decrease compared to the
$15.48 million earned in 2001. The decrease in interest income was due primarily
to a drop in the average yields earned on our loan portfolio, from 8.53% in 2001
to 7.18% in 2002, and a decrease in the average balance of the loan portfolio,
from $628.2 million in 2001 to 569.7 million in 2002. Total interest expense for
the quarter was $4.63 million, a 47.9% decrease compared to the $8.88 million
paid in 2001. The decrease in interest expense is the result of lower volume (a
$110 million decrease in average time deposits outstanding) and a decrease in
average rates paid on time deposits from 5.99% in 2001 to 3.81% in 2002.
The Company's net interest margin has continued to improve. The 3.98% margin
during the third quarter of 2002 was at its highest quarterly level since the
fourth quarter of 2000. This improvement can be attributed primarily to higher
priced, fixed-rate time deposits and other borrowings maturing and/or repricing
at substantially lower rates during the year. We believe that our net interest
margin will be more difficult to maintain in the coming quarters as the downward
repricing of our interest-bearing liabilities is not expected to continue at the
same pace of previous quarters, and the reduced loan volume and lower interest
rates will have an impact on our ability to grow interest income.
-11-
For the year to date, net interest income (on a taxable-equivalent basis) was
$20.97 million, only a slight 2.2% increase compared to the $20.53 million
earned during the same period in 2001. Total interest income (on a
taxable-equivalent basis) was $36.82 million for the year to date, a 23.8%
decrease compared to the same period in 2001. Total interest expense was $15.85
million, a 42.9% decrease compared to the same period in 2001.
The following tables illustrate the changes in interest income and interest
expense on a fully taxable-equivalent basis resulting from changes in volume and
changes in rates for each category of interest-earning assets and
interest-bearing liabilities. The change in interest attributable to rate has
been determined by applying the change in rate between periods to average
balances outstanding in the later period. The change in interest due to volume
has been determined by applying the rate from the earlier period to the change
in average balances outstanding between periods. Thus, changes that are not
solely due to volume have been consistently attributed to rate.
For the Quarter Ended September 30, 2002 vs. 2001
- -----------------------------------------------------------------------------------
Changes Due To
Increase -------------------
(Decrease) Rate Volume
- -----------------------------------------------------------------------------------
(Dollars In Thousands)
Increase (decrease) in:
Income from earning assets:
Loans $ (3,201) $ (1,942) $(1,259)
Taxable securities (309) (152) (157)
Nontaxable securities 46 (2) 48
Other short-term investments (355) (230) (125)
- -----------------------------------------------------------------------------------
Total interest income (3,819) (2,326) (1,493)
- -----------------------------------------------------------------------------------
Expense from interest-bearing liabilities:
Demand deposits (389) (537) 148
Savings deposits (68) (85) 17
Time deposits (3,497) (1,836) (1,661)
FHLB advances (257) (82) (175)
Notes payable 41 9 32
Other short-term borrowings (79) (99) 20
- -----------------------------------------------------------------------------------
Total interest expense (4,249) (2,630) (1,619)
- -----------------------------------------------------------------------------------
Net interest income $ 430 $ 304 $ 126
===================================================================================
For the Nine Months Ended September 30, 2002 vs. 2001
- -----------------------------------------------------------------------------------
Changes Due To
Increase -------------------
(Decrease) Rate Volume
- -----------------------------------------------------------------------------------
(Dollars In Thousands)
Increase (decrease) in:
Income from earning assets:
Loans $ (9,011) $ (8,440) $ (571)
Taxable securities (307) (486) 179
Nontaxable securities 56 - 56
Other short-term investments (2,217) (748) (1,469)
- -----------------------------------------------------------------------------------
Total interest income (11,479) (9,674) (1,805)
- -----------------------------------------------------------------------------------
Expense from interest-bearing liabilities:
Demand deposits (1,072) (1,725) 653
Savings deposits (259) (334) 75
Time deposits (9,422) (5,666) (3,756)
FHLB advances (1,061) (254) (807)
Notes payable 100 (11) 111
Other short-term borrowings (207) (306) 99
- -----------------------------------------------------------------------------------
Total interest expense (11,921) (8,296) (3,625)
- -----------------------------------------------------------------------------------
Net interest income $ 442 $ (1,378) $ 1,820
===================================================================================
-12-
The following tables summarize the average balance of interest-earning assets
and interest-bearing liabilities, the amount of interest earned and paid, and
the average yields and rates. Federally tax-exempt income is presented on a
taxable-equivalent basis assuming a 34% Federal tax rate. Loan average balances
include loans on nonaccrual status.
For the Quarter Ended September 30, 2002 2001
- ----------------------------------------------------------------------------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
- ----------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Interest-earning assets:
Loans $ 569,703 $ 10,306 7.18% $628,264 $ 13,507 8.53%
Investment securities:
Taxable 84,181 1,065 5.02% 95,014 1,374 5.74%
Nontaxable 7,455 118 6.30% 4,480 72 6.44%
Other short-term investments 39,247 170 1.72% 51,450 525 4.05%
---------- ---------- -------- ---------
Total interest-earning assets 700,586 11,659 6.60% 779,208 15,478 7.88%
---------- ---------- -------- ---------
Interest-bearing liabilities:
Demand deposits $ 165,943 $ 578 1.38% $143,980 $ 967 2.66%
Savings deposits 38,197 112 1.16% 34,944 180 2.04%
Time deposits 334,543 3,214 3.81% 444,561 6,711 5.99%
FHLB advances 36,672 501 5.43% 47,671 758 6.31%
Notes payable 10,000 147 5.83% 7,667 106 5.51%
Other short-term borrowings 16,648 75 1.78% 14,704 154 4.16%
---------- ---------- -------- ---------
Total interest-bearing liabilities 602,003 4,627 3.05% 693,527 8,876 5.08%
---------- ---------- -------- ---------
Interest rate spread 3.55% 2.80%
========= ========
Net interest income $ 7,032 $ 6,602
========== ========
Net interest margin 3.98% 3.36%
========= ========
For the Nine Months Ended September 30, 2002 2001
- ----------------------------------------------------------------------------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
- ----------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Interest-earning assets:
Loans $ 597,509 $ 32,438 7.26% $605,853 $ 41,449 9.15%
Investment securities:
Taxable 95,520 3,720 5.21% 91,448 4,027 5.89%
Nontaxable 5,681 275 6.45% 4,529 219 6.46%
Other short-term investments 31,288 385 1.65% 71,866 2,602 4.84%
---------- ---------- -------- ---------
Total interest-earning assets 729,998 36,818 6.74% 773,696 48,297 8.35%
---------- ---------- -------- ---------
Interest-bearing liabilities:
Demand deposits $ 167,097 $ 1,807 1.45% $136,195 $ 2,879 2.83%
Savings deposits 38,383 330 1.15% 34,060 589 2.31%
Time deposits 363,707 11,506 4.23% 443,253 20,928 6.31%
FHLB advances 37,021 1,514 5.47% 53,909 2,575 6.39%
Notes payable 10,000 466 6.23% 7,667 366 6.38%
Other short-term borrowings 16,289 223 1.84% 13,234 430 4.35%
---------- ---------- -------- ---------
Total interest-bearing liabilities 632,497 15,846 3.35% 688,318 27,767 5.39%
---------- ---------- -------- ---------
Interest rate spread 3.39% 2.96%
========= ========
Net interest income $ 20,972 $ 20,530
========== ==========
Net interest margin 3.84% 3.55%
========= ========
-13-
Provision for Loan Losses
- ----------------------------
For the quarter ended September 30, 2002, the provision for loan losses was
$513,000, compared to $488,000 provided during the same period in 2001. For the
year-to-date, we have provided $1.49 million for loan losses, compared to $1.07
million in 2001. The increased provision was made to cover delinquent and
nonperforming loans and to maintain the allowance for loan losses at an adequate
level after charge-offs were taken during the year. The allowance for loan
losses was 2.25% of total loans at quarter end compared to 2.47% at year end.
Net charge-offs of $4.83 million, or 1.08% of average loans, for the
year-to-date is significantly higher due primarily to a $3.33 million charge-off
taken during the third quarter on the balance of a nonperforming loan which
carried a guaranty from the United States Department of Agriculture (USDA). In
September, we submitted a claim to the USDA for $5.8 million to recover the loss
of principal, interest and legal expenses on this credit. However, at this time,
we can provide no assurances as to the timing or amount of recovery of this
claim, if any. Excluding this credit, net charge-offs were $1.5 million, or
0.25% of average loans, for the first nine months of the year.
The level of delinquent loans (loans past due greater than 30 days) has improved
significantly from 4.3% at March 31, 2002 to 2.05% at September 30, 2002. This
level is still high compared to the Bank's peers, which was 0.81% at June 30,
2002 (the most recent data available.) Nonperforming loans, at 2.2% of total
loans, are still considered high in comparison to the Bank's peer level of
0.75%.
The amount of nonperforming loans outstanding at each of the indicated quarter
ends is presented in the following table by category.
As of Quarter End (in thousands) Sep-02 Jun-2002 Mar-2002 Dec-2001 Sep-2001
- ----------------------------------------------------------------------------------------------------------
Loans accounted for on a nonaccrual basis $12,100 $ 16,058 $ 13,472 $ 10,581 $ 8,522
Accruing loans which are contractually past due
90 days or more as to principal or interest
payments 52 2 94 1,598 2,116
Other impaired loans - - - - 4,433
- ----------------------------------------------------------------------------------------------------------
Total nonperforming loans $12,152 $ 16,060 $ 13,566 $ 12,179 $ 15,071
==========================================================================================================
Total nonperforming loans as a percentage of
total loans 2.20% 2.72% 2.23% 1.91% 2.34%
==========================================================================================================
We will continue to monitor and adjust the level of the allowance for loan
losses in relation to net charge-offs, nonperforming loans, the overall level of
the allowance for loan losses to loans outstanding, and our assessment of loan
losses inherent in the loan portfolio. We will adjust the level of the allowance
for loan losses as needed through the provision.
Other Income
- -------------
During the third quarter of 2002, total other income was $2.01 million, an 8.5%
decrease compared to $2.20 million earned during the same period in 2001. As a
percentage of average assets, noninterest income (excluding securities
transactions and other nonrecurring gains and losses) was an annualized 1.03%
during the third quarter of 2002, the same ratio as in 2001. Noninterest income
(excluding securities transactions and other nonrecurring gains and losses) to
average assets was an annualized 1.02% for the first nine months of 2002
compared to 1.04% in 2001.
Service charges and fees on deposit accounts decreased $183,000, or 11.9%. This
decrease is due primarily to a decline in net fees earned on our overdraft
privilege product this quarter compared to 2001.
Other fee income increased $91,000, or 25.6%. Included in other fee income is
brokerage income generated through PAB Financial, which increased 246.9% from
$32,000 in the third quarter of 2001 to $111,000 in 2002. Mortgage origination
fees increased 33.9% from $168,000 earned in the third quarter of 2001 to
$225,000 in 2002 due to an increased level of refinancing activity resulting
from lower interest rates. Commissions earned on insurance products decreased
$34,000 from 2001 due to a decline in consumer auto lending.
On November 30, 2001, we sold our equity interest in Empire Financial Services,
Inc., and accordingly there will be no additional earnings recognized by us in
the future. We had $149,000 in earnings generated by this entity during the
third quarter of 2001.
-14-
Other Expenses
- ---------------
During the third quarter of 2002, total other expense was $6.11 million, a 5.3%
decrease compared $6.45 million for the same period in 2001. Annualized as a
percentage of average assets, total noninterest expense was 3.18% for the third
quarter of 2002 compared to 3.00% for the same period in 2001. Although it is
still considered high, our overall efficiency ratio did improve during the third
quarter of 2002 to 67.9% from 72.9% during the third quarter of 2001.
Salaries and employee benefits decreased $81,000, or 2.3%. during the third
quarter of 2002 compared to the same period in 2001. For the year-to-date,
salaries and benefits decreased $346,000, or 3.3%, compared to the same period
in 2001. At September 30, 2002, we had 304 full-time equivalent employees
compared to 317 at year end. However, with the contraction of our balance sheet,
the ratio of assets per employee has declined from $2.71 million at year end to
$2.49 million at September 30, 2002.
With the adoption of SFAS No. 142, Goodwill and Other Intangible Assets, on
January 1, 2002, the prior straight-line amortization of our goodwill ceased. We
recorded $89,000 in amortization expense during the quarter ended September 30,
2001 compared to none during the same period in 2002.
Income Tax Expense
- --------------------
During the third quarter of 2002, income tax expense was 30.8% of pretax income
compared to 28.6% during the same period in 2001. For the year-to-date, the
effective tax rate has been 31.1% compared to 30.3% in 2001.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is an important factor in our financial condition and affects our
ability to meet the borrowing needs and deposit withdrawal requirements of our
customers. Assets, consisting primarily of loans and investment securities, are
funded by customer deposits, borrowed funds, and retained earnings. Maturities
in the investment and loan portfolios also provide a steady flow of funds for
reinvestment. In addition, our liquidity continues to be enhanced by a
relatively stable core deposit base and the availability of additional funding
sources.
At September 30, 2002, our liquidity ratio was 18.6% and our dependency ratio
was 9.5%, compared to 17.3% and 12.1%, respectively, at December 31, 2001.
Monitoring our loan-to-deposit ratio is another tool we use to assess our
liquidity levels. For the third quarter of 2002, our average loan-to-deposit
ratio was 91.6% compared to 90.2% during the same period in 2001.
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. Such financial instruments are included in the financial statements
when funds are distributed or the instruments become payable. 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. We use the same credit policies in making commitments as we do for
on-balance sheet instruments. Although these amounts do not necessarily
represent future cash requirements, a summary of our commitments as of September
30, 2002 and December 31, 2001 are as follows:
Sep-2002 Dec-2001
-------------- --------------
Commitments to extend credit $ 61,111,000 $ 61,674,000
Standby letters of credit $ 1,376,000 $ 4,189,000
At September 30, 2002, we had a remaining outstanding commitment to complete
construction, and furnish and equip a bank branch office in Hall County, Georgia
for approximately $850,000. Construction began in the third quarter and should
be completed during the first quarter of 2003. Management plans to fund this
commitment with cash flows provided from operations. Cash flows from operations
totaled approximately $10 million during the nine months ended September 30,
2002. There are no other binding commitments for material cash expenditures
outstanding.
-15-
Stockholders' Equity
- ---------------------
The Company maintains a ratio of stockholders' equity to total assets that is
considered adequate according to industry standards. The Company and the Bank
are required to comply with capital adequacy standards established by banking
regulators. At September 30, 2002, the Company and the Bank were in compliance
with those standards. There are no conditions or events since quarter end that
we believe have changed our capital ratings.
On May 20, 2002, the Board of Directors adopted a resolution requested by the
Federal Reserve Bank of Atlanta, which, among other things, restricts the
Company from redeeming its capital stock, paying dividends, modifying existing
debt agreements, or incurring additional debt without the prior approval of its
banking regulators. The resolution is the result of a recent examination that
found the Bank to be in less than satisfactory condition due primarily to
serious weaknesses identified in the asset quality of the Bank's loan portfolio.
This resolution shall remain in effect until removed by the regulators.
The following table summarizes the regulatory capital ratios of the Company and
the Bank at September 30, 2002.
Park Minimum
Company Avenue Regulatory
Consolidated Bank Requirement
---------------------------------------------------------------------------------------
Total Capital to Risk Weighted Assets 13.8% 13.0% 8.0%
Tier 1 Capital to Risk Weighted Assets 12.6% 11.8% 4.0%
Tier 1 Capital to Average Assets (Leverage Ratio) 9.7% 9.0% 7.5% *
---------------------------------------------------------------------------------------
* Under the provisions of our resolution with the Federal Reserve Bank
of Atlanta, the Bank is required to maintain a minimum Tier 1 Leverage
Ratio of at least 7.5%.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that effect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. We believe that our determination of the allowance for loan losses
and the fair value of assets, including the impairment of goodwill, affect our
most significant judgments and estimates used in the preparation of our
consolidated financial statements. Estimates and assumptions are reviewed
periodically and the effects of revisions are reflected in the consolidated
financial statements in the period they are determined to be necessary.
A more detailed discussion of these accounting policies and estimates is located
in the Notes to the Annual Consolidated Financial Statements included in our
2001 Annual Report on Form 10-K with interim updates disclosed in the Notes to
the Quarterly Consolidated Financial Statements included herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to exposure to U.S. dollar interest rate changes and accordingly,
we manage our exposure by considering the possible changes in the net interest
margin. We do not engage in trading activity nor do we classify any portion of
the investment portfolio as held for trading. We do not engage in any hedging
activities or enter into any derivative instruments with a higher degree of risk
than mortgage-backed securities, which are commonly held pass through
securities. Finally, we have no material direct exposure to foreign currency
exchange rate risk, commodity price risk, and other market risks.
Interest rates play a major part in the net interest income of a financial
institution. The sensitivity to rate changes is known as "interest rate risk."
The repricing of interest earning assets and interest-bearing liabilities can
influence the changes in net interest income. As part of our asset/liability
management program, the timing of repriced assets and liabilities is referred to
as gap management. It is our policy to maintain a gap ratio in the one-year time
horizon between 0.80 and 1.20. However, with interest rates at historic lows and
the shape of the interest rate curve, the Company has exceeded policy limits by
adjusting the balance sheet to a more asset-sensitive position.
-16-
The table below has two measures of gap; regulatory and management-adjusted. The
regulatory gap considers only contractual maturities or repricings. The
management-adjusted gap includes assumptions regarding prepayment speeds on
certain rate sensitive assets, the repricing frequency of interest-bearing
demand and savings accounts, and the stability of core deposit levels, all of
which are adjusted periodically as market conditions change. The
management-adjusted gap indicates we are highly asset sensitive in relation to
changes in market interest rates in the short-term. Being asset sensitive would
result in net interest income increasing in a rising rate environment and
decreasing in a declining rate environment.
CUMULATIVE REPRICING GAP ANALYSIS
3-Month 6-Month 1-Year
-----------------------------------------------------------------
(Dollars in thousands)
Regulatory Defined
Rate Sensitive Assets (RSA) $370,014 $408,789 $459,083
Rate Sensitive Liabilities (RSL) 305,135 400,938 491,604
-----------------------------------------------------------------
RSA minus RSL (Gap) $ 64,879 $ 7,851 $(32,521)
Gap Ratio (RSA/RSL) 1.21 1.02 0.93
Management-Adjusted
Rate Sensitive Assets (RSA) $439,965 $557,739 $648,581
Rate Sensitive Liabilities (RSL) 120,063 215,866 399,068
-----------------------------------------------------------------
RSA minus RSL (Gap) $319,902 $341,873 $249,513
Gap Ratio (RSA/RSL) 3.66 2.58 1.63
We use simulation analysis to monitor changes in net interest income due to
changes in market interest rates. The simulation of rising, declining, and flat
interest rate scenarios allows us to monitor and adjust interest rate
sensitivity to minimize the impact of market interest rate swings. The analysis
of the impact on net interest income over a twelve-month period is subjected to
increases or decreases in market rates on net interest income and is monitored
on a quarterly basis. The following table shows the results of these
projections for net interest income expressed as a percentage change over net
interest income in a flat rate scenario for both a gradual change in market
interest rates over a twelve-month period and an immediate change, or "shock",
in market interest rates.
Market Effect on Net Interest Income
-----------------------------
Rate Change Gradual Immediate
------------ ------- ---------
+300 bps 5.9% 7.8%
+200 bps 5.0% 4.9%
+100 bps 3.0% 2.8%
-100 bps -6.8% -7.9%
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this Quarterly Report on Form
10-Q, an evaluation was carried out under the supervision and with the
participation of management, including the Chief Executive Officer ("CEO") and
the Chief Financial Officer ("CFO"), of the effectiveness of the Company's
disclosure controls and procedures. Based on that evaluation, the CEO and the
CFO have concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms. Subsequent to this
evaluation, there were no significant changes in the Company's internal controls
or in other factors that could significantly affect the disclosure controls,
including any corrective actionswith regard to significant deficiencies and
material weaknesses.
-17-
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAB BANKSHARES, INC.
----------------------
Registrant
Date: November 14, 2002 By: /s/ Michael E. Ricketson
------------------- ---------------------------
Michael E. Ricketson,
President and Chief Executive Officer
Date: November 14, 2002 By: /s/ Donald J. Torbert, Jr.
------------------- ------------------------------
Donald J. Torbert, Jr.,
Senior Vice President,
Chief Financial Officer
-18-
CERTIFICATION
I, Michael E. Ricketson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PAB Bankshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report; and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 /s/ Michael E. Ricketson
------------------- ---------------------------
Michael E. Ricketson,
President and Chief Executive Officer
(Principal Executive Officer)
-19-
CERTIFICATION
I, Donald J. Torbert, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of PAB Bankshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report; and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 /s/ Donald J. Torbert, Jr.
------------------- ------------------------------
Donald J. Torbert, Jr.,
Senior Vice President,
Chief Financial Officer
(Principal Financial and Accounting Officer)
-20-