<PAGE>
 
 
                      SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D. C.  20549

                                 FORM 10-KSB/A

                                Amendment No. 1

Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December, 31, 1997



                        Commission file number 0-25422



                             PAB BANKSHARES, INC.
                (Name of small business issuer in its charter)



           Georgia                                       58-1473302
------------------------------                   --------------------------
(State or other jurisdiction of                  (I.R.S. Employer ID Number)
incorporation or organization)                 
 
 
           3102 North Oak Street Extension, Valdosta, Georgia 31602
------------------------------------------------------------------------------
                    (Address of principal executive office)
 
Registrant's telephone number, including area code      912/241-2775
                                                   --------------------------- 

Securities registered pursuant to Section 12(b) of the Act:
 

     No par value Common Stock                The American Stock Exchange
----------------------------------       -------------------------------------
        (Title of Class)                 (Name of Exchange on which Registered)
 
          Securities registered pursuant to Section 12(g) of the Act
 
                                     None
                              -----------------
                               (Title of Class)

Check whether Issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the past 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 
       --------        -------



Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive Proxy or
Information Statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.   [ ] Not Applicable



Issuer's revenues for its most recent fiscal year were $27,720,204.



The aggregate market value of the voting stock held by non-affiliates of Issuer
at March 11, 1998 was $70,234,960 based on a recent trading price of $20.00 per
share.



The number of shares outstanding of Issuer's class of common stock at March 10,
1998 was 5,661,386 shares of common stock, reflecting a two-for-one split paid
on March 10, 1998.

The Registrant hereby amends the following items of its Annual Report on Form 
10-KSB for the fiscal year ended December 31, 1997 as set forth in the pages 
attached hereto:

Item 5.  Market for Common Equity and Related Stockholder Matters
Item 6.  Management's Discussion and Analysis or Plan of Operations
Item 7.  Financial Statements
Item 13. Exhibits and Reports on Form 8-K

Documents Incorporated by Reference:  Portions of the Proxy Statement for the
1998 Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission within 120 day of  Issuer's fiscal year-end are incorporated by
reference in Part III.


Transitional Small Business Disclosure Format (Check one):  Yes       No  X
                                                               -----    -----
<PAGE>
 
                                 PART II
                                 -------
 

ITEM 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
 



     As of December 31, 1997 there were approximately 1,159 shareholders of
record of the Company's common stock. Prior to July 9, 1996 there was no
established trading market for the Company's common stock. The Company's common
stock began trading on the American Stock Exchange on July 9, 1996 under the
symbol "PAB". The following table shows the high and low prices for each quarter
of the 1996 and 1997 fiscal year:


<TABLE>
<CAPTION>
                                                      Sales Prices Per
                                                       Share of PAB
                                                       Common Stock
                                              ---------------------------
                                                    High          Low
                                              ---------------------------
<S>                                            <C>             <C>
            1996
            First Quarter                          $ 7.00        $ 6.25
            Second Quarter                           7.50          7.00
            Third Quarter                           10.50          7.50
            Fourth Quarter                          10.94         10.44
 
            1997
            First Quarter                           10.69          9.44
            Second Quarter                          11.00         10.13
            Third Quarter                           11.38         10.50
            Fourth Quarter                          12.06         10.56
</TABLE>

     The Company has declared and paid cash dividends on the Common Stock since
1983 (its first full year of operations).  The Company paid cash dividends of
$.135 per share ($749,082 in the aggregate) in fiscal year 1996, and $.175 per
share ($988,423 in the aggregate) in fiscal year 1997.  Per share amounts have
been adjusted to reflect a two-for-one stock split paid on March 10, 1998 to
shareholders of record on February 17, 1998.


     The primary source of funds available for the payment of cash dividends by
the Company are dividends from the Banks.  The ability of the Banks to pay
dividends are subject to the provisions of the Financial Institutions Code of
Georgia, the rules of the Georgia Department.



ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
           ----------------------------------------------------------


     This analysis has been prepared to provide insight into the consolidated
financial condition of the Company and addresses the factors which have affected
the Company's results of operations.  Unless otherwise noted, the financial and
other information presented with respect to the Company in this discussion and
elsewhere in this annual report generally includes the accounts of the Company's
subsidiary banks.  The Company's consolidated financial statements and
accompanying notes which follow are an integral part of this review and should
be read in conjunction with it.

RESULTS OF OPERATIONS

     The Company, including operations of its subsidiary Banks, reported
consolidated net income of $4,144,133 ($.73 diluted earnings per share) for the
year ended December 31, 1997 compared to $3,348,554 ($.60 diluted earnings per
share) for the year ended December 31, 1996.  Net interest income after
provision for loan losses was $12,550,367 and $10,743,043 for the years ended
December 31, 1997 and 1996, respectively. The provision for loan losses was
$532,900 and $405,000 for the years ended December 31, 1997 and 1996,
respectively. Non-interest income totaled $2,839,954 and $2,566,756 for the
years ended December 31, 1997 and 1996, respectively and noninterest expenses
totaled $9,023,701 and $8,309,243 for the years ended December 31, 1997 and
1996, respectively.

     During the year ended December 31, 1996, as discussed later under "non-
interest expenses" the Company's thrift subsidiary (now converted to a

                                       1
<PAGE>
 
commercial bank charter) was assessed a charge of approximately $385,000 to
recapitalize the thrift industry insurance fund.  Excluding the effects of the
assessment and the related tax effect thereon, the Company's net income for the
year ended December 31, 1996 would have been $3,588,000 ($.65 diluted earnings
per share) rather than $3,349,000 ($.60 diluted earnings per share).

     The following table summarizes the results of operations of the Company for
the two years ended December 31, 1997.
<TABLE>
<CAPTION>
 
                                                          YEAR ENDED DECEMBER 31,
                                                         -------------------------
                                                             1996         1997
                                                         ------------  -----------
                                                              (In Thousands)
<S>                                                      <C>           <C>
                                                 
Interest income                                             $ 22,210       24,880
Interest expense                                             (11,062)     (11,797)
                                                            --------      -------
Net interest income                                           11,148       13,083
Provision for loan losses                                       (405)        (533)
Non-interest income                                            2,567        2,840
Special SAIF assessment                                         (385)
Other non-interest expense                                    (7,924)      (9,024)
                                                            --------      -------
Income before taxes                                            5,001        6,366
Income taxes                                                  (1,652)      (2,222)
                                                            --------      -------
                                                 
Net income                                                  $  3,349        4,144
                                                            ========      =======
                                                 
Return on assets (net income divided by          
  average total assets)                                         1.19%        1.37%
                                                 
Return on equity (net income divided by          
  average equity)                                              13.37%       14.27%
                                                 
Dividend payout ratio (dividends declared        
 per share divided by diluted                    
 net income per share)                                         22.31%       24.14%
                                                 
Equity to assets ratio (average equity           
  divided by average total assets)                              9.10%        9.35%


</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996

     Operations for the year ended December 31, 1997 resulted in a net income of
approximately $4,144,000 compared to a net income of approximately $3,349,000
for the year ended December 31, 1996.

INTEREST INCOME

     Total interest income increased approximately $2,670,000 for 1997 compared
to 1996.  This increase is attributed to the factors explained in the following
paragraphs.

     Interest earned on loans increased from approximately $18,034,000 in 1996
to approximately $20,898,000 in 1997, an increase of $2,864,000.  This increase
was the combined effect of an increase in the average loan portfolio balance
from approximately $187.7 million in 1996 to $213.5 million in 1997 and an
increase in the rate earned on the loan portfolio from 9.61% in 1996 to 9.79% in
1997.

     Interest earned on taxable investment securities decreased from
approximately $3,662,000 in 1996 to approximately $3,327,000 in 1997, a decrease
of $335,000.  This decrease was the net effect of a decrease in the

                                       2
<PAGE>
 
average taxable investment portfolio balance from approximately $57.5 million in
1996 to approximately $51.7 million in 1997 and an increase in the rate earned
on the taxable investment portfolio from 6.37% in 1996 to 6.43% in 1997.

     Interest earned on nontaxable investment securities decreased from
approximately $156,000 in 1996 to approximately $131,000 in 1997, a decrease of
$25,000.  This decrease was the combined effect of a decrease in the average
non-taxable investment portfolio balance from approximately $2.9 million in 1996
to approximately $2.6 million in 1997 and a decrease in the rate earned on the
non-taxable investment portfolio from 5.34% in 1996 to 5.07% in 1997.

     Interest earned on interest-bearing deposits in banks increased from
approximately $84,000 in 1996 to approximately $226,000 in 1997, an increase of
$142,000.  This increase was the combined effect of an increase in the average
interest-bearing deposits balance from $2.2 million in 1996 to $4.5 million in
1997 and an increase in the rate earned on the interest-bearing deposits from
3.84% in 1996 to 5.00% in 1997.

     Interest earned on federal funds sold decreased from approximately $274,000
in 1996 to approximately $299,000 in 1997, an increase of $25,000.  This
increase was the net effect of a decrease in the average federal funds sold
balance from approximately $6.6 million in 1996 to approximately $4.7 million in
1997 and an increase in the rate earned on the federal funds sold from 4.17% in
1996 to 6.32% in 1997.

INTEREST EXPENSE

     Total interest expense increased approximately $735,000 in 1997 compared to
1996.  This increase is attributed to the factors explained in the following
paragraphs.

     This increase was the net effect of an increase in the average balance of
interest-bearing deposits from approximately $201.6 million in 1996 to
approximately $213.0 million in 1997 and a decrease in the average rate paid on
deposits from 4.97% in 1996 to 4.91% in 1997.  The effect of these changes
increased the interest expense on interest-bearing deposits from approximately
$10,024,000 for the year ended December 31, 1996 to approximately $10,467,000
for the year ended December 31, 1997, an increase of $443,000.  The increase in
interest-bearing deposits came from the local communities served by the
Company's subsidiary banks.

     All other interest expense consisting principally of interest on notes and
mortgages payable, increased from approximately $1,038,000 for the year ended
December 31, 1996 to approximately $1,330,000 for the year ended December 31,
1997, an increase of $292,000.  This increase was the combined effect of an
increase in the average balance of Federal Home Loan Bank advances from
approximately $15.5 million in 1996 to approximately $20.4 million in 1997 and
an increase in the average rate from 5.44% in 1996 to 6.02% in 1997.  These
advances were to match fund mortgage loans made.  Additionally, the Company had
a note payable to a correspondent bank which had a balance of $1,200,000 at
December 31, 1996, which was repaid prior to maturity during the year ended
December 31, 1997.  The interest rate was the prime rate less .50% subject to a
ceiling of 9.50% until July 1, 1999.  Annual principal payments were scheduled
to begin July 1, 1997 and continue through the maturity date of July 1, 2004.
The purpose of this indebtedness to a correspondent bank was to partially fund
the acquisition of the Savings Bank effective January 1, 1995 and to partially
fund the acquisition of 123,106 shares of treasury stock in September 1995.

     Interest of approximately $27,000 was paid on federal funds purchased
during the year ended December 31, 1997 and approximately $33,000 during the
year ended December 31, 1996.  There were no federal funds purchased outstanding
at December 31, 1997 or 1996.

PROVISION FOR LOAN LOSSES

     The provision for loan losses for the year ended December 31, 1997 as
compared to 1996 increased approximately $128,000.  The balance of the allowance
for loan losses was approximately $2,865,000 at December 31, 1997 and
approximately $2,550,000 at December 31, 1996.  Actual loan charge-offs net of
recoveries were approximately $218,000 for the year ended December 31, 1997 and
approximately $148,000 for the year ended December 31, 1996.  Non-accrual loans
were approximately $202,000 at December 31, 1997 as compared to $291,000 at
December 31, 1996.  Loans ninety days or more past due and still accruing
amounted to approximately $302,000 at December 31, 1997 and $241,000 at December
31, 1996. In determining an adequate level of loan loss reserves, such loans
were included in such consideration. The amount of the provision for loan losses
is a result of the amount of loans charged-off, the amount of loans recovered
and management's conclusion concerning the level of the allowance for loan
losses. The level of the allowance for loan losses is based upon a number of
factors, including the Company's subsidiary banks' past loan loss experience,
management's evaluation of the collectibility of loans, the general state of the
economy, specific impaired loans and other relevant factors.

                                       3
<PAGE>
 
NON-INTEREST INCOME

     The following table presents the principal components of non-interest
income for the years ended December 31, 1996 and 1997.
<TABLE>
<CAPTION>
 
                                                     YEAR ENDED DECEMBER 31,
                                                     ------------------------
                                                        1996         1997
                                                     -----------  -----------
                                                          (In Thousands)
<S>                                                  <C>          <C>
  Service charges on deposit accounts                     $1,629       1,877
  Insurance commissions                                       49         119
  Equity in earnings of unconsolidated subsidiary            216         256
  Securities gains (losses)                                  138         (14)
  Gain (loss) on sale of loans                                11          24
  Gain on sale of other real estate                            1           2
  Gain (loss) on sale of assets                                3         -0-
  Other income                                               520         576
                                                          ------       -----
    Total Non-interest Income                             $2,567       2,840
                                                          ======       =====
</TABLE>

     Non-interest income for the year ended December 31, 1997 as compared to
1996 increased approximately $273,000.  Service charges on deposit accounts for
the year ended December 31, 1997 as compared to 1996 increased approximately
$248,000.  This increase was related primarily to an increase in the number of
transaction deposit accounts with NSF charges.  Securities gains for the year
ended December 31, 1997 as compared to 1996 decreased approximately $152,000.
Equity in earnings of unconsolidated subsidiary increased approximately $40,000.
This represents the Company's 50% interest in the earnings of Empire Financial
Services, Inc., an unconsolidated subsidiary which is 50% owned by the Savings
Bank, which was acquired by the Company effective January 1, 1995.  All other
income increased from approximately $584,000 for the year ended December 31,
1996 to approximately $721,000 in 1997.


NONINTEREST EXPENSES

     The following table presents the principal components of non-interest
expenses for the years ended December 31, 1996 and 1997:
<TABLE>
<CAPTION>
 
                                        YEAR ENDED DECEMBER 31,
                                        -----------------------
                                           1996         1997
                                        -----------  ----------
                                            (In Thousands)
<S>                                     <C>          <C>
 
  Compensation                               $3,597       4,128
  Other personnel expenses                      745         954
  Occupancy expense of bank premises            406         430
  Furniture and equipment expense               778         838
  Federal deposit insurance                     103          64
  Special SAIF assessment                       385         -0-
  Postage and courier services                  194         228
  Supplies                                      270         358
  Amortization                                  108         108
  Other operating expenses                    1,723       1,916
                                             ------       -----
 
    Total Non-interest Expenses              $8,309       9,024
                                             ======       =====
</TABLE>

     Non-interest expenses for the year ended December 31, 1997 as compared to
1996, increased approximately $715,000 or 8.6% ($1,100,000 or 13.9% excluding
special SAIF assessment in 1996).

     Compensation and other personnel expenses increased approximately $740,000
reflecting an increase in the number of employees, in wage levels and in the
cost of employee benefits.  During the quarter ended September 30, 1996, the
much publicized pending legislation which would result in a special SAIF

                                       4
<PAGE>
 
assessment to recapitalize the insurance fund was signed into law.  This
assessment affected the Company's then thrift subsidiary, the Savings Bank, and
resulted in an assessment of $.657 per $100 of domestic deposits held as of
March 31, 1995.  This assessment amounted to $385,000. Federal deposit insurance
decreased $39,000 for the year ended December 31, 1997 compared to 1996 as a
result of reductions in federal deposit insurance premium rates.  All other
expenses increased approximately $399,000 or 11.8%.  The increases were
primarily attributed to a larger volume of business.

INCOME TAXES

     The effective tax rate for the year ended December 31, 1996 was 33.0%
compared to 34.9% for the year ended December 31, 1997.

ASSET/LIABILITY MANAGEMENT AND MARKET RISK (QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK)

     The Company's financial performance is impacted by, among other factors,
interest rate risk and credit risk.  The Company utilizes no derivatives to
mitigate its credit risk, relying instead on strict underwriting standards, loan
review and an adequate loan loss reserve.

     Interest rate risk is the risk of loss in value due to changes in interest
rates.  This risk is addressed by the Company's Asset Liability Management
Committee ("ALCO"), which includes senior management representatives.  The ALCO
monitors and considers methods of managing interest rate risk by monitoring
changes in net portfolio value ("NPV") and net interest income under various
interest rate scenarios.  The ALCO attempts to manage the various components of
the Company's balance sheet to minimize the impact of sudden and sustained
changes in interest rates on NPV and net interest income.

     The Company's exposure to interest rate risk is reviewed on at least a
quarterly basis by its Board of Directors and the ALCO.  Interest rate risk
exposure is measured using interest rate sensitivity analysis to determine the
Company's change in NPV in the event of hypothetical changes in interest rates.
If potential changes to NPV and net interest income resulting from hypothetical
interest rate swings are not within limits acceptable by the Company's Board,
the Board may direct management to adjust its asset and liability mix to bring
interest rate risk within acceptable limits.

     In order to reduce the exposure to interest rate fluctuations, the Company
has developed strategies to manage its liquidity, shorten the effective
maturities of certain interest-earning assets and increase the effective
maturities of certain interest-bearing liabilities.  First, the Company has put
greater emphasis on adjustable rate loans, which generally reprice in one year
or short-term loans.  Second, the Company has focused its investment activities
on short- and medium-term securities.  Third, the Company has attempted to
maintain and increase its regular savings and transaction deposit accounts,
which are considered to be relatively resistant to changes in interest rates.
Fourth, the Company has utilized long-term borrowings to adjust the term to
repricing of its liabilities.

     Interest rate sensitivity analysis is used to measure the Company's
interest rate risk by computing estimated changes in NPV of its cash flows from
assets and liabilities in the event of a range of assumed changes in market
interest rates.  NPV represents the market value of portfolio equity and is
equal to the market value of assets minus the market value of liabilities.  This
analysis assesses the risk of loss in market rate sensitive instruments in the
event of sudden and sustained increases and decreases in market interest rates
of two hundred basis points.  The following tables present the Company's
projected change in NPV and net interest income for the various rate shock
levels as of December 31, 1997.  NPV values and impact on net interest income
for the Company are regularly calculated internally.  All market rate sensitive
instruments presented in these tables are classified as available-for-sale.  The
Company has no trading securities.

                                       5
<PAGE>
 
CHANGES IN NET PORTFOLIO VALUE:
-------------------------------
<TABLE>
<CAPTION>
 
                                     MARKET
                                    VALUE OF
CHANGE IN                           PORTFOLIO     ACTUAL      PERCENT
   INTEREST RATES                    EQUITY       CHANGE      CHANGE
---------------------------------  -----------  -----------  ---------
<S>                                <C>          <C>          <C>
 
200 basis point rise               $ 6,203,000  (6,267,000)    (50.3%)
Base Rate Scenario                  12,470,000         -0-       .00
200 basis point decline             19,623,000   7,153,000      57.4%

 
CHANGES IN NET INTEREST INCOME:
---------------------------------
 
                                       NET
CHANGE IN                           INTEREST      ACTUAL     PERCENT
   INTEREST RATES                    INCOME       CHANGE     CHANGE
---------------------------------  -----------  ----------   -------
 
200 basis point rise               $28,474,400     811,000       2.9%
Base Rate Scenario                  27,663,000         -0-       .00
200 basis point decline             26,320,000  (1,343,000)     (4.9%)
</TABLE>

     The preceding table indicates that at December 31, 1997, in the event of a
sudden and sustained increase in prevailing market interest rates, the Company's
NPV would be expected to decrease and in the event of a decrease in prevailing
market rates, the Company's net interest income would be expected to decrease.
At December 31, 1997, the Company's estimated changes in NPV were acceptable to
the Company's Board of Directors.

     NPV is calculated based on the net present value of estimated cash flows
utilizing market prepayment assumptions and market rates of interest provided by
independent consultants and other public sources.

     Computation of forecasted effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, loan prepayments, and deposit decay, and should not be relied upon as
indicative of actual future results.  Further, the computations do not
contemplate any actions the ALCO could undertake in response to changes in
interest rates.

     Certain shortcomings are inherent in the method of analysis presented in
the computation of NPV.  Actual values may differ from those projections
presented, should market conditions vary from assumptions used in the
calculation of NPV.  Certain assets, such as adjustable rate loans, have
features which restrict changes in interest rates on a short-term basis and over
the life of the assets.  In addition, the proportion of adjustable rate loans in
the Company's portfolio could decrease in future periods if market interest
rates remain at or decrease below current levels due to refinance activity.
Further, in the event of a change in interest rates, prepayment and early
withdrawal levels would likely deviate significantly from those assumed in the
NPV.  Finally, the ability of many borrowers to repay their adjustable rate
loans may decrease in the event of interest rate increases.

                                       6
<PAGE>
 
INTEREST RATE SENSITIVITY GAP UP TO ONE YEAR

     As of December 31, 1997, excluding NOW and savings accounts, which the
Company does not consider to be rate sensitive, the Company has a positive
interest sensitivity gap up to one year.  The following table presents the
interest-sensitivity gap of the Company, the ratio of rate sensitive assets to
rate sensitive liabilities and comfort ranges as of December 31, 1998.
<TABLE>
<CAPTION>
 
                                              UP TO
                                             ONE YEAR
                                      ----------------------
                                      (Dollars In Thousands)
<S>                                   <C>
 
  Total rate sensitive assets                      $ 134,049
  Total rate sensitive liabilities                   122,744
                                                   ---------
 
  Interest-sensitivity gap                         $  11,305
                                                   =========
 
  GAP ratio                                             1.09
                                                   =========
 
  Comfort range                                     .90-1.20
                                                   =========
</TABLE>

FINANCIAL CONDITION

     The Company, including its subsidiary Banks, reported consolidated total
assets of approximately $328.8 million at December 31, 1997 and $297.3 million
at December 31, 1996 representing an increase of approximately $31.5 million for
the year ended December 31, 1997.  Loan growth exceeded deposit growth as loans
increased approximately $26.7 million and deposits increased approximately $17.5
million.  Additionally, funds were provided by operations of $5.1 million, sale
of stock of $.1 million, Federal Home Loan Bank advances of $11.1 million,
decrease in investment securities of $4.3 million and decrease in federal funds
sold of $2.8 million.  These funds were used to purchase additional bank
premises and equipment of $1.1 million, pay dividends of $.7 million, increase
interest-bearing deposits $1.9 million, increase cash by $8.5 million, acquire
life insurance policies of $.8 million and decrease note payable to
correspondent bank by $1.2 million.  The growth in loans and deposits is
attributable to several factors, including growth in the customer base due to
the business development efforts of the management team, the pricing of loans
and deposits and the favorable economic conditions experienced in the markets
served by the Company's subsidiary banks.  The acquisition of life insurance
policies was attributed to the acquisition of single deposit life insurance
policies on certain key employees added to the deferred compensation plan which
was established in 1994.  While the benefits to be paid pursuant to the plan are
to be funded from the general assets of the Company, the life insurance policies
provide the primary funding source.  The balance of such cash values at December
31, 1997 was approximately $2,747,000.

     The changes in interest rates as previously discussed are reflective of
interest rates in general and market conditions, including competition.  Changes
in short-term funds including cash and due from banks, federal funds sold,
interest-bearing deposits and investment securities are reflective of the
liquidity position of the Company.

     The Company's capital to assets ratio as of December 31, 1997 and 1996 was
9.35% and 9.10%, respectively.

     The Company and its subsidiary banks are subject to various regulatory
capital requirements administered by the state and federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Company's and its subsidiary banks'
financial statements.  Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and its subsidiary banks
must meet specific capital guidelines that involve quantitative measures of
assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.

     Quantitative measures established by regulation to ensure capital adequacy
require the maintenance of minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined).  Management believes, as of December 31, 1997 and 1996,

                                       7
<PAGE>
 
that the Company and its subsidiary banks meet all capital adequacy requirements
to which they are subject.

     As of December 31, 1997, the most recent notification from banking
regulators categorized the Company and its subsidiary banks as well capitalized
under the regulatory framework for prompt corrective action.  To be categorized
as adequately capitalized, the Company and its subsidiary banks must maintain
minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set
forth in the table.  There have been no conditions or events since that
notification that management believes have changed the institutions' category.

      The Company's actual capital amounts and ratios and the minimum amounts
and ratios under the capital adequacy and prompt corrective action provisions
are presented below:
<TABLE>
<CAPTION>
                                                                                     TO BE WELL
                                                                                  CAPITALIZED UNDER
                                                              FOR CAPITAL         PROMPT CORRECTIVE
                                     ACTUAL:               ADEQUACY PURPOSES:     ACTION PROVISIONS:
                                ---------------         -----------------------  --------------------
                                AMOUNT      RATIO         AMOUNT       RATIO       AMOUNT    RATIO
                                -------    -------      -----------------------  -------------------- 
                                                           (Dollars in thousands)
<S>                             <C>         <C>         <C>          <C>           <C>       <C> 
As of December 31, 1996                                                                               
 Total Capital                                                                                        
   (to Risk Weighted Assets)    $27,180     13.56%       16,034         $8.0%      20,043     $10.0%  
 Tier 1 Capital                                                                                       
   (to Risk Weighted Assets)     24,674     12.31%        8,017         $4.0%      12,026     $ 6.0%  
 Tier 1 Capital                                                                                       
   (to Average Assets)           24,674      8.55%       11,549         $4.0%      14,437     $ 5.0%  
As of December 31, 1997                                                                               
 Total Capital                                                                                        
   (to Risk Weighted Assets)     32,184     14.67%       17,552         $8.0%      21,940     $10.0%  
 Tier 1 Capital                                                                                       
   (to Risk Weighted Assets)     29,442     13.42%        8,776         $4.0%      13,164     $ 6.0%  
 Tier 1 Capital                                                                                       
   (to Average Assets)           29,442      9.40%       12,522         $4.0%      15,652     $ 5.0%   
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

     Liquidity management involves the matching of the cash flow requirements of
customers, for the withdrawal of funds or the funding of additional loans, and
the ability of the Company's subsidiary banks to meet those requirements.
Management monitors and maintains appropriate levels of assets and liabilities
so that maturities of assets are such that adequate funds are provided to meet
estimated customer withdrawals and loan requests.

     The Company's subsidiary banks' liquidity position depends primarily upon
the liquidity of its assets relative to its need to respond to short-term demand
for funds caused by withdrawals from deposit accounts and loan funding
commitments.  Primary sources of liquidity are scheduled payments on its loans
and interest on its subsidiary banks' investments.  The Company's subsidiary
banks may also utilize their cash and due from banks, short-term deposits with
financial institutions, federal funds sold and investment securities to meet
liquidity requirements.  At December 31, 1997, the Company's subsidiary banks'
cash and due from banks were approximately $20.2 million (after reduction for
their required reserves of $1.3 million), their short-term deposits with
financial institutions were $3.2 million, and their federal funds sold were
$11.7 million.  The effect of the required reserves is to reduce available
liquidity.  All of the above can be converted to cash on short notice.  The sale
of investments, which had a market value of approximately $52.6 million at
December 31, 1997, can also be used to meet liquidity requirements, to the
extent the investments are not pledged to secure public funds on deposit as
required by law.  Securities with a market value of $28.2 million were pledged
as of December 31, 1997.

     The Company's subsidiary banks' funding needs are based primarily on the
volume of lending.  The primary funding source is from new deposits.  The
Company's subsidiary banks seek to attract new deposits by paying rates of
interest on deposit accounts which are competitive in their respective primary
service areas.  The Company's subsidiary banks generally do not pay brokers'

                                       8
<PAGE>
 
commissions in connection with the obtaining of deposits or have deposits
outside the primary service area.  The Company's subsidiary banks do not pay
premiums to attract deposits.  As of December 31, 1997, the average cost for
deposit liabilities was approximately 5.23%.  The Company's subsidiary banks
continue to expect that new deposits will serve as its primary funding source.

     The Company's subsidiary banks also have the ability, on a short-term
basis, to borrow and purchase federal funds from other financial institutions.
The Company's subsidiary banks are members of the Federal Home Loan Bank of
Atlanta and as such have the ability to secure advances therefrom, although the
cost of such advances exceed lower cost alternatives such as deposits from the
local communities.  The Company's subsidiary banks had advances outstanding from
the Federal Home Loan Bank of Atlanta of $28.2 million at December 31, 1997 at
an average rate of 6.20%.

     The average loan to deposit ratio for the Company at December 31, 1997 was
84.1% compared to 79.5% at December 31, 1996.

     The Company has announced its plans to acquire Investors and has signed a
Merger Agreement.  The anticipated effective date is prior to May 31, 1998.  The
transaction is to be consummated by the issuance of 855,057 shares (before
adjustment for stock split) of the Company Common Stock in exchange for the
outstanding common stock, warrants, and options of Investors.  It is anticipated
that the Merger will qualify as a "pooling of interests" for financial reporting
purposes.  Regulatory and shareholder approvals will be required.

     On February 10, 1998, the Company announced plans to effect a two-for-one
stock split on March 10, 1998 to shareholders of record on February 17, 1998.

     Management is not aware of any trends, events or uncertainties that will
have or that are reasonably likely to have a material effect on the Company's
liquidity, capital resources or operations including recommendations by
regulatory authorities which would have such an effect.

YEAR 2000 ISSUE

     Based on a preliminary study, the Company expects to spend approximately
$200,000 to $250,000 from 1998 through 1999 to modify its computer information
systems enabling proper processing of transactions relating to the year 2000 and
beyond.  The Company continues to evaluate appropriate courses of corrective
action, including replacement of certain systems whose associated costs would be
recorded as assets and amortized.  Accordingly, the Company does not expect the
amounts required to be expensed over the next two years to have a material
effect on its financial position or results of operations.  Management believes
that the amount expensed in 1997 was immaterial.

     On February 6, 1998 the Company received recommendations from the FDIC
regarding year 2000 issues applicable to The Park Avenue Bank.  The
recommendations of the FDIC were made as a result of a special purpose visit
made by the FDIC to The Park Avenue Bank.  The FDIC has recommended that the
Board of Directors of the Company be advised of progress reports regarding the
status of the year 2000 plan relating to The Park Avenue Bank.  The Board of
Directors of the Company intends to evaluate the recommendations made by the
FDIC to determine any required actions to be taken.

                                       9
<PAGE>
 
AVERAGE BALANCE SHEETS

    The following table presents average balance sheets for the years ended
December 31, 1996 and 1997.
<TABLE>
<CAPTION>
 
                                                         YEAR ENDED DECEMBER 31,
                                                         -----------------------
                          ASSETS                            1996         1997
                          ------                         ----------    ---------
                                                          (Dollars in thousands)
<S>                                                         <C>         <C>
Cash and Cash Equivalents:
 Cash and Due From Banks                                     $ 10,727    11,967
 Interest-Bearing Deposits in Other Banks                       1,342     3,493
 Federal Funds Sold and Securities Purchased Under
  Agreement to Resell                                           6,566     4,738
                                                             --------   -------
   Total Cash and Cash Equivalents                             18,635    20,198
Time Deposits                                                     836     1,027
Investment Securities                                          60,275    54,196
Investment in Unconsolidated Subsidiary                           142       118
Loans, Net of Allowance for Loan Losses and unearned
 Interest                                                     185,232   210,782
Bank Premises and Equipment                                     6,672     7,160
Land and Building of Former Banking Offices                       387       415
Land Held for Future Development                                  367       282
Property Acquired in Settlement of Loans                          422       142
Accrued Interest Receivable                                     3,230     3,488
Goodwill                                                        2,320     2,212
Cash Value of Life Insurance                                    1,732     2,135
Other Assets                                                      802       828
                                                             --------   -------
  Total Assets                                               $281,052   302,983
                                                             ========   =======
 
     LIABILITIES AND STOCKHOLDERS' EQUITY
     ------------------------------------
Deposits:
 Demand                                                      $ 34,551    36,621
 NOW                                                           52,145    51,431
 Savings                                                       17,460    17,310
 Time                                                         131,995   144,284
                                                             --------   -------
                                                              236,151   249,646
 
Federal Funds Purchased                                           628       633
Notes Payable                                                   2,100       954
Advances from Federal Home Loan Bank                           15,493    20,391
Accrued Interest                                                  652       749
Other Liabilities                                                 982     1,575
                                                             --------   -------
 
  Total Liabilities                                           256,006   273,948
                                                             --------   -------
 
Stockholders' Equity:
 Common Stock                                                   1,264     1,264
 Additional Paid in Capital                                    15,183    15,879
 Retained Earnings                                              9,941    12,956
 Unrealized Gain (Loss) on Available-for-Sale Securities          (77)      (60)
                                                             --------   -------
                                                               26,311    30,039
 Treasury Stock                                                (1,265)   (1,004)
                                                             --------   -------
                                                               25,046    29,035
                                                             --------   -------
  Total Liabilities and Stockholders' Equity                 $281,052   302,983
                                                             ========   =======
</TABLE>

                                       10
<PAGE>
 
AVERAGE YIELDS EARNED AND RATES PAID

    The following table presents the average balances, average yields and
interest earned on interest-earning assets and average rates and interest paid
on interest-bearing liabilities for the years ended December 31, 1996 and 1997.
<TABLE>
<CAPTION>
 
                                                                YEAR ENDED DECEMBER 31,
                                             ------------------------------------------------------
                                                         1996                      1997
                                             --------------------------  --------------------------
                                             AVERAGE   INCOME/  YIELDS/   AVERAGE  INCOME/YIELDS/
                                             BALANCES  EXPENSE  RATES    BALANCES  EXPENSE   RATES
                                             --------  -------  -------  --------  -------  -------
                                                                (Dollars in thousands)
<S>                                          <C>       <C>      <C>     <C>       <C>      <C>
 
Average yield on loans (1)(3)                $187,676   18,034   9.61%   213,468   20,898     9.79%
Average yield on taxable                                                                     
 investment securities                         57,467    3,662   6.37     51,703    3,326     6.43
Average yield on non-tax-                                                                    
 able investment securities (2)                 2,917      156   5.34      2,577      131     5.08
Average yield on interest-                                                                   
 bearing deposits in banks                      2,178       84   3.84      4,520      226     5.00
Average yield on Federal                                                                     
 Funds sold                                     6,566      274   4.17      4,738      299     6.31
                                             --------   ------   ----    -------   ------     ----
                                                                                             
Average yield on all                                                                         
 interest-earning assets                     $256,804   22,210   8.65%   277,006   24,880     8.98%
                                             ========   ======   ====    =======   ======     ====
                                                                                             
Average rate paid on NOW                                                                     
 account deposits                            $ 52,145    1,659   3.18%    51,431    1,539     2.99%
Average rate paid on savings                                                                 
 deposits                                      17,460      543   3.11     17,310      528     3.06
Average rate paid on time deposits            131,995    7,822   5.93    144,284    8,399     5.82
Average rate paid on advances from                                                           
 Federal Home Loan Bank                        15,493      843   5.44     20,391    1,227     6.02
Average rate paid on other long-term                                                         
 indebtedness                                   2,100      162   7.71        954       77     8.07
Average rate paid on Federal Funds                                                           
 purchased                                        628       33   5.25        633       27     4.27
                                             --------   ------   ----    -------   ------     ----
                                                                                             
Average rate paid on all interest-bearing                                                    
 liabilities                                 $219,821   11,062   5.04%   235,003   11,797     5.02%
                                             ========   ======   ====    =======   ======     ====
Average net yield on interest-earning                                                        
 assets (net interest income as a                                                            
 percentage of average interest-earning                                                      
  assets)                                                        4.34%                        4.72%
                                                                 ====                         ====
----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Non-accruing loans have been included in the "average amount outstanding"
    and average loans have not been reduced by the allowance for loan losses.
(2) Interest income on tax exempt securities has not been calculated on a tax
    equivalent basis.
(3) Loan fees included in interest income amounted to approximately $691,000 in
    1996 and $951,000 in 1997.

    The table below sets forth certain information regarding changes in interest
income and interest expense for the periods indicated.  For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (1) changes in volume (changes in volume
multiplied by old rate); (2) changes in rates (change in rate multiplied by old
volume); (3) changes in rate-volume (changes in rate multiplied by the change in
volume).  The net change attributable to both volume and rate, which cannot be
segregated, has been allocated proportionately to change due to volume and
change due to rate.

                                       11
<PAGE>
 
<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                         ------------------------------------------------
                                             1995 VS. 1996            1996 VS. 1997
                                         ---------------------    -----------------------
                                           INCREASE (DECREASE)      INCREASE (DECREASE)
                                                 DUE TO                   DUE TO
                                         ---------------------   ------------------------
                                         VOLUME   RATE    NET     VOLUME   RATE    NET
                                         -------  -----  ------  -------  ------  -------
                                                      (Dollars in thousands)
<S>                                      <C>      <C>    <C>     <C>      <C>     <C>
Interest Income:
 Loans                                   $2,292   (242)  2,050    2,520     344    2,864
 Taxable investment securities              284    103     387     (371)     35     (336)
 Non-taxable investment securities           30    (31)     (1)     (18)     (7)     (25)
 Interest-bearing deposits in banks         (74)   (30)   (104)     111      31      142
 Federal Funds sold                          88   (121)    (33)     (30)     55       25
                                         ------   ----   -----    -----    ----    -----
 
   Total                                  2,620   (321)  2,299    2,212     458    2,670
                                         ------   ----   -----    -----    ----    -----
 
Interest Expense:
 NOW account deposits                        30     11      41      (22)    (98)    (120)
 Savings deposits                           (33)   (11)    (44)      (5)    (10)     (15)
 Time deposits                              883     82     965      721    (144)     577
 Federal Funds purchased                     31    -0-      31      -0-      (6)      (6)
 Advances from Federal Home Loan Bank       480    (28)    452      287      97      384
 Other long-term indebtedness                (6)     3      (3)     (93)      8      (85)
                                         ------   ----   -----    -----    ----    -----
 
   Total                                  1,385     57   1,442      888    (153)     735
                                         ------   ----   -----    -----    ----    -----
 
Net Interest Income                      $1,235   (378)    857    1,324     611    1,935
                                         ======   ====   =====    =====    ====    =====
</TABLE>
INVESTMENT PORTFOLIO

    The following table presents investments in obligations of (1) U.S. Treasury
and other U.S. government agencies and corporations, (2) states of the U.S. and
political subdivisions and (3) other securities as of December 31, 1996 and
1997.
<TABLE>
<CAPTION>
                                                        DECEMBER 31,
                                       ----------------------------------------------
                                                 1996                  1997
                                       ----------------------------------------------
                                       SECURITIES  SECURITIES  SECURITIES  SECURITIES
                                       AVAILABLE-   HELD-TO-   AVAILABLE-   HELD-TO
                                        FOR SALE    MATURITY    FOR SALE    MATURITY
                                       ----------  ----------  ----------  ----------
                                                   (Dollars in thousands)
<S>                                    <C>         <C>         <C>         <C>
 
 U.S. Treasury and other
   U.S. government agencies
   and corporations                       $51,335         -0-      45,582         -0-
 States of the U.S. and
   political subdivisions                   2,246         -0-       2,804         -0-
 Other securities                           3,157         -0-       4,044         -0-
                                          -------         ---      ------        ----
 
   Total                                   56,738         -0-      52,430         -0-
 
 Unrealized gains (losses)
   on available-for-sale-securities            45         -0-         192         -0-
                                          -------         ---      ------        ----
 
                                          $56,783         -0-      52,622         -0-
                                          =======         ===      ======        ====
----------------------------------
</TABLE>
(1) Securities available-for-sale are carried at market value and securities
    held-to-maturity are carried at amortized cost.

                                       12
<PAGE>
 
    The following table presents the amortized cost (cost for equity securities)
of investments in obligations of (1) U.S. Treasury and other U.S. government
agencies and corporations, (2) states of the U.S. and political subdivisions and
(3) other securities as of December 31, 1997 that are due (1) in one year or
less, (2) after one year through five years, (3) after five years through ten
years and (4) after ten years.  In addition, the table provides the weighted
average yield for each range of maturities.

 
<TABLE>
<CAPTION>
                                                AMOUNT AT DECEMBER 31, 1997 DUE IN
                                             AFTER ONE       AFTER FIVE
                                            THROUGH FIVE    THROUGH TEN     AFTER TEN 
                          ONE YEAR OR LESS      YEARS           YEARS          YEARS           TOTAL
                          ----------------------------------------------------------------------------------
                            AMOUNT  YIELD   AMOUNT   YIELD  AMOUNT  YIELD  AMOUNT  YIELD  AMOUNT   YIELD
                          --------------------------------------------------------------------------------
<S>                        <C>       <C>     <C>      <C>      <C>      <C>    <C>     <C>    <C>     <C>
                           (Dollars in thousands)                                       
U. S. Treasury and                                                                           
 other U. S.  Government                 
 Agencies and Corporations  $8,977  5.98%   26,807   6.51%   4,920  6.71%   4,878  6.79%  45,582   6.46%     
                                                                                        
States of the U.S. and                   
 Political Subdivisions                                                                           
 (1)(2)                        396  0.14%    2,101   7.79%     214  7.03%      93  4.18%   2,804   7.80%

Other                     
 securities (2)(3)             -0-   .00%      -0-    .00%     -0-   .00%   4,044  6.25%   4,044   6.25%      
                            ------  ----    ------   ----    -----  ----    -----  ----   ------   ----       
Total                       $9,373  6.12%   28,908   6.60%   5,134  6.73%   9,015  6.52%  52,430   6.51%
                            ======  ====    ======   ====    =====  ====    =====  ====   ======   ====
</TABLE>
------------------------------------------

(1) Yields on tax exempt obligations have not been computed on a tax equivalent
    basis.

(2) As of December 31, 1997, there was no aggregate book values of any issuer
    which exceeded 10% of stockholders' equity.

(3) Consists of domestic corporate notes, stocks and mutual funds which are
    comprised of Federal Home Loan Bank of Atlanta and Georgia Bankers Bank
    stock and mutual funds consisting predominately of U.S. Government
    securities.  Yield represents yield earned for 1997.
   
LOAN PORTFOLIO

    Before reduction for the allowance for loan losses, the loan portfolio
totaled approximately $224.9 million at December 31, 1997 which was an increase
of approximately $26.5 million from December 31, 1996 or 13.4%.  During the year
ended December 31, 1997, average net loans were approximately $210.8 million
compared to $185.2 million in 1996, an increase of approximately $25.6 million.
During the year ended December 31, 1995, average net loans were approximately
$161.7 million.  These average loan levels reflected a greater rate of growth
from 1996 to 1997 of $25.6 million compared to the rate of growth from 1995 to
1996 of $23.5 million.

                                       13
<PAGE>
 

    The following table sets forth information summarizing the composition of
the loan portfolio at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
 
                                                    DECEMBER 31,
                                              ------------------------
                                                  1996         1997
                                              ------------  ----------
                                               (Dollars in thousands)
<S>                                           <C>           <C>
 
Commercial, financial and agricultural           $ 33,183      39,078
Real estate - construction                         10,645      13,311
Real estate - mortgage                            126,951     143,879
Installment loans to individuals and other         23,074      23,925
Loans secured by deposits                           4,586       4,812
Overdrafts                                            270         195
Foreign loans                                         -0-         -0-
                                                 --------     -------
                                                  198,709     225,200
Deferred loan fees, net                              (143)       (164)
Unearned interest                                    (160)       (173)
                                                 --------     -------
                                                  198,406     224,863
Allowance for loan losses                          (2,550)     (2,865)
                                                 --------     -------
 
 Loans, Net                                      $195,856     221,998
                                                 ========     =======
</TABLE>

  The following table sets forth certain information at December 31, 1997
regarding the dollar amount of loans for the categories indicated maturing based
on their contractual terms to maturity.  Demand loans, loans having no stated
schedule of repayments and no stated maturity and overdrafts are reported as due
in one year or less.
<TABLE>
<CAPTION>
 
                                            AMOUNTS AT DECEMBER 31, 1997 DUE IN
                                          ----------------------------------------
                                                    AFTER ONE
                                                       YEAR
                                          ONE YEAR   THROUGH    DUE AFTER
                                          OR LESS   FIVE YEARS  FIVE YEARS  TOTAL
                                          --------  ----------  ----------  ------
                                                   (Dollars in thousands)
<S>                                       <C>       <C>         <C>         <C>
Commercial, financial and agricultural     $19,819      13,128       6,131  39,078
Real estate - construction                  10,789       1,714         808  13,311
Loans secured by deposits                    3,602       1,159          51   4,812
                                           -------      ------       -----  ------
 
   Total                                   $34,210      16,001       6,990  57,201
                                           =======      ======       =====  ======
</TABLE>

    The following table presents the total amount of loans shown in the
preceding table which are due after one year and which have fixed interest rates
and have variable interest rates.
<TABLE>
<CAPTION>
 
Loans maturing after one year with:
<S>                                                    <C>
 Fixed interest rates                                    $ 9,356
 Variable interest rates                                  13,635
                                                         -------
   Total                                                 $22,991
                                                         =======
</TABLE>

                                       14
<PAGE>
 
    The following table presents information concerning outstanding balances of
nonperforming loans at December 31, 1996 and 1997.  Nonperforming loans consists
of loans which have been placed on nonaccrual status or are past due more than
ninety days with respect to principal or interest.
<TABLE>
<CAPTION>
 
                                                     DECEMBER 31,
                                                 ---------------------
                                                    1996        1997
                                                 -----------  --------
                                                 (Dollars in thousand)
<S>                                              <C>          <C>
 
Loans accounted for on a nonaccrual basis (1)          $ 291       368
Accruing loans which are contractually past
 due 90 days or more as to principal or
 interest payments (1)                                   241       178
Other loans which are "troubled debt
 restructurings" (1)                                     -0-       -0-
</TABLE>

    For the year ended December 31, 1997, for loans accounted for on a
nonaccrual basis and other loans which are "troubled debt restructurings" as
defined in Statement of Financial Accounting Standards No. 15, the gross
interest income that would have been reported if the loans had been current in
accordance with their original terms and had been outstanding throughout the
period or since origination, if held for part of the period, was approximately
$32,000 and the amount of interest income on those loans that was included in
net income for the period was approximately $17,000.

    A loan is placed on non-accrual status when the loan has been delinquent for
ninety days except where an analysis of related collateral values reflects 
sufficient collateral to secure principal and accrued interest. When accrual
of interest is discontinued, all unpaid accrued interest is reversed.

    As of December 31, 1997, in the opinion of management, there are no
additional problem loans of significance which are not now disclosed under
information concerning non-accrual, past due and restructured loans.

    As of December 31, 1997, there are no loan concentrations exceeding 10% of
total loans which are not otherwise disclosed previously as a category of loans.

    As of December 31, 1997, there are no other interest-bearing assets that
would be required to be disclosed as nonaccrual, past due or restructured loans
if such assets were loans.

------------------------------------------
(1)  There are no foreign loans.

RESERVE FOR POSSIBLE LOAN LOSSES

    An allowance for loan losses is established through a provision for loan
losses charged to expenses.  Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely.  The allowance is an amount that management believes will be adequate
to absorb possible losses on existing loans that may become uncollectible based
on evaluations of the collectibility of loans and prior loan loss experience.
The evaluations take into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, specific impaired loans and current economic conditions that may
affect the borrowers' ability to pay.

    The reserve for possible loan losses was approximately 1.27% of outstanding
loans at December 31, 1997 and 1.29% at December 31, 1996.  The reserve was
increased to approximately $2,865,000 at December 31, 1997 from approximately
$2,550,000 at December 31, 1996.  Nonperforming loans increased from
approximately $291,000 at December 31, 1996 to approximately $368,000 at
December 31, 1997, representing .16% of total loans.  Management believes that
the reserve for loan losses of approximately $2,865,000 at December 31, 1997 is
adequate due to the $261,000 of charge offs in the year ended December 31, 1997
and the fact that approximately $162.0 million or 71.9% of the banks' loan
portfolio consisted of loans secured by real estate and deposit accounts.

                                       15
<PAGE>
 
    The following table sets forth an analysis of loss experience for the
periods indicated:
<TABLE>
<CAPTION>
 
                                                   YEAR ENDED DECEMBER 31,
                                                  -------------------------
                                                      1996          1997
                                                  -------------  ----------
                                                   (Dollars in thousands))
<S>                                               <C>            <C>
Balance at beginning of period                          $2,294       2,550
                                                        ------       -----
Charge-Off's:
 Domestic:
   Commercial, financial and agricultural                   18          56
   Real estate - construction                              -0-         -0-
   Real estate - mortgage                                   83          36
   Installment loans to individuals                         60         169
   Loans secured by deposits                               -0-         -0-
   Overdrafts                                              -0-         -0-
 Foreign                                                   -0-         -0-
                                                        ------       -----
 
                                                           161         261
                                                        ------       -----
Recoveries:
 Domestic:
   Commercial, financial and agricultural                  -0-         -0-
   Real estate, construction                               -0-         -0-
   Real estate - mortgage                                  -0-          16
   Installment loans to individuals                         12          27
   Loans secured by deposits                               -0-         -0-
   Overdrafts                                              -0-         -0-
 Foreign                                                   -0-         -0-
                                                        ------       -----
 
                                                            12          43
                                                        ------       -----
Net Charge-Off's                                           149         218
                                                        ------       -----
Additions charged to operations                            405         533
                                                        ------       -----
Balance at end of period                                $2,550       2,865
                                                        ======       =====
Ratio of net charge-off's during the period to
 average loans outstanding during the period              $.08%        .10%
                                                        ======       =====
</TABLE>

                                       16
<PAGE>
 
    The banks have allocated the reserve for possible loan losses according to
the amounts deemed to be reasonably necessary at each year end to provide for
the possibility of losses being incurred within the categories of loans set
forth in the table below based on management's evaluation of the loan portfolio.
The amounts and percentages of such components of the reserve for possible loan
losses at December 31, 1996 and 1997 and the percent of loans in each category
to total loans are presented below.
<TABLE>
<CAPTION>
 
                                              DECEMBER 31,
                               -------------------------------------------
                                       1996                   1997
                               ---------------------  --------------------
                                          PERCENT               PERCENT
                                          OF LOANS              OF LOANS
                                          IN EACH               IN EACH
                                        CATEGORY TO           CATEGORY TO
                               AMOUNT   TOTAL LOANS   AMOUNT  TOTAL LOANS
                               -------  ------------  ------  ------------
                                         (Dollars in thousands)
<S>                            <C>      <C>           <C>     <C>
Domestic:
 Commercial, financial and
   agricultural                 $  437        16.70%     509        17.35%
 Real estate - construction        140         5.36      173         5.91
 Real estate - mortgage          1,670        63.89    1,872        63.89
 Installment loans to
   individuals                     303        11.61      311        10.62
 Loan secured by deposits          -0-         2.31      -0-         2.14
 Overdrafts                        -0-          .13      -0-          .09
Foreign                            -0-          .00      -0-          .00
Unallocated                        -0-          .00      -0-          .00
                                ------       ------    -----       ------
 
                                $2,550       100.00%   2,865       100.00%
                                ======       ======    =====       ======
</TABLE>

  The following table sets forth an analysis of the average amount outstanding
and the average rate paid for all deposits for the categories and periods
indicated.
<TABLE>
<CAPTION>
 
                                                 YEAR ENDED DECEMBER 31,
                                        ------------------------------------------
                                                1996                  1997
                                        ---------------------  -------------------
                                         AVERAGE    AVERAGE    AVERAGE   AVERAGE
                                         AMOUNT    RATE PAID   AMOUNT   RATE PAID
                                        ---------  ----------  -------  ----------
                                                  (Dollars in thousands)
<S>                                     <C>        <C>         <C>      <C>
Deposits in domestic bank
 offices:
 Noninterest-bearing demand deposits     $ 34,551        .00%   36,621        .00%
 Interest-bearing demand deposits          52,145       3.18    51,431       2.99
 Savings deposits                          17,460       3.11    17,310       3.06
 Time deposits                            131,995       5.93   144,284       5.82
Deposits in foreign banking offices           -0-        .00       -0-        .00
                                         --------              -------
   Total                                 $236,151              249,646
                                         ========              =======
</TABLE>
Deposit Maturities

    The principal sources of funds for the Banks' loans and investments are
demand, time, savings and other deposits and borrowings.  The Banks offer a
variety of deposit accounts including checking and NOW accounts, savings and
time accounts, certificates of deposit and money market accounts.  As of
December 31, 1997, total deposits were approximately $267.3 million compared to
approximately $249.7 million at December 31, 1996.  Although, in some instances,
time deposits greater than $100,000 may be more sensitive to changes in interest
rates, substantially all the Banks' deposits are derived from within their
primary service areas which management believes are not as interest rate
sensitive as are more urban service areas.  The Banks do not have any brokered
deposits.

                                       17
<PAGE>
 
    The following table summarizes maturity information for time deposits
greater than $100,000 at December 31, 1997.
<TABLE>
<CAPTION>
 
                                          (Dollars in thousands)
                                          -----------------------
<S>                                        <C>
 
 Three months or less                              $12,069
 Over three through six months                      10,498
 Over six through twelve months                     21,039
 Over twelve months                                  2,673
                                                   -------
 
   Total                                           $46,279
                                                   =======
</TABLE>
ADVANCES FROM FEDERAL HOME LOAN BANK

   The following table shows the Company's borrowings from the Federal Home Loan
Bank and the weighted average interest rates thereon at the end of the last two
years.  Also provided are the maximum amount of borrowings and the average
amounts outstanding as well as weighted average interest rates for the two
years.


<TABLE>
<CAPTION>
                                                         FEDERAL HOME  
                                                           LOAN BANK      
                                                            ADVANCES      
                                                    ----------------------
                                                     (Dollars in thousands)
<S>                                                   <C>                  
Balance at December 31:                                                         
     1997                                                     $28,168           
     1996                                                      17,096           
Weighted Average Interest                                                       
 Rate At Year End:                                                              
   1997                                                          6.20%          
   1996                                                          6.42%          
Maximum Amount Outstanding                                                      
   At Any Month's End:                                                          
     1997                                                     $28,168           
     1996                                                      22,650           
Average Amount Outstanding                                                      
   During The Year:                                                             
     1997                                                     $20,391           
     1996                                                      15,493           
Weighted Average Interest                                                       
</TABLE>                                                                        
 Rate During The Year:                                                          
   1997                                                          6.02%  
   1996                                                          5.44%   

Interest Rate Sensitivity

    The relative interest rate sensitivity of the Banks' assets and liabilities
indicates the extent to which the Banks' net interest income may be affected by
interest rate movements.  The Banks' ability to reprice assets and liabilities
in the same dollar amounts and at the same time minimizes interest rate risks.
One method of measuring the impact of interest rate changes on net interest
income is to measure, in a number of time frames, the interest-sensitivity gap,
by subtracting interest-sensitive liabilities from interest-sensitive assets, as
reflected in the following table.  Such interest-sensitivity gap represents the
risk, or opportunity, in repricing.  If more assets than liabilities are
repriced at a given time in a rising rate environment, net interest income
improves; in a declining rate environment, net interest income deteriorates.
Conversely, if more liabilities than assets are repriced while interest rates
are rising, net interest income deteriorates; if interest rates are falling, net
interest income improves.

                                       18
<PAGE>
 
    The following table presents the interest sensitivity gap of the companies
as of December 31, 1997.
<TABLE>
<CAPTION>
 
                                                      OVER       OVER
                                            3       3 MONTHS    1 YEAR
                                          MONTHS    THROUGH    THROUGH   OVER
                                         OR LESS   12 MONTHS   5 YEARS  5 YEARS   TOTAL
                                         --------  ---------   -------  -------  -------
                                                     (Dollars in thousands)
<S>                                      <C>       <C>         <C>      <C>      <C>
Interest-earning assets:
 Short-term deposits                     $  2,198      1,000       -0-      -0-    3,198
 Loans                                     86,828     18,857    61,388   57,790  224,863
 Investment securities                      3,454      9,992    26,368   12,616   52,430
 Federal funds sold                        11,720        -0-       -0-      -0-   11,720
                                         --------    -------    ------  -------  -------
   Total interest-earning assets          104,200     29,849    87,756   70,406  292,211
                                         --------    -------    ------  -------  -------
 
Interest-bearing liabilities:
 NOW, savings and money
   market accounts (1)                        -0-        -0-       -0-      -0-      -0-
 Time deposits                             34,749     79,590    33,815      -0-  148,154
 Advances from Federal Home
  Loan Bank                                   488      7,917    13,791    5,972   28,168
                                         --------    -------    ------  -------  -------
   Total interest-bearing liabilities      35,237     87,507    47,606    5,972  176,322
                                         --------    -------    ------  -------  -------
 
Interest-sensitivity gap                 $ 68,963    (57,658)   40,150   64,434  115,889
                                         ========    =======    ======  =======  =======
 
Cumulative interest sensitivity GAP      $ 68,963     11,305    51,455  115,889
                                         ========    =======    ======  =======
 
Interest Sensitivity GAP ratio               2.96        .34      1.84    11.79
                                         ========    =======    ======  =======
 
Cumulative interest
 sensitivity GAP ratio                       2.96       1.09      1.30     1.66
                                         ========    =======    ======  =======
Comfort range .90 - 1.20

</TABLE>
----------------------------------------

(1)  Not considered rate sensitive.

IMPACT OF INFLATION AND CHANGING PRICES

    The majority of assets and liabilities of a financial institution are
monetary in nature and therefore differ greatly from most commercial and
industrial companies that have significant investments in fixed assets, such as
property, plant and equipment, and inventories and therefore are primarily
impacted by interest rates rather than changing prices.  While the general level
of inflation underlies most interest rates, interest rates react more to change
in the expected rate of inflation and to changes in monetary and fiscal policy.
Net interest income and the interest rate spread are good measures of the
company's ability to react to changing interest rates.  This information is
presented in further detail in the section entitled "Average Yields Earned and
Rates Paid".

                                       19
<PAGE>
 
ITEM 7.   FINANCIAL STATEMENTS.



     The consolidated financial statements, notes thereto and auditor's report
thereon set forth beginning on page F-1 of this report and are incorporated
herein by reference.



                  Index to Consolidated Financial Statements
                  ------------------------------------------


Financial Statements                                                   Page
--------------------                                                   ----

Independent Auditor's Report........................................    F-2

Consolidated Balance Sheets.........................................    F-3

Consolidated Statements of Income...................................    F-5

Consolidated Statement of Stockholders' Equity......................    F-7

Consolidated Statements of Cash Flows...............................    F-8

Notes to Financial Statements.......................................   F-10





ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K.
             --------------------------------



(a)  1.   FINANCIAL STATEMENTS.
          -------------------- 

                                       20
<PAGE>
 
     The consolidated financial statements, notes thereto and auditor's report
thereon, filed as part hereof, are listed in the Index to Item 7 of this Report.



     2.   FINANCIAL STATEMENT SCHEDULES.
          ----------------------------- 



          All schedules have been omitted as the required information is not
applicable.



     3.   EXHIBITS.
          -------- 

 

     Exhibit No.    Description
     -----------    -----------



     (1) 3.1        Articles of Incorporation as amended and restated effective
                    May 28, 1997


     (2) 3.2        Bylaws


     (3) 4.1        Specimen Stock Certificate


     (4)21.1        Subsidiaries of the Registrant


     (5)23.1        Accountants Consent


     (6)27.1        Financial Data Schedule


(1)  Previously filed by the Company as Exhibit 3.1 to the 10-KSB for the year
     ended December 31, 1997.


(2)  Previously filed by the Company pursuant to a Registration Statement on
     Form S-18 (File No. 33-27456-A) on March 8, 1989, and such document is
     incorporated herein by reference.



(3)  Exhibit 4.1 was previously filed by the Company as Exhibit 3.1 to Amendment
     No. 1 to a Registration Statement on Form S-18 (File No. 33-27456-A) on
     April 3, 1989, and such document is incorporated herein by reference.

(4)  Previously filed by the Company as Exhibit 21.1 to the 10-KSB for the year 
     ended December 31, 1997.

(5)  Filed herewith.

(6)  Previously filed by the Company as Exhibit 27.1 to the 10-KSB for the year 
     ended December 31, 1997.

(b)  REPORTS ON FORM 8-K.
     ------------------- 


     None.

                                       21
<PAGE>
 
                         INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
 
 
                                                                                              Page
                                                                                              ----
<S>                                                                                           <C>
 
PAB Bankshares, Inc. and Subsidiaries
  Independent Auditors' Report                                                                F-2
  Consolidated Balance Sheets - December 31, 1997 and 1996                                    F-3
  Consolidated Statements of Income - Years ended December 31, 1997 and 1996                  F-5
  Consolidated Statements of Stockholders' Equity - Years ended December 31, 1997 and 1996    F-7
  Consolidated Statements of Cash Flows - Years ended December 31, 1997 and 1996              F-8
  Notes to Consolidated Financial Statements - December 31, 1997 and 1996                     F-10
 
</TABLE>

                                      F-1
<PAGE>
 
                           INDEPENDENT AUDITOR'S REPORT



Board of Directors and Stockholders
PAB Bankshares, Inc. and Subsidiaries



     We have audited the accompanying consolidated balance sheets of PAB
Bankshares, Inc. and its Subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
PAB Bankshares, Inc. and its Subsidiaries as of December 31, 1996 and 1997, and
the consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.


/s/ Stewart, Fowler & Stalvey, P.C
-------------------------------------
STEWART, FOWLER & STALVEY, P.C.

Valdosta, Georgia
January 23, 1998

                                      F-2
<PAGE>
 
<TABLE>
<CAPTION>
 
                     PAB BANKSHARES, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                          ---------------------------
 
                                    ASSETS
                                    ------
                                                                                         DECEMBER 31,
                                                                                   -------------------------
                                                                                        1996         1997
                                                                                   ------------  -----------
<S>                                                                               <C>            <C>
Cash and Cash Equivalents:
 Cash and due from banks                                                           $  9,739,420   18,234,261
 Interest-bearing deposits in other banks                                             3,907,836    3,247,147
 Federal funds sold and securities purchased under
  agreement to resell                                                                14,515,000   11,720,075
                                                                                   ------------  -----------
  Total Cash and Cash Equivalents                                                    28,162,256   33,201,483
Time Deposits                                                                           595,000    3,198,000
Investment Securities available-for-sale, at fair value, Notes 1 and 2               56,783,089   52,622,166
Investment in Unconsolidated Subsidiary, Notes 1 and 19                                 130,872       66,749
Loans, Net of Allowance for Loan Losses ($2,550,242 - 1996; $2,865,478 - 1997)
 and Unearned Interest, Notes 1, 5, 8 and 16                                        195,856,247  221,997,963
Bank Premises and Equipment, Notes 1 and 3                                            6,707,165    7,672,646
Property Acquired in Settlement of Loans and Other Real Estate Owned:
 Land and building of former banking offices, Notes 1 and 4                             445,457      315,277
 Land held for future development, Note 1                                               366,790          -0-
 Property acquired in settlement of loans, Note 1                                       334,596      384,790
Accrued Interest Receivable                                                           3,175,569    3,667,040
Cash Value of Life Insurance, Note 10                                                 1,957,298    2,783,838
Goodwill, Note 1                                                                      2,266,170    2,158,266
Other Assets, Note 1                                                                    524,372      723,564
                                                                                   ------------  -----------
 
 Total Assets                                                                      $297,304,881  328,791,782
                                                                                   ============  ===========
 
                   LIABILITIES AND STOCKHOLDERS' EQUITY
                   ------------------------------------
Deposits:
 Demand                                                                            $ 40,203,157   48,495,956
 NOW                                                                                 51,926,581   53,919,883
 Savings                                                                             17,431,631   16,685,772
 Time, $100,000 and over, Note 6                                                     45,525,141   46,278,966
 Other time, Note 6                                                                  94,587,414  101,874,639
                                                                                   ------------  -----------
                                                                                    249,673,924  267,255,216
 
Notes Payable, Note 7                                                                 1,200,000          -0-
Advances from Federal Home Loan Bank, Note 8                                         17,096,499   28,168,166
Accrued Interest Payable                                                                725,549      698,291
Advance Payments by Borrowers for Taxes and Insurance                                   159,505      180,322
Dividends Payable                                                                       210,214      268,466
Other Liabilities, Note 10                                                            1,172,677    1,489,480
                                                                                   ------------  -----------
 
  Total Liabilities                                                                 270,238,368  298,059,941
                                                                                   ------------  -----------
 
Stockholders' Equity:
 Common stock, no par value, 15,000,000 shares authorized,
  2,908,119 shares (1996 - 2,892,639) issued and 2,825,963
  shares (1996 - 2,802,849) outstanding                                               1,263,745    1,263,745
 Preferred stock, no par value, 1,500,000 shares authorized,
  no shares issued or outstanding                                                           -0-          -0-
 Additional paid in capital                                                          15,609,717   15,934,580
</TABLE>

                                      F-3
<PAGE>
 
<TABLE>
<S>                                                             <C>             <C>
 Retained earnings                                                 11,246,210    14,401,920
 Unrealized gains (losses) on available-for-sale securities,
  net of applicable deferred income taxes                              21,388       114,785
                                                                 ------------   -----------
                                                                   28,141,060    31,715,030
 Treasury stock, at cost (82,156 shares; 1996 - 89,790)            (1,074,547)     (983,189)
                                                                 ------------   -----------
                                                                   27,066,513    30,731,841
                                                                 ------------   -----------
   Total Liabilities and Stockholders' Equity                    $297,304,881   328,791,782
                                                                 ============   ===========
</TABLE>

                                      F-4
<PAGE>
 
                     PAB BANKSHARES, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME
                       ---------------------------------
<TABLE>
<CAPTION>
 
                                                                   YEAR ENDED
                                                                  DECEMBER 31,
                                                            -------------------------
                                                                1996         1997
                                                            ------------  -----------
<S>                                                         <C>           <C>
Interest Income:
Interest and fees on loans, Note 1                           $18,034,306  20,897,682
Interest on investment securities:
 Taxable                                                       3,662,105   3,326,581
 Tax exempt                                                      155,760     130,780
Interest on federal funds sold                                   273,787     299,237
Interest on deposits in banks                                     83,654     225,970
                                                             -----------  ----------
 
 Total                                                        22,209,612  24,880,250
                                                             -----------  ----------
 
Interest Expense:
Interest on deposits                                          10,023,870  10,466,506
Interest on federal funds purchased                               32,897      26,611
Interest on notes and mortgages, Note 7                          161,657      76,688
Interest on advances from Federal Home Loan Bank, Note 8         843,145   1,227,178
                                                             -----------  ----------
 
 Total                                                        11,061,569  11,796,983
                                                             -----------  ----------
 
Net Interest Income                                           11,148,043  13,083,267
 
Provision for Loan Losses, Notes 1 and 5                         405,000     532,900
                                                             -----------  ----------
 
Net Interest Income After Provision for Loan Losses           10,743,043  12,550,367
                                                             -----------  ----------
 
Other Income:
Service charges on deposit accounts                            1,628,670   1,876,687
Insurance commissions                                             49,183     118,586
Equity in earnings of unconsolidated subsidiary, Note 19         215,692     255,877
Gain (Loss) on sale of loans                                      11,412      23,955
Gain (Loss) on sale of other real estate                           1,328       2,154
Gain (Loss) on sale of assets                                      2,951         -0-
Securities gains (losses), Note 1                                137,718     (13,824)
Other income                                                     519,802     576,519
                                                             -----------  ----------
 
 Total                                                         2,566,756   2,839,954
                                                             -----------  ----------
 
Other Expenses:
Compensation                                                   3,596,876   4,127,764
Other personnel expenses, Notes 9 and 10                         745,028     953,430
Occupancy expense of bank premises                               405,827     429,758
Furniture and equipment expense                                  778,640     837,498
Federal deposit insurance                                        103,175      64,240
Special SAIF assessment                                          384,882         -0-
Postage and courier services                                     194,568     228,428
Supplies                                                         269,672     358,318
Amortization, Note 1                                             107,903     107,903
Other operating expenses                                       1,722,672   1,916,362
                                                             -----------  ----------
 Total                                                         8,309,243  9,023,701
                                                               ----------  ---------

</TABLE> 

                                      F-5
<PAGE>
 
<TABLE> 

<S>                                                           <C>         <C>  
Income Before Income Taxes                                     5,000,556  6,366,620  
                                                                                      
Income Taxes, Notes 1 and 13                                   1,652,002  2,222,487  
                                                              ----------  ---------  
                                                                                      
Net Income                                                    $3,348,554  4,144,133  
                                                              ==========  =========  
                                                                                      
Earnings Per Share, Note 1:                                                           
 Basic                                                        $      .61        .73  
                                                              ==========  =========  
 Diluted                                                      $      .60        .73  
                                                              ==========  =========   
</TABLE>

                                      F-6
<PAGE>
 
<TABLE>
<CAPTION>
                     PAB BANKSHARES, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
               ------------------------------------------------
                                                                                        UNREALIZED
                                                                                          GAINS
                                                                                       (LOSSES) ON
                                                                                        AVAILABLE-
                                                                                         FOR-SALE
                                                                                       SECURITIES,
                                                                                          NET OF
                                                              ADDITIONAL                APPLICABLE
                                         COMMON    PREFERRED   PAID IN     RETAINED     DEFERRED       TREASURY
                                          STOCK     STOCK     CAPITAL      EARNINGS    INCOME TAXES     STOCK       TOTAL
                                        ---------  --------   ----------  ----------   ------------   ---------   --------
<S>                                     <C>          <C>      <C>         <C>           <C>           <C>          <C> 
Balances, December 31, 1995             1,263,745      -0-    14,744,822   8,646,738        184,469   1,461,043   23,378,731
Issuance of 6,692 shares at                                  
  $10.50 to directors in lieu                                
  of fees                                     -0-      -0-        70,265         -0-            -0-         -0-       70,265
Issuance of 33,825 shares at                                 
 $14.06 average through dividend                             
 reinvestment plan                            -0-      -0-       475,415         -0-            -0-         -0-      475,415
                                                             
Issuance of 18,039 shares at $13.92                          
 average through common stock                                
 purchase plan                                -0-      -0-       251,062         -0-            -0-         -0-      251,062
                                                             
Net Income                                    -0-      -0-           -0-   3,348,554            -0-         -0-    3,348,554
                                                             
Dividends                                     -0-      -0-           -0-    (749,082)           -0-         -0-     (749,082)
                                                             
Acquisition of 2,474                                         
 shares of treasury stock                     -0-      -0-           -0-         -0-            -0-      30,925      (30,925)
                                                             
Sale of 34,880 shares of                                     
 treasury stock                               -0-      -0-        68,153         -0-            -0-    (417,421)     485,574
                                                             
Change in unrealized gains and                               
 (losses) on available-for-sale                              
  securities, net of applicable                              
  deferred income taxes                       -0-      -0-           -0-         -0-       (163,081)        -0-     (163,081)
                                        ---------      ---    ----------  ----------       --------   ---------   ----------
Balances, December 31, 1996             1,263,745      -0-    15,609,717  11,246,210         21,388   1,074,547   27,066,513
Issuance of 7,634 shares at                                  
 $12.50 to directors                                         
 in lieu of fees                              -0-      -0-         4,069         -0-            -0-     (91,358)      95,427
                                                             
Issuance of 13,075                                           
 shares at $20.65 average                                    
 through dividend                                            
 reinvestment plan                            -0-      -0-       270,062         -0-            -0-         -0-      270,062
                                                             
Issuance of 2,405 shares                                     
 at $21.09 average through                                   
 common stock purchase plan                   -0-      -0-        50,732         -0-            -0-         -0-       50,732
                                                             
Net Income                                    -0-      -0-           -0-   4,144,133            -0-         -0-    4,144,133
                                                             
Dividends                                     -0-      -0-           -0-    (988,423)           -0-         -0-     (988,423)
                                                             
Change in unrealized gains and                               
 (losses) on available-for-sale                              
 securities, net of applicable                               
 deferred income taxes                        -0-      -0-           -0-         -0-         93,397         -0-       93,397
                                       ----------      ---    ----------  ----------       --------   ---------   ----------
Balances, December 31, 1997            $1,263,745      -0-    15,934,580  14,401,920        114,785     983,189   30,731,841
                                       ==========      ===    ==========  ==========       ========   =========   ==========
</TABLE> 

                                      F-7
<PAGE>
 
                                  PAB BANKSHARES, INC. AND SUBSIDIARIES
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  -------------------------------------
<TABLE>
<CAPTION>
 
                                                                                              YEAR ENDED
                                                                                             DECEMBER 31,
                                                                                      ---------------------------
                                                                                          1996           1997
                                                                                      -------------  ------------
<S>                                                                                   <C>            <C>
Cash Flows From Operating Activities:
 Net income                                                                           $  3,348,554     4,144,133
 Adjustments to reconcile net income to net cash provided by operating activities:
   Depreciation                                                                            523,828       658,566
   Deferred income taxes                                                                    73,364      (104,564)
   Provision for loan losses                                                               405,000       532,900
   Amortization                                                                            107,903       107,903
   Amortization (accretion) of subsidiary acquisition adjustments                         (178,209)      (45,989)
   (Gain) loss on sale of assets                                                            (2,951)          -0-
   (Gain) loss on sale of loans                                                            (11,412)      (23,955)
   (Gain) loss on sale of other real estate owned                                           (1,328)       (2,154)
   Securities (gains) losses                                                              (137,718)       13,824
   Minority interests                                                                          495           595
   Equity in earnings of unconsolidated subsidiary                                        (215,692)     (255,877)
   Dividend received from unconsolidated subsidiary                                        220,000       320,000
 Change in assets and liabilities:
   (Increase) decrease in accrued interest receivable                                     (141,578)     (491,471)
   Increase (decrease) in accrued interest payable                                          44,931       (27,258)
   (Increase) decrease in other assets                                                     (12,117)     (112,420)
   Increase (decrease) in income taxes payable                                             (24,235)          -0-
   Increase (decrease) in other liabilities                                                464,920       378,276
                                                                                      ------------   -----------
 Net cash provided (used) by operating activities                                        4,463,755     5,092,509
                                                                                      ------------   -----------
Cash Flows From Investing Activities:
 Capital expenditures                                                                   (1,103,578)   (1,127,077)
 Proceeds from sale of assets                                                               72,810           -0-
 (Increase) decrease in time deposits                                                      608,400    (2,603,000)
 (Increase) decrease in loans                                                          (26,906,225)  (26,697,307)
 Purchase of life insurance policies/increase in cash value                               (415,844)     (826,540)
 Principal payments on mortgage-backed securities                                        1,132,434       943,011
 Purchase of available-for-sale securities                                             (16,266,624)  (18,970,048)
 Proceeds from sales of available-for-sale securities                                    5,900,797     7,076,801
 Proceeds from maturities of available-for-sale securities                              12,459,057    10,777,183
 Proceeds from calls of available-for-sale securities                                    2,747,421     4,509,296
                                                                                      ------------   -----------
 Net cash provided (used) by investing activities                                      (21,771,352)  (26,917,681)
                                                                                      ------------   -----------
Cash Flows From Financing Activities:
 Proceeds of additional stock issued                                                       247,322        50,732
 Increase (decrease) in time deposits                                                   13,493,975     8,041,050
 Increase (decrease) in other deposits                                                   4,954,473     9,540,242
 Advances from Federal Home Loan Bank                                                   79,507,000    21,850,000
 Payments on long-term indebtedness                                                    (71,851,574)  (11,978,333)
 Dividends paid                                                                           (212,602)     (660,109)
 Acquisition of treasury stock                                                             (30,925)          -0-
 Proceeds from sale of treasury stock                                                      485,574           -0-
 Decrease in advance payments by borrowers for taxes and insurance                         (48,260)       20,817
                                                                                      ------------   -----------
 Net cash provided (used) by financing activities                                       26,544,983    26,864,399
                                                                                      ------------   -----------
Net Increase (Decrease) in Cash and Cash Equivalents                                     9,237,386     5,039,227
Cash and Cash Equivalents at Beginning of Period                                        18,924,870    28,162,256
                                                                                      ------------   -----------
Cash and Cash Equivalents at End of Period                                            $ 28,162,256    33,201,483
                                                                                      ============   ===========
</TABLE>

                                      F-8
<PAGE>
 
<TABLE>
<CAPTION>

Supplemental Disclosures of Cash Flow Information
-------------------------------------------------
<S>                                                                                <C>           <C>
Cash Paid During The Period For:
 Interest                                                                           $11,016,638  11,824,241
                                                                                    ===========  ==========
 Income taxes                                                                       $ 1,551,270   2,366,006
                                                                                    ===========  ==========
Schedule of Non-Cash Investing and Financing Activities
-------------------------------------------------------
Total increase (decrease) in unrealized losses on securities available-for-sale     $   270,188    (144,549)
                                                                                    ===========  ==========
Stock issued to directors in payment of fees and stock issued through dividend
 reinvestment plan                                                                  $   545,680     365,489
                                                                                    ===========  ==========
</TABLE>

                                      F-9
<PAGE>
 
                     PAB BANKSHARES, INC. AND SUBSIDIARIES

                         NOTES TO FINANCIAL STATEMENTS
                         -----------------------------

Note 1 - Summary of Significant Accounting Policies
---------------------------------------------------

     Nature of operations:  PAB Bankshares, Inc. is engaged in the activity of
providing traditional banking services through its banking subsidiaries
consisting of The Park Avenue Bank (Valdosta, Georgia), the Farmers and
Merchants Bank (Adel, Georgia) and  First Community Bank of Southwest Georgia
(Formerly First Federal Savings Bank of Bainbridge) (Bainbridge, Georgia).  Park
Avenue Bank and Farmers and Merchants Bank are state chartered banks and First
Community Bank of Southwest Georgia is a federally chartered thrift institution
which was converted to a commercial bank charter in 1997.  The Banks primarily
grant agribusiness, commercial, consumer and real estate loans with a market
area that includes predominately Lowndes County, Cook County, Decatur County and
Grady County and the immediate outlying areas.  The composition of the Banks'
loan portfolio is detailed in Note 5 of these financial statements.  The Banks
limit investment securities to U.S. Treasury obligations, obligations of other
U.S. Government agencies and corporations, obligations of state and political
subdivisions and selected mutual funds.  The Banks also purchase time deposits
with other banks in denominations generally not exceeding $100,000 per bank and
sells federal funds to major correspondent banks.  Through First Community Bank
of Southwest Georgia, PAB Bankshares, Inc. also owns one-half of the issued and
outstanding stock of an unconsolidated service corporation subsidiary, Empire
Financial Services, Inc., which is primarily engaged in the origination and
servicing of commercial real estate loans.

     Consolidated financial statements:  The accompanying consolidated financial
statements include the accounts of PAB Bankshares, Inc. and its subsidiaries
consisting of Park Avenue Bank (100% owned), Farmers & Merchants Bank (99.9%
owned) and First Community Bank of Southwest Georgia (100% owned).  Intercompany
transactions and balances have been eliminated in consolidation.

     Investment securities:  Effective January 1, 1994, debt securities that
management has the ability and intent to hold to maturity are classified as
held-to-maturity and carried at cost adjusted for amortization of premiums and
accretion of discounts using methods approximating the interest method.  Other
securities are classified as available-for-sale and are carried at fair value.
Unrealized gains and losses on securities available-for-sale are recognized as
direct increases or decreases in stockholders' equity.  Cost of securities sold
is determined using the specific identification method.  Effective January 1,
1996, all securities are classified as available-for-sale.

     Bank premises and equipment and related depreciation:  Assets, including
land held for future development, are stated at cost, less depreciation.
Depreciation of bank premises and equipment, including a building of a former
banking office, is computed using the straight-line method over the estimated
useful lives of the assets.  Expenditures for maintenance, repairs, removals and
betterments which do not materially prolong the useful lives of the assets are
charged to income as incurred.  The cost of property retired or sold, and the
related accumulated depreciation, is removed from the accounts, and any gain or
loss, after taking into consideration proceeds from sale, is transferred to
income.

     Loans and allowance for losses on loans:  Loans are stated at the amount of
unpaid principal, reduced by unearned interest and an allowance for loan losses.
Unearned interest on installment loans is recognized as income over the terms of
the loans by the interest method.  Interest on other loans is calculated by
using the simple interest method on daily balances of the principal amount
outstanding.  The Banks provide for possible loan losses in amounts based upon
management's evaluation of the collectibility of loans and other relevant
factors including the nature of the portfolio, credit concentrations, trends in
historical loss experience, specific impaired loans and economic conditions.
Allowances for impaired loans are generally determined based on collateral
values or the present value of estimated cash flows.  The allowance is increased
by a provision for loan losses, which is charged to expense, and reduced by
charge-offs, net of recoveries.  Accrual of interest is discontinued when
management believes that the borrowers' financial condition is such that
collection of interest is doubtful.

     Loan fees:  For longer term loans secured by real estate that are
originated and retained in the Banks' loan portfolios, loan origination fees and
certain direct loan origination costs are deferred and amortized to interest
income over the contractual life of the loan using the interest method.  For
other loans, fees are included in income as charged to

                                      F-10
<PAGE>
 
the customer and the direct costs of origination are expensed as incurred.  Such
method of accounting for loan fees is in conformity with generally accepted
accounting principles in all material respects.

Note 1 - Summary of Significant Accounting Policies (Continued)
---------------------------------------------------------------

     Other real estate owned:  Real estate acquired in settlement of loans is
initially recorded at market value at acquisition less estimated costs to sell
and subsequently carried at the lower of cost or market value less estimated
costs to sell.  Costs related to holding and maintaining real estate are charged
to operations and costs relating to improvement of the real estate are
capitalized.  Land acquired and held for future development is carried at cost.

     Amortization:  Goodwill is being amortized over a twenty-five year period
by the straight-line method.  The Company continually reviews goodwill and other
intangible assets on an objective and subjective basis for any impairment which
might effect the carrying value or remaining life of the intangible asset.
Subjective factors considered include the legal and regulatory environment,
demand, competition and other economic factors.  On an objective basis, the
Company computes the discounted present value of projected subsidiary net income
and compares the result with the carrying value of goodwill.  If the carrying
value exceeds the discounted present value of projected net income, the Company
records a write-down or reduces the remaining period of amortization.  To date,
the Company has not had to make any such adjustments.

     Earnings per share:  Earnings per share are computed on the weighted
average number of shares and common equivalent shares outstanding.  Weighted
average shares used in the computation of earnings per share were as follows:
<TABLE>
<CAPTION>
 
                                   YEAR ENDED DECEMBER 31, 1996        YEAR ENDED DECEMBER 31, 1997
                                  ------------------------------     ----------------------------------
 
                                              WEIGHTED    PER-                  WEIGHTED         PER-
                                               AVERAGE   SHARE                   AVERAGE         SHARE
                                    INCOME     SHARES    AMOUNT       INCOME     SHARES         AMOUNT
                                  ----------  ---------  ------     ----------  -----------  -----------
<S>                               <C>         <C>        <C>        <C>          <C>              <C>
                                                                               
Basic Earnings Per Share:                                                      
 Net Income                       $3,348,554  5,523,742    $.61     $4,144,133     5,645,634      $.73
                                                                               
Effect of Dilutive Securities:                                                 
 Stock Options                           -0-     34,018                    -0-        65,386
                                  ----------  ---------             ----------   -----------
                                                                               
Diluted Earning Per Share:                                                     
 Net Income                       $3,348,554  5,557,760    $.60     $4,144,133     5,711,020      $.73
                                  ==========  =========  ======     ==========   ===========  ========
</TABLE>

     The weighted average shares used in calculating earnings per share
information has been adjusted to reflect a two-for-one stock split to be paid on
March 10, 1998 to stockholders of record February 17, 1998.  No other
transactions occurred after December 31, 1997 and before issuance of the
financial statements that would have changed materially the number of common
shares or potential common shares outstanding at December 31, 1997 if the
transaction had occurred before the end of the period.

     Income taxes:  Deferred income taxes are reported for temporary differences
between items of income or expense reported in the financial statements and
those reported for income tax purposes.  At December 31, 1996 and 1997, other
assets included a deferred income tax charge of $359,323 and $412,746,
respectively.

     Cash and cash equivalents:  For purposes of the statements of cash flows,
cash and cash equivalents include cash on hand, amounts due from banks and
Federal Funds sold.

     Investment in unconsolidated subsidiary:  Investment in unconsolidated
subsidiary is accounted for under the equity method.

     Off balance sheet financial instruments:  In the ordinary course of
business, the Banks have entered into off balance sheet financial instruments
consisting of commitments to extend credit and standby letters of credit.  Such
financial instruments are recorded in the financial statements when they become
payable.

                                      F-11
<PAGE>
 
Note 1 - Summary of Significant Accounting Policies (Continued)
---------------------------------------------------------------

     Use of estimates:  The preparation of financial statements in conformity
with generally accepted accounting principles 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.

     Certain significant estimates:  Material estimates that are particularly
susceptible to significant change relate to the determination of the allowance
for losses on loans and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans.  In connection with the determination
of allowances for losses on loans and the valuation of foreclosed real estate,
management obtains independent appraisals for significant properties.

     While management uses available information to recognize losses on loans
and foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions.  In addition, regulatory
agencies, as an integral part of their examination process, periodically review
the Banks' allowances for losses on loans and foreclosed real estate.  Such
agencies may require the Banks to recognize additions to the allowances based on
their judgments about information available to them at the time of their
examination.  It is at least reasonably possible that the allowances for losses
on loans and foreclosed real estate may change in the near term.

     Stock-based compensation:  In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation.  The Company has elected to
disclose the proforma effect on net income as if the fair value based method of
accounting for stock options had been used.

     Fair values of financial instruments:  Statement of Financial Accounting
Standards No. 107, Disclosures about Fair Value of Financial Instruments,
requires disclosure of fair value information about financial instruments,
whether or not recognized in the statement of financial condition.  In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques.  Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows.  In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets, and, in
many cases, could not be realized in immediate settlement of the instruments.
Statement No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements.  Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.

     The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
 
     Cash and cash equivalents:  The carrying amounts reported in the balance
 sheet for cash and cash equivalents approximate those assets' fair values.

     Time deposits:  Fair values for time deposits are estimated using a
 discounted cash flow analysis that applies interest rates currently being
 offered on certificates to a schedule of aggregated contractual maturities on
 such time deposits.

     Investment securities:  Fair values for investment securities are based on
 quoted market prices, where available.  If quoted market prices are not
 available, fair values are based on quoted market prices of comparable
 instruments.

     Loans:  For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying amounts.
The fair values for other loans (for example, fixed rate commercial real estate
and rental property mortgage loans and commercial and industrial loans) are
estimated using discounted cash flow analysis, based on interest rates currently
being offered for loans with similar terms to borrowers of similar credit
quality. Loan fair value estimates include judgments regarding future expected
loss experience and risk characteristics. The carrying amount of accrued
interest receivable approximates its fair value.

                                      F-12
<PAGE>
 
Note 1 - Summary of Significant Accounting Policies (Continued)
---------------------------------------------------------------

     Deposits:  The fair values disclosed for demand deposits (for example,
checking accounts, interest-bearing checking accounts and savings accounts) are,
by definition, equal to the amount payable on demand at the reporting date (that
is, their carrying amounts).  The fair values for certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of aggregated contractual
maturities on such time deposits.  The carrying amount of accrued interest
payable approximates fair value.

     Short-term borrowings, notes payable and advances from Federal Home Loan
Bank:  The carrying amounts of short-term borrowings, notes payable and advances
from the Federal Home Loan Bank approximate their fair values.

     Other liabilities:  Commitments to extend credit were evaluated and fair
value was estimated using the terms for similar agreements, taking into account
the remaining terms of the agreements and the present creditworthiness of the
counterparties.  For fixed-rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates.

     Advertising:  The Company expenses advertising costs as they are incurred.
Advertising costs charged to expense were $168,935 and $163,371 for the years
ended December 31, 1996 and 1997, respectively.

     Capital structure:  During 1996, the Company had a two-for-one stock split.
The effect of the stock split was applied retroactively to previous years.
During 1997 the number of shares of common stock was increased from 4,000,000 to
15,000,000 shares. Also, during 1997, the Articles of Incorporation were
restated to authorize the issuance of 1,500,000 shares of preferred stock. As of
December 31, 1997, no shares of preferred stock had been issued. On February 10,
1998, the Company announced its plans to affect a two-for-one stock split on
March 10, 1998 for shareholders of record February 17, 1998. The effect of the
stock split has been reflected in all per share calculations for all periods
presented. In 1993, the Company converted to "no par value" stock and retained
its common stock account at the pre-1993 amount. Subsequently, all transactions
involving common stock have been recorded in additional paid-in capital.

     New accounting standards: In March 1995, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards No. 121 (SFAS)
(Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of). This statement established accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of. This statement requires that
long-lived assets and other identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
performing the review for recoverability, the entity should estimate the future
cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows is less than the
carrying amount of the asset, an impairment loss is recognized. Otherwise, an
impairment loss is not recognized. Measurement of an impairment loss for long-
lived assets and identifiable intangibles that an entity expects to hold and use
should be based on the fair value of the asset. The statement requires that 
long-lived assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost to sell, except
for assets that are covered by APB Opinion No. 30 (Reporting The Results Of
Operations - Reporting The Effects Of Disposal Of A Segment Of A Business And
Extraordinary, Unusual And Infrequently Occurring Events And Transactions).
Assets that are covered by Opinion 30 will continue to be reported at the lower
of carrying amount or net realizable value. This statement was effective for
fiscal years beginning after December 15, 1995. The adoption of this statement
did not have a material impact on the Company's financial statements.

     In October 1995, the FASB issued SFAS No. 123 (Accounting for Stock-Based
Compensation).  This statement establishes financial accounting and reporting
standards for stock-based employee compensation plans.  Those plans include all
arrangements by which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amounts based on the price of the employer's stock.  Examples are stock purchase
plans, stock options, restricted stock and stock appreciation rights.  The
statement also applies to transactions in which an entity issues its equity
instruments to acquire goods or services from non-employees.  Those transactions
must be accounted for based on the fair value of the consideration received or
the fair value of the equity instruments issued, whichever is more reliably
measurable.  The statement defines a fair value based method of accounting for
an employee stock option or similar equity instrument and encourages all
entities to adopt that method of accounting for all of their employee stock
compensation plans.  However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25 (Accounting For Stock Issued To
Employees).  Entities electing to remain with the accounting in Opinion 25, must
make proforma disclosures of net income and, if presented, earnings per share,
as if the fair value based method of accounting defined in this statement had
been applied.  The Company elected to continue to apply Opinion 25 and thus
provide proforma disclosures of net income and earnings per share.  This
statement is effective for fiscal years beginning after December 15, 1995.  The
adoption of this statement did not have a material impact on the Company's
financial statements.

     In June 1996, the FASB issued SFAS No. 125 (Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities).  This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities.  Those
standards are based on consistent application of a financial-components approach
that focuses on control.  Under that approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when control has
been surrendered and derecognizes liabilities when extinguished.  This statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings.  The statement
applies to transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996.  However, as a result of an
amendment to SFAS No. 125 by the FASB in December 1996, certain provisions of
SFAS No. 125 are deferred for an additional year.  Adoption of the new
accounting standard did not have a material impact on the Company's financial
statements.

     In February 1997, the FASB issued SFAS No. 128 (Earnings Per Share).  This
statement establishes standards for computing and presenting earnings per share
and applies to entities with publicly held common stock or potential common
stock.  This statement simplifies the standards for computing earnings per share
previously found in APB Opinion No. 15 (Earnings Per Share) and makes them
comparable to international earnings per share standards.  It replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share.  It also requires dual presentation of basic and diluted earnings per
share on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic earnings per share computation to the numerator and denominator of the
diluted earnings per share computation.  Basic earnings per share excludes
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.  Diluted earnings per share is computed similarly
to fully diluted earnings per share pursuant to Opinion 15.  This statement is
effective for financial statements issued for periods ending after December 15,
1997.  The adoption of this statement did not have a material impact on the
company's financial statements.

     In February 1997, the FASB issued SFAS No. 129 (Disclosure of Information
about Capital Structure).  This statement establishes standards for disclosing
information about an entity's capital structure.  It applies to all entities.
This statement continues the previous requirements to disclose certain
information about an entity's capital structure found in APB Opinions No. 10
(Omnibus Opinion - 1996), No. 15 (Earnings Per Share) and FASB No. 47
(Disclosure Of Long-Term Obligations), for entities that were subject to the
requirements of those standards.  This statement is effective for financial
statements issued for periods ending after December 15, 1997.  The adoption of
this statement did not have a material impact on the Company's financial
statements.

     In June 1997, the FASB issued SFAS No. 130 (Reporting Comprehensive
Income).  This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements.  This statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.  This
statement does not require a specific format for that financial statement but
requires that an enterprise display an amount representing total comprehensive
income for the period in that financial statement.  This statement requires that
an enterprise (a) classify items of other comprehensive income by their nature
in a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position.  This
statement is effective for fiscal years beginning after December 15, 1997.  The
adoption of this statement is not expected to have a material impact on the
Company's financial statements.

     In June 1997, the FASB issued SFAS No. 131 (Disclosures About Segments of
an Enterprise and Related Information).  This statement establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders.  It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
This statement requires that a public business enterprise report financial and
descriptive information about its reportable operating segments.  Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.  Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.  The statement requires that a public
business enterprise report a measure of segment profit or loss, certain specific
revenue and expense items and segment assets.  It requires reconciliations of
total segment revenues, total segment profit or loss, total segment assets and
other amounts disclosed for segments to corresponding amounts in the
enterprise's general-purpose financial statements.  It requires that all public
business enterprises report information about the revenues derived from the
enterprise's products or services (or groups of similar products and services),
about the Countries in which the enterprise earns revenues and holds assets and
about major customers regardless of whether that information is used in making
operating decisions.  The statement also requires that a public business
enterprise report descriptive information about the way that the operating
segments were determined, the products and services provided by the operating
segments, differences between the measurements used in reporting segment
information and those used in the enterprise's general-purpose financial
statements and changes in the measurement of segment amounts from period to
period.  This statement is effective for financial statements for periods
beginning after December 15, 1997.  The adoption of this statement is not
expected to have a material impact on the Company's financial statements.

                                      F-13
<PAGE>
 
Note 2 - Investment Securities
------------------------------

   Investment securities are carried in the accompanying balance sheets as
follows:
<TABLE>
<CAPTION>
 
                                                                                          DECEMBER 31,
                                                                                    -----------------------
                                                                                       1996         1997
                                                                                    -----------  ----------
<S>                                                                                 <C>          <C> 
Available-for-sale                                                                  $56,783,089  52,622,166
Held-to-maturity                                                                            -0-         -0-
                                                                                    -----------  ----------
                                                                                    $56,783,089  52,622,166
                                                                                    ===========  ==========
Securities available-for-sale consist of the following:
---------------------------------------------------------
 
As of December 31, 1996:
 
                                                                          GROSS        GROSS
                                                            AMORTIZED   UNREALIZED  UNREALIZED     MARKET
                                                              COST        GAINS       LOSSES       VALUE
                                                           -----------  ----------  -----------  ----------
U.S. Treasury Obligations                                  $13,511,331      53,696        2,979  13,562,048
Obligations of other U.S.
 Government agencies and corporations                       27,467,859     160,915       87,970  27,540,804
Obligations of state and political
 subdivisions                                                2,246,103      43,884       15,450   2,274,537
Mortgage backed securities                                  10,355,464     169,297      115,920  10,408,841
Domestic corporate notes                                        99,969         134          -0-     100,103
Federal Home Loan Bank stock                                 1,900,900         -0-          -0-   1,900,900
Mutual Funds                                                 1,000,000         -0-      144,813     855,187
Community Financial Services, Inc. stock                       105,669         -0-          -0-     105,669
Other stock                                                     50,000         -0-       15,000      35,000
                                                           -----------     -------  -----------  ----------
                                                           $56,737,295     427,926      382,132  56,783,089
                                                           ===========     =======  ===========  ==========
 
As of December 31, 1997:
 
                                                                          GROSS        GROSS
                                                            AMORTIZED   UNREALIZED  UNREALIZED     MARKET
                                                              COST        GAINS       LOSSES       VALUE
                                                           -----------  ----------  -----------  ----------
U.S. Treasury Obligations                                  $11,146,387     104,613          -0-  11,251,000
Obligations of other U.S.
 Government agencies and
 corporations                                               26,113,426     126,724       42,669  26,197,481
Obligations of state and
 political subdivisions                                      2,803,880      55,650        6,202   2,853,328
Mortgage backed securities                                   8,322,382     149,093       34,117   8,437,358
Federal Home Loan Bank
 stock                                                       2,810,600         -0-          -0-   2,810,600
Mutual Funds                                                 1,000,000         -0-      146,395     853,605
Community Financial Services,
 Inc. stock                                                    183,794         -0-          -0-     183,794
Other stock                                                     50,000         -0-       15,000      35,000
                                                           -----------     -------  -----------  ----------
 
                                                           $52,430,469     436,080      244,383  52,622,166
                                                           ===========     =======  ===========  ==========
</TABLE>

                                      F-14
<PAGE>
 
Note 2 - Investment Securities (Continued)
------------------------------------------

     The amortized cost and estimated market value of debt securities at
December 31, 1997, by contractual maturity, are shown below.  Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call of prepayment
penalties.
<TABLE>
<CAPTION>
 
                                                SECURITIES
                                            AVAILABLE-FOR-SALE
                                          -----------------------
                                                         MARKET
                                             COST        VALUE
                                          -----------  ----------
<S>                                       <C>          <C>
 
Due in one year or less                   $ 9,345,803   9,366,509
Due after one year through five years      28,919,194  29,184,981
Due after five years through ten years      5,134,893   5,180,046
Due after ten years                         4,986,185   5,007,631
                                          -----------  ----------
 
                                          $48,386,075  48,739,167
                                          ===========  ==========
</TABLE>

     Proceeds from calls of available-for-sale securities during 1996 were
$2,747,421 with no gains and losses being recognized.  Proceeds from sales of
available-for-sale securities during 1996 were $5,900,797.  Gross gains of
$196,730 and gross losses of $59,012 were realized on those sales.  Effective
January 1, 1996, debt securities with an amortized cost of $1,609,517 were
transferred from held-to-maturity to available-for-sale.  The securities had an
unrealized gain of $61,650.  Management made the transfer in response to its
decision to eliminate the held-to-maturity classification.

     Proceeds from calls of available-for-sale securities during 1997 were
$4,509,296 with gross gains of $6,984 and gross losses of $2,592 being
recognized.  Proceeds from sales of available-for-sale securities during 1997
were $7,076,801.  Gross losses of $18,216 were realized on those sales.

Securities with a book value of approximately $19,889,000 (market value
$20,083,000) and $27,975,297 (market value $28,192,116) at December 31, 1996 and
1997, respectively, were pledged to secure public monies as required by law.

Note 3 - Bank Premises and Equipment
------------------------------------

Bank premises and equipment are stated at cost less accumulated depreciation,
and include the following:
<TABLE>
<CAPTION>
 
                                             DECEMBER 31,        
                                      --------------------------   ESTIMATED
                                          1996          1997      USEFUL LIVES
                                      -------------  -----------  ------------
<S>                                   <C>            <C>          <C>
 Land                                  $ 1,465,857    1,966,197
 Bank premises and improvements          4,303,776    4,613,149     5-40 years
 Furniture, fixtures and equipment       2,812,587    3,547,045     5-15 years
 Automobiles                               104,983      167,764      3-5 years
                                       -----------   ----------
                                         8,687,203   10,294,155
 Less accumulated depreciation          (1,980,038)  (2,621,509)
                                       -----------   ----------
 
                                       $ 6,707,165    7,672,646
                                       ===========   ==========
</TABLE>
Depreciation expense amounted to $523,828 and $658,566 for the years ended
December 31, 1996 and 1997, respectively.

                                      F-15
<PAGE>
 
Note 4 - Land and Building of Former Banking Offices
----------------------------------------------------

Land and building of former banking offices are stated at cost less accumulated
depreciation and include the following:
<TABLE>
<CAPTION>
 
                                                                                                 DECEMBER 31,                    
                                                                                        ----------------------------   ESTIMATED
                                                                                            1996           1997       USEFUL LIVES
                                                                                        -------------  -------------  -------------
<S>                                                                                     <C>            <C>            <C>
 Land                                                                                      $ 166,000         41,000
 Building                                                                                    452,047        462,719       30 years
                                                                                           ---------   ------------
                                                                                             618,047        503,719
 Less accumulated depreciation                                                              (172,590)      (188,442)
                                                                                           ---------   ------------
 
                                                                                           $ 445,457        315,277
                                                                                           =========   ============
</TABLE> 
 
The building is currently being leased.  Fair value of these assets exceeds book
 value.
 
Note 5 - Loans
--------------
 
Major classifications of loans are as follows:

<TABLE> 
<CAPTION> 
 
                                                                  DECEMBER 31,
                                                           ---------------------------
                                                                   1996           1997
                                                           ------------   ------------
<S>                                                        <C>            <C> 
 Commercial, financial and agricultural                    $ 33,182,855     39,077,389
 Real estate - construction                                  10,645,091     13,311,092
 Real estate - mortgage                                     126,951,312    143,878,835
 Installment loans to individuals and other                  23,074,049     23,925,402
 Loans secured by deposits                                    4,585,917      4,811,835
 Overdrafts                                                     270,136        195,200
                                                           ------------   ------------
                                                            198,709,360    225,199,753
 Deferred loan fees, net                                       (143,469)      (163,538)
 Unearned interest                                             (159,402)      (172,774)
                                                           ------------   ------------
                                                            198,406,489    224,863,441
 Allowance for loan losses                                   (2,550,242)    (2,865,478)
                                                           ------------   ------------
                                                 
   Loans, Net                                              $195,856,247    221,997,963
                                                           ============   ============
</TABLE>

   The Banks did not have any loans classified as impaired at December 31, 1996.
At December 31, 1997, the total recorded investment in impaired loans, all of
which had allowances determined in accordance with SFAS No. 114 and No 118,
amounted to approximately $367,570.  The average recorded investment in impaired
loans amounted to approximately $183,785 for the year ended December 31, 1997.
The allowance for loan losses related to impaired loans amounted to
approximately $42,495 at December 31, 1997.  Interest income on impaired loans
of $17,202 was recognized for cash payments received in 1997.  The Banks have no
commitments to loan additional funds to borrowers whose loans are classified as
impaired.

     First mortgage loans on residential (one-to-four units) real estate are
pledged to secure advances from the Federal Home Loan Bank (See Note 8).  The
advances must be fully secured after discounting the qualifying loans at 75% of
the principal balances outstanding.

     At December 31, 1996 and 1997, the Company was servicing mortgage loans for
the benefit of others totaling approximately $18,773,000 and $21,346,000,
respectively.  While such loans were originated by the Company, the entire cost
of originating the loans has been allocated to the loans with no cost being
allocated to the mortgage servicing rights, since management believes the amount
to be immaterial.  Revenue from mortgage servicing activities amounted to
$59,171 and $42,592 for the years ended December 31, 1996 and 1997,
respectively.

                                      F-16
<PAGE>
 
Note 5 - Loans (Continued)
--------------------------

Transactions in the allowance for losses on loans were as follows:
<TABLE>
<CAPTION>
 
                                                        YEAR ENDED DECEMBER 31,
                                                       --------------------------
                                                           1996          1997
                                                       -------------  -----------
<S>                                                    <C>            <C>
 Balance, January 1                                    $  2,293,723    2,550,242
 Provision for losses charged to           
  operating expenses                                        405,000      532,900
 Recoveries                                                  12,213       43,396
                                                       ------------   ----------
   Total                                                  2,710,936    3,126,538
 Less loans charged off                                    (160,694)    (261,060)
                                                       ------------   ----------
 Balance, December 31                                  $  2,550,242    2,865,478
                                                       ============   ==========
 
Note 6 - Deposits
-----------------
 
At December 31, 1997, the scheduled maturities of certificates of deposit are as follows:
 
    YEAR ENDING
    DECEMBER 31,
-----------------
       1998                                                     $114,555,014
       1999                                                       20,434,457
       2000                                                        8,029,111
       2001                                                        2,197,814
       2002                                                        2,937,209
                                                                ------------
 
                                                                $148,153,605
                                                                ============

</TABLE> 

 
Note 7 - Notes Payable
----------------------
 
Notes payable consists of the following:
<TABLE> 
<CAPTION> 
 

                                                                                                   DECEMBER 31,
                                                                                             ------------------------
                                                                                                 1996         1997
                                                                                             ------------   ----------
<S>                                                                                           <C>           <C> 
Trust Company Bank, interest payable quarterly, interest rate .50%
 below prime with a ceiling of 9.50% until July 1, 1999, equal annual
 principal payments beginning July 1, 1997, maturity date of
 July 1, 2004, collateralized by stock of First Community Bank
 of Southwest Georgia acquired effective January 1, 1995.                                    $  1,200,000          -0-
                                                                                             ============   ==========
</TABLE> 
 
Note 8 - Advances From Federal Home Loan Bank
---------------------------------------------
 
Advances from the Federal Home Loan Bank consists of the following:
 
<TABLE> 
<CAPTION> 
                                                                                                   DECEMBER 31,
                                                                                             -------------------------
                                                                                                 1996         1997
                                                                                             ------------   ----------
<S>                                                                                           <C>            <C> 
Advances payable, interest payable monthly, combination of fixed and
 variable interest rates which averaged 6.42% and 6.20% at
 December 31, 1996, and 1997, respectively, various repayment options,
 maturities through August 2, 2010.                                                          $ 17,096,499   28,168,166
                                                                                             ============   ==========
</TABLE>

                                      F-17
<PAGE>
 
Note 8 - Advances From Federal Home Loan Bank (Continued)
---------------------------------------------------------

Maturities of the advances for the succeeding five years are as follows:
<TABLE>
<CAPTION>
 
      YEAR ENDING
      DECEMBER 31,
     -------------
<S>                       <C>
          1998             $7,340,137
          1999              6,523,667
          2000              6,257,201
          2001                651,408
          2002              1,423,620

</TABLE>

The advances are collateralized as provided in Note 5.

Note 9 - Profit Sharing Plan and 401(k) Plan
--------------------------------------------

     An employee profit sharing plan and 401(k) plan is provided for qualified
employees.  The plans are qualified under the Internal Revenue Code.  The Board
of Directors makes an annual determination of the contribution to the profit
sharing plan.  By law and pursuant to the terms and provisions of the employee
profit sharing plan, a contribution up to a maximum of 15% of the total
qualified employee compensation may be made.  Under the 401(k) plan, employees
may make salary deferral contributions of 10% to 15% of qualified employee
compensation.  The Company will make matching contributions at a level
determined by the Board of Directors.  Amounts contributed to the plans for the
years ended December 31, 1996 and 1997 totaled $201,551 and $224,620,
respectively.

Note 10 - Deferred Compensation Plan
------------------------------------

     Effective January 1, 1994, the Company adopted a deferred compensation plan
for the benefit of key employees.  While the plan is to be funded from the
general assets of the Company, life insurance policies were acquired for the
purpose of serving as the primary funding source.  As of December 31, 1996 and
1997, the cash values of these policies were $1,927,428 and $2,747,030,
respectively, and the liability accrued for benefits payable under the plan was
$169,364 and $275,596, respectively.

Note 11 - Employee Stock Option Plan
------------------------------------

     The Company's Stock Option Plan authorizes the granting of stock options to
its full-time employees for up to 200,000 shares of common stock.  Under the
plan, the exercise price of each option equals the market price of the Company's
stock on the grant date, and an option's maximum term is ten years.  Options are
granted as administered by the Board of Directors and, with limited exceptions,
vest on a straight-line basis over a five year period beginning February 26,
1997.  The fair value of each option grant is estimated on the grant date using
an option-pricing model with the following weighted-average assumptions used for
grants in 1997: dividend yield of 1.65%, risk free interest rate of 5.57%,
expected lives of 5 years for the options and a volatility rate of 14.2%.
Weighted-average assumptions used for grants in 1996 are as follows:  dividend
yield of 1.65%, risk-free interest rate of 7.50%, expected lives of five years
for the options and a volatility rate of 23.0%.

                                      F-18
<PAGE>
 
Note 11 - Employee Stock Option Plan (Continued)
------------------------------------------------

     A summary of the status of the Company's stock option plan as of December
31, 1996 and 1997, as adjusted for the effect of a two-for-one stock split as
disclosed in Note 23, and the changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
 
                                    YEAR ENDED DECEMBER 31, 1996    YEAR ENDED DECEMBER 31, 1997
                                    -----------------------------  -----------------------------
                                                     WEIGHTED-                       WEIGHTED-
                                                      AVERAGE                         AVERAGE 
   FIXED                                             EXERCISE                        EXERCISE
  OPTIONS                               SHARES        PRICE          SHARES           PRICE
---------                            -------------  -----------    -------------  ---------------
<S>                                    <C>           <C>            <C>            <C>        
 
Outstanding at beginning of year             -0-      $    .00         144,000      $   6.25
Granted                                  144,000          6.25         132,000         10.07
Exercised                                    -0-           .00             -0-           .00
Forfeited                                    -0-           .00            (500)        10.07
                                        --------                     ---------
Outstanding at end of year               144,000          6.25         275,500          8.08
                                        ========                      ========
 
Exercisable at December 31                40,000          6.25         109,300          8.18
Weighted-average fair value
of options granted during  the year     $   1.92          2.09

</TABLE> 


The following table summarizes information about fixed stock options 
outstanding at December 31, 1997:
 
<TABLE> 
<CAPTION> 

                              OUTSTANDING OPTIONS                 EXERCISABLE OPTIONS
                    -----------------------------------------  -------------------------
WEIGHTED-
RANGE OF                             AVERAGE      WEIGHTED                   WEIGHTED-
OR ACTUAL               NUMBER      REMAINING      AVERAGE       NUMBER       AVERAGE
EXERCISE             OUTSTANDING   CONTRACTUAL    EXERCISE     EXERCISABLE    EXERCISE
  PRICES              AT 12/31/97      LIFE          PRICE     AT 12/31/97      PRICE
---------------     -------------  -------------  -----------  ------------  ----------
<S>                  <C>            <C>            <C>          <C>           <C> 
$  6.25                  144,000      8 Years      $   6.25        60,800       $ 6.25
  10.07                  131,500      9 Years         10.07        48,500       10.07
                         -------                                  --------
$ 6.25 to $10.07         275,500                                   109,300
                         =======                                  ========
</TABLE>

     If the Company had used the fair value based method of accounting for its
employee stock option plan, as prescribed by Statement of Financial Accounting
Standards No. 123, compensation cost in net income for the year ended December
31, 1997 would have increased by $133,545, resulting in net income of
$4,053,914, net of tax.  Basic earnings per share would have declined from $.73
to $.72 and diluted earnings per share would have declined from $.73 to $.72.

     If the Company had used the fair value based method of accounting for its
employee stock option plan for the year ended December 31, 1996, compensation
cost and net income would not have changed.

Note 12 - Directors Deferred Stock Purchase Plan
------------------------------------------------

          On April 18, 1994, the Company's shareholders approved the Directors
Deferred Stock Purchase Plan (the "Director Plan"), which provides that a
director of the Company or any subsidiary may elect to receive shares of common
stock of the Company in lieu of the cash compensation otherwise payable as
director's fees for services as a member of the Board of Directors or any
committee thereof.  The shares of common stock issuable to an electing director
shall be issued on January 15 following each fiscal year in a whole number
(rounded down) resulting from the amount of such director's fees (or a portion
thereof as determined by such director) for such previous fiscal year divided by
100% of the fair market value of the common stock as of January 1 of such
previous fiscal year.  The Director Plan covers 50,000 shares of common stock,
which may be authorized for issuance and delivery thereunder.  The Director Plan
shall remain in effect for five years (through January 15, 1999) or until
termination by the Board, whichever occurs first.  The Director Plan is
administered by the Board of Directors of the Company.  The Company has issued

                                      F-19
<PAGE>
 
Note 12 - Directors Deferred Stock Purchase Plan (Continued)
------------------------------------------------------------

6,692 and 7,634 shares of common stock under the Director Plan for the years
ended December 31, 1996 and 1997, respectively.

Note 13 - Income Taxes
----------------------

     Income tax expense is comprised of federal and state income taxes as
follows:
<TABLE>
<CAPTION>
 
                                               YEAR ENDED DECEMBER 31,
                                              -------------------------
                                                  1996         1997
                                              ------------  -----------
<S>                                           <C>           <C>
 Current expense                               $1,578,638    2,327,051
 Deferred (credit)                                 73,364     (104,564)
                                               ----------    ---------
                                               $1,652,002    2,222,487
                                               ==========    =========
 
</TABLE> 

Income tax at the statutory rate of 34% is reconciled to the Company's 
actual provision as follows:
 
YEAR ENDED DECEMBER 31,
------------------------
<TABLE> 
<CAPTION> 
                                                                1996         1997
                                                             ----------    ---------
<S>                                                           <C>           <C> 
 Tax at statutory rate                                       $1,700,189    2,164,651
 State income taxes                                             107,087      227,370
 Tax exempt interest and dividend exclusion                    (180,017)    (165,406)
 Amortization of goodwill                                        36,687       36,687
 Increase in cash value of life insurance policies              (20,914)     (27,038)
 Other                                                            8,970      (13,777)
                                                             ----------    ---------
 Actual income tax expense                                   $1,652,002    2,222,487
                                                             ==========    =========
</TABLE>

     Deferred tax liabilities have been provided for taxable temporary
differences related to accumulated depreciation, stock dividends and unrealized
gains on available-for-sale securities.  Deferred tax assets have been provided
for deductible temporary differences related to unrealized losses on available-
for-sale securities, the allowance for loan losses, deferred compensation and
purchase accounting adjustments.  The net deferred tax assets in the
accompanying balance sheets include the following components:
<TABLE>
<CAPTION>
 
                                          DECEMBER 31,
                                      --------------------
                                        1996       1997
                                      ---------  ---------
<S>                                   <C>        <C>
 
 Deferred tax assets:
   Allowance for loan losses           $797,452    924,166
   Purchase accounting adjustments       54,110     14,880
   Deferred compensation plan            63,918    103,999
   Other                                    -0-     22,828
                                       --------  ---------
                                        915,480  1,065,873
                                       --------  ---------
 Deferred tax liabilities:
   Bank premises and equipment and
     depreciation                       430,227    474,607
   Stock dividends                       77,065     77,057
   Unrealized gains on available-
     for-sale securities                 24,294     76,927
   Other                                 24,571     24,536
                                       --------  ---------
                                        556,157    653,127
                                       --------  ---------
 
Net deferred tax assets                $359,323    412,746
                                       ========  =========
</TABLE>

     No valuation allowance was established in view of the Company's tax
strategies coupled with anticipated future taxable income as evidenced by the
Company's earnings potential.

                                      F-20
<PAGE>
 
Note 13 - Income Taxes (Continued)
----------------------------------
 
     Through 1995, thrift institutions were allowed, for tax purposes, a special
deduction for bad debts based on a percentage of taxable income before such
deduction, subject to various limitations provided by the Internal Revenue Code.
The Company's thrift subsidiary had an allowable percentage of 8%.  Effective
January 1, 1996, only the experience method is allowable for computing the
provision for bad debts for tax purposes.  Additionally, any excess bad debt
deductions taken after December 31, 1987, must be recaptured over a six year
period.  The effect of changing the method of computing bad debts had no effect
upon the income tax provision of the Company's thrift subsidiary inasmuch as the
excess deductions had been subjected to the deferred income tax provision.

     For tax purposes, included in retained earnings of the Company's thrift
subsidiary (now converted to a commercial bank) at December 31, 1997, is
approximately $2,033,000 of accumulated bad debt deductions for which no
deferred income tax liability has been recorded.  This amount represents an
allocation of income to bad debt deductions for tax purposes only.  Reduction of
amounts so allocated for purposes other than tax bad debt losses or adjustments
arising from carry-back of net operating losses would give rise to income for
tax purposes only, which would be subject to income taxes at the then prevailing
corporate rate.

Note 14 - Dividend Reinvestment and Common Stock Purchase Plan
--------------------------------------------------------------

     On December 20, 1993, the Company's Board of Directors approved a dividend
reinvestment and common stock purchase plan.  The purpose of the plan is to
provide shareholders of record of the Company's common stock, who elect to
participate in the plan, with a simple and convenient means to reinvest
automatically cash dividends and make additional voluntary cash purchases of
shares of common stock without the expense of brokerage commissions or other
fees.  Eligible participants may purchase common stock through automatic
reinvestment of common stock dividends on all of their shares or not less than
50% of their shares and make additional voluntary cash payments of not less than
$50 nor more than $1,000, in the aggregate, for each calendar year.  The price
of common stock purchased with dividends will be 100% of the fair market value
of the stock.  The price of common stock purchased with voluntary cash payments
will be 100% of the fair market value of the stock.  Among amendments to the
plan effective January 1, 1998, is the elimination of the 50% minimum
participation level for dividend reinvestment.  During the year ended December
31, 1997, 15,840 shares were issued through the plan at an average of $20.25 per
share.  During the year ended December 31, 1996, 51,864 shares were issued
through the plan at an average of $14.01 per share.

Note 15 - Commitments, Contingencies and Financial Instruments With Off-Balance
-------------------------------------------------------------------------------
Sheet Risk
----------

     The consolidated financial statements do not reflect various commitments
and contingent liabilities which arise in the normal course of business and
which involve elements of credit risk, interest rate risk and liquidity risk.
These commitments and contingent liabilities are commitments to extend credit
and standby letters of credit.  A summary of the Banks' commitments and
contingent liabilities is as follows:
<TABLE>
<CAPTION>
 
                                                         NOTIONAL AMOUNT      
                                                     -----------------------  
                                                          DECEMBER 31,        
                                                     -----------------------  
                                                        1996         1997     
                                                     -----------  ----------  
<S>                                                  <C>          <C>         
                                                                              
  Commitments to extend credit                       $19,052,000  27,195,000  
  Standby letters of credit                            1,657,000   2,126,000   
</TABLE>

     Commitments to extend credit and standby letters of credit all include
exposure to some credit loss in the event of nonperformance by the customer.
The Banks' credit policies and procedures for credit commitments are the same as
those for extensions of credit that are reported in the financial statements.
Because these instruments have fixed maturity dates and because many of them
expire without being drawn upon, they do not generally present any significant
liquidity risk to the Banks.  The Banks' have not incurred any losses on their
commitments in either 1996 or 1997.

                                      F-21
<PAGE>
 
Note 15 - Commitments, Contingencies and Financial Instruments With Off-Balance
-------------------------------------------------------------------------------
Sheet Risk (Continued)
----------------------

     The nature of the business of the Company and the Banks is such that they
are ordinarily subjected to a certain amount of litigation.  In the opinion of
management and counsel, there is no litigation in which the outcome will have a
material effect on the financial statements.

Note 16 - Related Party Transactions
------------------------------------

     At December 31, 1996 and 1997, loans to all officers, directors and
employees and their associates aggregated approximately $8,331,479 and
$10,164,790, respectively.

Management believes that all of the above transactions were entered into in the
normal course of business on substantially the same terms and conditions,
including interest rates and collateral, as those prevailing at the same time
for comparable transactions with other customers and did not involve more than
normal credit risk or present other unfavorable features.

Note 17 - Regulatory Matters
----------------------------

     The primary source of funds available for the payment of cash dividends are
dividends received  by PAB Bankshares, Inc. from subsidiary Banks.  The Banks
are limited by banking regulations as to the amount of dividends that may be
paid without prior approval of the Banks' regulatory agency.  Retained earnings
of the Banks against which dividends may be charged is approximately $7,458,000
at December 31, 1997 and the amount of dividends which may be paid within one
year is approximately $2,340,000.

     The Banks are required to maintain average balances with the Federal
Reserve Bank.  The average amount of those reserve balances for the year ended
December 31, 1997 was approximately $1,306,000.

     The Company and the Banks are subject to various regulatory capital
requirements administered by the state and federal banking agencies.  Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's and the Banks' financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Banks must meet specific capital
guidelines that involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices.  The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.

     Quantitative measures established by regulation to ensure capital adequacy
require the maintenance of minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined).  Management believes, as of December 31, 1996 and 1997,
that the Company and the Banks meets all capital adequacy requirements to which
it is subject.


     The most recent notification from Banking regulators categorized the
Company and the Banks as well capitalized under the regulatory framework for
prompt corrective action.  To be categorized as well capitalized, the Company
and the Banks must maintain minimum total risk-based, Tier I risk-based, and
Tier I leverage ratios as set forth in the table.  There have been no conditions
or events since that notification that management believes have changed the
institution's category.

     The Company's actual capital amounts and ratios and the minimum amounts and
ratios under the capital adequacy and prompt corrective action provisions are
presented below:

                                      F-22
<PAGE>
 
Note 17 - Regulatory Matters (Continued)
----------------------------------------
<TABLE> 
<CAPTION> 

                                                                          TO BE WELL
                                                                       CAPITALIZED UNDER
                                                   FOR CAPITAL         PROMPT CORRECTIVE
                                      ACTUAL    ADEQUACY PURPOSES:     ACTION PROVISIONS:
                                --------------- ------------------   ---------------------
                                 AMOUNT   RATIO   AMOUNT     RATIO      AMOUNT    RATIO                 
                                -------  ------ ---------   ------   ---------   ---------
                                                 (Amounts in thousands)                                                      
<S>                             <C>      <C>     <C>        <C>        <C>        <C>                   
As of December 31, 1996:                                                                                
Total Capital                                                                                           
   (to Risk Weighted Assets)    $27,180  13.56%  16,034     $8.0%      20,043     $10.0%                
 Tier 1 Capital                                                                                         
   (to Risk Weighted Assets)     24,674  12.31%   8,017     $4.0%      12,026     $ 6.0%                
 Tier 1 Capital                                                                                         
   (to Average Assets)           24,674   8.55%  11,549     $4.0%      14,437     $ 5.0%                
                                                                                                        
As of December 31, 1997:                                                                                
 Total Capital                                                                                          
   (to Risk Weighted Assets)    $32,184  14.67%  17,552     $8.0%      21,940     $10.0%                
 Tier 1 Capital                                                                                         
   (to Risk Weighted Assets)     29,442  13.42%   8,776     $4.0%      13,164     $ 6.0%                
 Tier 1 Capital                                                                                         
   (to Average Assets)           29,442   9.40%  12,522     $4.0%      15,652     $ 5.0%                 
</TABLE>


Note 18 - Concentrations of Credit Risk
---------------------------------------

     In addition to the concentrations of credit risk disclosures in notes one
and five, the Company and its subsidiaries maintains its cash in bank deposit
accounts which usually exceed federally insured limits and sells federal funds
to correspondent banks on an unsecured basis.  The Company and its subsidiaries
has not experienced any losses in such accounts.  Management believes the
Company and its subsidiaries is not exposed to any significant credit risk on
cash and cash equivalents and federal funds sold.

Note 19 - Investment in Unconsolidated Subsidiary
-------------------------------------------------

     On August 14, 1985, the Board of Directors of the Company's subsidiary
(First Community Bank of Southwest Georgia) approved participation in the
formation of a new service corporation, Empire Financial Services, Inc.
("Empire") with its home office located in Milledgeville, Georgia.  The primary
purpose of the service corporation is the origination and servicing of
commercial real estate loans.  Since the formation of the service corporation,
First Community has participated in loans originated by Empire when deemed
appropriate by management.

     First Community owns 50% of the outstanding stock of Empire.  First
Community accounts for its investment in Empire under the equity method.  The
investment in Empire exceeded First Community's share of the underlying net
assets by $51,447 at December 31, 1997, and is being amortized on the straight-
line method over twenty-five years.

     Following is a summary of unaudited financial position at December 31, 1996
and 1997 and unaudited results of operations of Empire for the years ended
December 31, 1996 and 1997:

                                      F-23
<PAGE>
 
Note 19 - Investment in Unconsolidated Subsidiary (Continued)
-------------------------------------------------------------

<TABLE> 
<CAPTION> 
                                                     DECEMBER 31,
                                               ----------------------
                                                  1996        1997
                                               ----------  ----------
<S>                                            <C>         <C>
Current assets                                 $  217,270    438,363
Premises and equipment                            424,210    427,981
                                               ----------  ---------
 
 Total Assets                                  $  641,480    866,344
                                               ==========  =========
 
Current liabilities                            $  409,743    771,380
Stockholders' equity                              231,737     94,964
                                               ----------  ---------
 
 Total Liabilities and Stockholders' Equity    $  641,480    866,344
                                               ==========  =========
 
 
                                                     YEAR ENDED
                                                    DECEMBER 31,
                                               ---------------------
                                                  1996       1997
                                               ----------  ---------
Total revenue                                  $1,811,282  1,724,445
                                               ==========  =========
 
Net income                                     $  498,328    503,236
                                               ==========  =========
 
First Federal's proportionate share
 of net income                                 $  249,164    251,618
                                               ==========  =========
</TABLE>

                                      F-24
<PAGE>
 
Note 20 - Financial Information of PAB Bankshares, Inc. (Parent Only)
---------------------------------------------------------------------

     Condensed balance sheets of PAB Bankshares, Inc. as of December 31, 1996
and 1997 and related statements of income and cash flows for the years then
ended are as follows:
<TABLE>
<CAPTION>
 
                                 BALANCE SHEETS
                                ----------------
 
                                                              DECEMBER 31,
                                                        ------------------------
                       ASSETS                              1996         1997
                      --------                          -----------   ----------
<S>                                                     <C>           <C>
Cash on deposit with subsidiary banks                   $   452,559    1,985,605
Investment in:
 Park Avenue Bank                                        13,403,173   14,626,656
 Farmers & Merchants Bank                                 4,041,039    4,348,746
 First Community Bank of Southwest Georgia                9,272,166    9,074,811
Property, Plant and Equipment, net of accumulated
 depreciation                                               468,424      673,885
Land held for future development                            366,790          -0-
Land at site of former banking facility of
 subsidiary                                                 125,000          -0-
Other assets                                                457,562      658,944
                                                        -----------   ----------
 
   Total Assets                                         $28,586,713   31,368,647
                                                        ===========   ==========
 
            LIABILITIES AND STOCKHOLDERS' EQUITY
            ------------------------------------
 
Liabilities:
 Dividends payable                                      $   210,214      268,466
 Notes payable                                            1,200,000          -0-
 Other liabilities                                          109,986      368,340
                                                        -----------   ----------
                                                          1,520,200      636,806
                                                        -----------   ----------
Stockholders' Equity:
 Common stock                                             1,263,745    1,263,745
 Additional paid in capital                              15,609,717   15,934,580
 Retained earnings, net of unrealized gains (losses)
  on available-for-sale securities of
  subsidiaries                                           11,267,598   14,516,705
                                                        -----------   ----------
                                                         28,141,060   31,715,030
Less:  Treasury Stock, at cost                           (1,074,547)    (983,189)
                                                        -----------   ----------
                                                         27,066,513   30,731,841
                                                        -----------   ----------
 
   Total Liabilities and Stockholders' Equity           $28,586,713   31,368,647
                                                        ===========   ==========
</TABLE>

                                      F-25
<PAGE>
 
Note 20 - Financial Information of PAB Bankshares, Inc. (Parent Only)
---------------------------------------------------------------------
(Continued)
-----------
<TABLE>
<CAPTION>
 
           STATEMENTS OF INCOME
           --------------------
 
                                                YEAR ENDED DECEMBER 31,
                                                -----------------------
                                                   1996        1997
                                                ----------   ---------
<S>                                            <C>           <C>
Income:
 Equity in earnings of subsidiary banks:
  Park Avenue Bank                              $2,476,434   2,791,419
  Farmers & Merchants Bank                         549,467     654,480
  First Community Bank of Southwest Georgia        847,476   1,233,650
 Interest Income:
  Subsidiary banks                                  15,957      15,246
 Computer service income and management
  fees from subsidiary banks                       504,109   1,084,887
 Other income                                       49,601       3,831
                                                ----------   ---------
                                                 4,443,044   5,783,513
Expenses                                         1,400,972   1,965,770
                                                ----------   ---------
Income before taxes                              3,042,072   3,817,743
Income taxes (benefit)                            (306,482)   (326,390)
                                                ----------   ---------
 
Net Income                                      $3,348,554   4,144,133
                                                ==========   =========
</TABLE>

                                      F-26
<PAGE>
 
Note 20 - Financial Information of PAB Bankshares, Inc. (Parent Only)
---------------------------------------------------------------------
(Continued)
-----------
<TABLE>
<CAPTION>
 
                        STATEMENTS OF CASH FLOWS
                        ------------------------
 
                                                                          YEAR ENDED DECEMBER 31,
                                                                          ------------------------
                                                                             1996          1997
                                                                          -----------   ----------
<S>                                                                       <C>           <C>
Cash Flows From Operating Activities:
 Net income                                                               $ 3,348,554    4,144,133
 Adjustments to reconcile net income to net cash provided by operating
  activities:
  Depreciation and amortization                                               131,497      203,094
  Equity in earnings of subsidiary banks                                   (3,873,377)  (4,679,549)
  (Gains) Loss on sale of assets                                               (1,795)         -0-
  Dividends received from subsidiaries:
   Park Avenue Bank                                                           850,000    2,170,812
   Farmers & Merchants Banks                                                  179,838      370,167
   First Community Bank of Southwest Georgia                                  379,586    1,391,123
  Deferred income taxes                                                         8,001       18,772
 Change in assets and liabilities                                             (14,139)     136,487
                                                                          -----------   ----------
 
 Net cash provided (used) by operating
  activities                                                                1,008,165    3,755,039
                                                                          -----------   ----------
 
Cash Flows From Investing Activities:
 Proceeds from sale of assets                                                  68,901          -0-
 Capital expenditures                                                        (259,694)    (405,678)
 (Increase) Decrease in cash value of life insurance                           (1,573)      (6,938)
                                                                          -----------   ----------
 
 Net cash provided (used) by investing
  activities                                                                 (192,366)    (412,616)
                                                                          -----------   ----------
 
Cash Flows From Financing Activities:
 Dividends paid                                                              (212,602)    (660,109)
 Repayment of notes payable                                                (1,500,000)  (1,200,000)
 Proceeds from issuance of stock                                              732,896       50,732
 Acquisition of treasury stock                                                (30,925)         -0-
                                                                          -----------   ----------
 
 Net cash provided (used) by financing activities                          (1,010,631)  (1,809,377)
                                                                          -----------   ----------
 
Net Increase (Decrease) in Cash                                              (194,832)   1,533,046
 
Cash and Cash Equivalents at Beginning of Period                              647,391      452,559
                                                                          -----------   ----------
 
Cash and Cash Equivalents at End of Period                                $   452,559    1,985,605
                                                                          ===========   ==========
 
Supplemental Disclosures of Cash Flow Information
-------------------------------------------------
Cash paid during the period for:
 Interest                                                                 $   161,657       76,688
                                                                          ===========   ==========
 Income taxes (received)                                                     (219,952)    (319,875)
                                                                          ===========   ==========
</TABLE>

                                      F-27
<PAGE>
 
Note 21 - Fair Values of Financial Instruments
----------------------------------------------

The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
 
                                                  DECEMBER 31, 1996         DECEMBER 31, 1997
                                              -------------------------  ------------------------
                                                CARRYING       FAIR       CARRYING       FAIR
                                                 AMOUNT        VALUE        VALUE        VALUE
                                              ------------  -----------  -----------  -----------
<S>                                           <C>           <C>          <C>          <C>
                                   
Financial assets:                  
 Cash and cash equivalents                    $ 28,162,256   28,162,256   33,201,483   33,201,483
 Time deposits                                     595,000      595,000    3,198,000    3,198,000
 Investment securities                          56,783,089   56,783,089   52,622,166   52,622,166
 Loans, net of allowance for       
   loan losses                                 195,856,247  193,605,247  221,997,963  221,109,963
 Accrued interest receivable                     3,175,569    3,175,569    3,667,040    3,667,040
                                   
Financial liabilities:             
 Deposits                                      249,673,924  251,538,924  267,255,216  269,981,216
 Notes payable                                   1,200,000    1,200,000          -0-          -0-
 Advances from Federal Home        
   Loan Bank                                    17,096,499   17,096,499   28,168,166   28,168,166
 Accrued interest payable                          725,549      725,549      698,291      698,291
 
The carrying amounts in the preceding table are included in the balance sheet
 under the applicable captions.
 
                                                NOTIONAL       FAIR       NOTIONAL       FAIR
                                                 AMOUNT        VALUE       AMOUNT        VALUE
                                              ------------  -----------  -----------  -----------
                                   
Other:                             
 Commitments to extend credit                 $ 19,052,000   19,052,000   27,195,000   27,195,000
 Standby letters of credit                       1,657,000    1,657,000    2,126,000    2,126,000
</TABLE>

                                      F-28
<PAGE>
 
Note 22 - Quarterly Results of Operations (Unaudited)
-----------------------------------------------------

     The following is a summary of the quarterly results of operations for the
two years ended December 31, 1997:
<TABLE>
<CAPTION>
                                                         QUARTERLY PERIOD ENDED
                                            ------------------------------------------------
                                            MARCH 31   JUNE 30   SEPTEMBER 30   DECEMBER 31
                                            ---------  --------  -------------  ------------
                                                 (In Thousands, Except Per Share Data)
<S>                                         <C>        <C>       <C>            <C>
Year Ended December 31, 1996:
 Interest income                             $ 5,313     5,494          5,682         5,744
 Interest expense                             (2,721)   (2,695)        (2,795)       (2,873)
                                             -------    ------         ------        ------
 Net interest income                           2,592     2,799          2,887         2,871
 Provision for loan losses                       (76)      (77)          (176)          (76)
                                             -------    ------         ------        ------
 Net interest income after provision for
   loan losses                                 2,516     2,722          2,711         2,795
 Other income                                    583       593            745           646
   Special SAIF assessment                       -0-       -0-           (385)          -0-
   Other expenses                             (1,922)   (1,915)        (1,959)       (2,170)
                                             -------    ------         ------        ------
   Income before income taxes                  1,177     1,400          1,112         1,271
   Income taxes                                 (396)     (470)          (398)         (347)
                                             -------    ------         ------        ------
   Net income                                $   781       930            714           924
                                             =======    ======         ======        ======
   Basic earnings per share                  $   .14       .17            .13           .17
                                             =======    ======         ======        ======
   Diluted earnings per share                $   .14       .16            .13           .17
                                             =======    ======         ======        ======
 
Year Ended December 31, 1997:
 Interest income                             $ 5,858     6,088          6,362         6,572
 Interest expense                             (2,791)   (2,866)        (2,996)       (3,144)
                                             -------    ------         ------        ------
 Net interest income                           3,067     3,222          3,366         3,428
 Provision for loan losses                       (97)      (97)          (184)         (155)
                                             -------    ------         ------        ------
 Net interest income after provision for
   loan losses                                 2,970     3,125          3,182         3,273
 Other income                                    643       756            664           777
 Other expenses                               (2,082)   (2,165)        (2,298)       (2,479)
                                             -------    ------         ------        ------
 Income before income taxes                    1,531     1,716          1,548         1,571
 Income taxes                                   (513)     (579)          (572)         (558)
                                             -------    ------         ------        ------
 Net income                                  $ 1,018     1,137            976         1,013
                                             =======    ======         ======        ======
 Basic earnings per share                    $   .18       .19            .18           .18
                                             =======    ======         ======        ======
 Diluted earnings per share                  $   .18       .19            .18           .18
                                             =======    ======         ======        ======
</TABLE>
Note 23 - Subsequent Events
---------------------------

     The Company has announced its plans to acquire Investors Financial
Corporation (Parent Company of Bainbridge National Bank) and has a signed merger
agreement.  The anticipated effective date is prior to May 31, 1998. The
transaction is to be consummated by the issuance of 855,057 (1,710,114 as
adjusted for two-for-one stock split) shares of Company common stock in exchange
for the outstanding common stock and options of Investors Financial Corporation.
It is anticipated that the merger will qualify as a "pooling of interest" for
financial reporting purposes.  Regulatory and stockholder approvals will be
required.

      On February 10, 1998, the Company announced plans to effect a two-for-
one stock split on March 10, 1998 to shareholders of record February 17, 1998.
Per share information has been adjusted to reflect the stock split for all
periods presented.

                                      F-29
<PAGE>
 
                                 SIGNATURES



     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized. 


Date: April 20, 1998

                                      PAB BANKSHARES, INC.


                         By: /s/ R. Bradford Burnette
                            ------------------------------------------
                             R. Bradford Burnette, President and Chief
                             Executive Officer