**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-K**





**Annual
      Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of
      1934**





**For
      the Fiscal Year Ended December 31, 2006**





Commission
      File Number 000-25422












**PAB
      BANKSHARES, INC.**


(A
      Georgia Corporation)


IRS
      Employer Identification Number: 58-1473302





**3250
      North Valdosta Road, Valdosta, Georgia 31602**


**Telephone
      Number: (229) 241-2775**





SECURITIES
      REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:





Title
                of each class
            
            Name
                of exchange on which registeredCommon
                Stock, no par value
            
            The
                NASDAQ Stock Market LLC(NASDAQ
                Global Select Market)





SECURITIES
      REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:


None





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Exchange Act. Yes  ̈ No x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or 15(d) of the Exchange Act. Yes  ̈ No x





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No  ̈





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein and will not be contained, to the best
      of
      the registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K.  ̈





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.


Large
      accelerated filer  ̈
      Accelerated filer x  Non-accelerated
      filer  ̈





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes
 ̈
      No x





The
      aggregate market value of voting common stock held by non-affiliates on June
      30,
      2006 was approximately $130.7 million (based on shares held by non-affiliates
      at
      $18.50 per share, the closing stock price on the NASDAQ Stock Market on
      June 30, 2006).





As
      of
      February 28, 2007 (the latest practicable date), the registrant had 9,520,364
      shares of common stock outstanding.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





Portions
      of the registrant’s Proxy Statement for the 2007 Annual Meeting of Shareholders
      to be held on May 22, 2007 are incorporated by reference in answer to Part
      III
      of this Form 10-K.










**TABLE
      OF CONTENTS**




**Item**
                  
                  
                  **Page**Cautionary
                      Notice Regarding Forward-Looking Statements
                  3**PART
                      I**1.
                  BUSINESSGeneral
                  3Supervision
                      and Regulation
                  81A.
                  RISK
                      FACTORS
                  131B.
                  UNRESOLVED
                      STAFF COMMENTS
                  172.
                  PROPERTIES
                  173.
                  LEGAL
                      PROCEEDINGS
                  174.
                  SUBMISSION
                      OF MATTERS TO A VOTE OF SECURITY
                      HOLDERS
                  17**PART
                      II**5.
                  MARKET
                      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
                      MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
                  186.
                  SELECTED
                      FINANCIAL DATA
                  207.
                  MANAGEMENT’S
                      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                      RESULTS OF OPERATIONSOverview
                      of Key Financial, Strategic and Performance Factors
                  21Statistical
                      Disclosures
                  23Liquidity
                      and Capital Resources
                  33Results
                      of Operations
                  367A.
                  QUANTITATIVE
                      AND QUALITATIVE DISCLOSURES ABOUT MARKET
                      RISK
                  408.
                  FINANCIAL
                      STATEMENTS AND SUPPLEMENTARY DATAQuarterly
                      Financial Summary for 2006 and 2005
                  42Management’s
                      Report On Internal Control Over Financial Reporting
                  43Auditor’s
                      Attestation Report
                  44Reports
                      of Independent Public Accountants
                  46Consolidated
                      Balance Sheets at December 31, 2006 and 2005
                  48Consolidated
                      Statements of Income for the Three Years Ended December 31,
                      2006
                  49Consolidated
                      Statements of Comprehensive Income for the Three Years Ended
                      December 31,
                      2006
                  50Consolidated
                      Statements of Stockholders' Equity for the Three Years Ended
                      December 31,
                      2006
                  51Consolidated
                      Statements of Cash Flows for the Three Years Ended December
                      31,
                      2006
                  52Notes
                      to Consolidated Financial Statements
                  549.
                  CHANGES
                      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                      FINANCIAL DISCLOSURE
                  809A.
                  CONTROLS
                      AND PROCEDURES
                  809B.
                  OTHER
                      INFORMATION
                  80**PART
                      III**10.
                  DIRECTORS
                      AND EXECUTIVE OFFICERS AND CORPORATE
                      GOVERNANCE
                  8011.
                  EXECUTIVE
                      COMPENSATION
                  8012.
                  SECURITY
                      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                      AND RELATED STOCKHOLDER MATTERS
                  8113.
                  CERTAIN
                      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                      INDEPENDENCE
                  8114.
                  PRINCIPAL
                      ACCOUNTANT FEES AND SERVICES
                  81**PART
                      IV**15.
                  EXHIBITS
                      AND FINANCIAL STATEMENT SCHEDULES
                  82**SIGNATURES**
                  84


2
 *Table
          of Contents*


**CAUTIONARY
      NOTICE REGARDING FORWARD-LOOKING STATEMENTS**





Certain
      statements set forth in this Report or incorporated herein by reference,
      including, without limitation, matters discussed under the caption
“*Management's Discussion and Analysis of Financial Condition and Results
      of
      Operation*” are “forward-looking statements” within the meaning of the
      federal securities laws, including, without limitation, statements regarding
      our
      outlook on earnings, stock performance, asset quality, economic conditions,
      real
      estate markets and projected growth, and are based upon management’s beliefs as
      well as assumptions made based on data currently available to
      management.  In this Report, the terms “PAB”, “the Company”, “we”,
“us”, or “our” refer to PAB Bankshares, Inc.  When words like
“anticipate”, “believe”, “intend”, “plan”, “may”, “continue”, “project”,
“would”, “expect”, “estimate”, “could”, “should”, “will”, and similar
      expressions are used, you should consider them as identifying forward-looking
      statements.  These forward-looking statements are not guarantees of
      future performance, and a variety of factors could cause our actual results
      to
      differ materially from the anticipated or expected results expressed in these
      forward-looking statements.  Many of these factors are beyond our
      ability to control or predict, and readers are cautioned not to put undue
      reliance on such forward-looking statements.  The following list,
      which is not intended to be an all-encompassing list of risks and uncertainties
      affecting us, summarizes several factors that could cause our actual results
      to
      differ materially from those anticipated or expected in these forward-looking
      statements: (1) competitive pressures among depository and other financial
      institutions may increase significantly; (2) changes in the interest rate
      environment may reduce margins or the volumes or values of loans made by us;
      (3)
      general economic conditions (both generally and in our markets) may be less
      favorable than expected, resulting in, among other things, a deterioration
      in
      credit quality and/or a reduction in demand for credit; (4) legislative or
      regulatory changes, including changes in accounting standards and compliance
      requirements, may adversely affect the businesses in which we are engaged;
      (5)
      competitors may have greater financial resources and develop products that
      enable such competitors to compete more successfully than we can; (6) our
      ability to attract and retain key personnel can be affected by the increased
      competition for experienced employees in the banking industry; (7) adverse
      changes may occur in the bond and equity markets; (8) war or terrorist
      activities may cause further deterioration in the economy or cause instability
      in credit markets; (9) restrictions or conditions imposed by our regulators
      on
      our operations may make it more difficult for us to achieve our goals; (10)
      economic, governmental or other factors may prevent the projected population
      and
      commercial growth in the markets in which we operate; and (11) the risk factors
      discussed from time to time in the Company’s Periodic Reports filed with the
      Securities and Exchange Commission (the “SEC”), including but not limited to,
      this Annual Report on Form 10-K.  We undertake no obligation to, and
      we do not intend to, update or revise these statements following the date of
      this filing, whether as a result of new information, future events or otherwise,
      except as may be required by law.





**PART
      I**





**ITEM
                1.**
            **BUSINESS**





**General**





PAB
      Bankshares, Inc. is a bank holding company headquartered in Valdosta, Lowndes
      County, Georgia.  PAB was organized and incorporated in 1982 under the
      laws of the State of Georgia as the holding company for The Park Avenue Bank
      (the “Bank”).  Since our incorporation in 1982, we have acquired five
      other Georgia financial institutions and one Florida financial institution,
      and
      subsequently merged those institutions into the Bank.  The Bank was
      founded in Valdosta in 1956, and it became a state-chartered commercial bank
      in
      1971.  In 2001, the Bank became a state member bank of the Federal
      Reserve System.  Currently, the Bank operates 13 branches located in
      seven counties in South Georgia; five branches and three loan production offices
      located in six counties in North Georgia; and two branches and one loan
      production office located in three counties in Florida.  Additional
      information on each of the markets that we serve is provided below under the
      caption “*Markets and Competition*”.





*Our
      Founder*


As
      we
      reflect on the Bank’s accomplishments, we want to take a moment and honor the
      lasting legacy of our founder, Mr. James L. Dewar, Sr. who passed away during
      2006.  In 1956, using his personal savings, Mr. Dewar and his wife,
      Dorothy, opened a private bank in a small office on the corner of Park Avenue
      and North Ashley Street in Valdosta.  With both having been teachers
      and he also having served as the Superintendent of Schools for Lowndes County,
      Mr. Dewar’s bank initially catered to the financial needs of teachers and
      educational administrators in the community.


3
 *Table
          of Contents*


Even
      after Mr. Dewar launched his second career in banking, he continued to support
      education in South Georgia through the generous giving of his talents and
      financial resources.  From 1967 to 1973, Mr. Dewar served on the State
      Board of Education.  From 1979 to 1994, Mr. Dewar served on the
      Valdosta State University (“VSU”) Foundation Board of Trustees.  Over
      the years, the Dewars established endowments to fund two scholarships at VSU
      to
      assist students in pursuing their education degrees, and through the Bank,
      the
      Dewars established a third scholarship at VSU for business
      students.  In 1998, VSU honored Mr. Dewar by awarding him an honorary
      Doctorate of Laws degree.  Also in 1998, the Lowndes County Board of
      Education honored Mr. Dewar by naming a new elementary school in his
      honor.  In 2005, the Dewars, along with their son, James L. Dewar,
      Jr., and the Bank pledged an endowment to provide financial support for the
      VSU
      College of Education in its mission of training teachers and educational
      administrators.  In 2006, VSU and the Board of Regents of the
      University System of Georgia announced that the VSU College of Education will
      be
      named the “James L. and Dorothy H. Dewar College of Education” as a lasting
      tribute to the Dewars for their dedication to teaching, teacher education
      programs, and service to educational organizations at the state and local
      levels.





As
      we
      reflect with pride on the accomplishments of Mr. and Mrs. Dewar, we are reminded
      of his vision for the Bank, “I want Park Avenue Bank to be known as a bank that
      cares about people.”  It is this foundation of service to others that
      has propelled us from those humble beginnings in 1956 to the $1.1 billion,
      publicly-traded, multi-state financial institution of today.





*The
      Bank*


The
      Bank
      offers traditional banking products and services to commercial and individual
      customers in our markets.  Our product line includes, among other
      things, loans to small- and medium-sized businesses, residential and commercial
      construction and development loans, commercial real estate loans, farmland
      and
      agricultural production loans, residential mortgage loans, home equity loans,
      consumer loans, and a variety of commercial and consumer demand, savings and
      time deposit products.  We also offer internet banking, on-line cash
      management, electronic bill payment services, safe deposit box rentals,
      telephone banking, credit and debit card services, remote depository products
      and the availability of a network of ATMs to our customers.  In
      addition, through an agreement with a third-party broker-dealer and investment
      advisory firm, we are able to offer securities brokerage and investment advisory
      services to our customers.





*Markets
      and Competition*


The
      financial services industry is highly competitive.  In our markets, we
      face competitive pressures from both larger regional banks and smaller community
      banks and thrifts in attracting and retaining commercial and consumer
      accounts.  The competitive environment is amplified in some of our
      smaller markets as there are more financial service providers competing for
      fewer customers.  The principal factors in competing for such accounts
      include interest rates, fee structures, the range of products and services
      offered, convenience of office and ATM locations, and flexible office
      hours.  Other competition for such accounts comes from credit unions,
      retail brokerage firms, mortgage companies, and consumer finance
      offices.  Other investment alternatives such as stocks and mutual
      funds made readily accessible by the internet have also had an effect on our
      ability to grow deposits in our markets.





When
      it
      comes to competing with the larger financial institutions in our markets, we
      believe that our people make the difference.  Our experience and
      strong community relationships in our markets allow us to deliver a higher
      level
      of customer service to the small- and medium-sized commercial businesses and
      to
      individual consumers.  Being smaller and less bureaucratic than our
      regional and national competitors allows us to provide a more timely response
      and greater flexibility in serving the needs of our customers.  At the
      same time, our success has allowed us to invest in systems and support to
      provide a product line that gives us a competitive edge over many of the smaller
      financial institutions in our markets.





A
      brief
      description on the characteristics of our markets and our history in those
      markets is provided below.


4
 *Table
          of Contents*


South
      Georgia


The
      Bank
      has a proud tradition of community banking in South Georgia spanning decades,
      and we have developed a large market share in many of these
      communities.  As previously mentioned, we have been in Valdosta since
      1956, but our roots run deeper in some of the financial institutions we acquired
      in other South Georgia communities.  We have been in Adel (Cook
      County) since 1948, and we have been in both Bainbridge (Decatur County) and
      Baxley (Appling County) since 1934.  We are also located in Statesboro
      (Bulloch County), Hazlehurst (Jeff Davis County) and Cairo (Grady
      County).  Collectively, we refer to these seven communities as our
“South Georgia” market in this Report.  In 2001, we began
      consolidating the separate charters of our banks into one charter, The Park
      Avenue Bank.  The charter consolidation was completed in April 2002,
      and all of our banking offices now operate under the “PAB”
logo.  Overall, we have a 2.55% market share1 of the total
      deposits in the state’s southern tier2.  Our branch network
      in South Georgia has allowed us to deliver retail banking services in these
      communities more effectively.  Therefore, our primary focus in South
      Georgia is on providing traditional community banking products and services
      to
      consumers, businesses, and municipalities.  The timber and farming
      industries and agricultural-related businesses are vital to the local economies
      in each of our South Georgia markets.





**Valdosta**
      and **Adel**are located off Interstate 75 in the middle of South
      Georgia.  Valdosta is the county seat of Lowndes County and is 18
      miles north of the Florida state line.  The Valdosta Metropolitan
      Statistical Area (“MSA”) is comprised of Lowndes, Brooks, Berrien, and Echols
      Counties.  Adel is in Cook County and is 21 miles north of
      Valdosta.  We have 72 employees, five branches, and seven ATM’s
      serving our customers in these communities.  The Company’s
      administrative and operational facilities and 106 additional employees are
      also
      located in Valdosta.  Prior to its merger with the Bank in 2001, the
      Adel office operated under a separate bank charter called Farmers and Merchants
      Bank.  Moody Air Force Base, Valdosta State University, and several
      transportation and distribution facilities of regional and national firms are
      some of the major economic factors to the area.





**Bainbridge**
      and **Cairo** are 82 and 58 miles, respectively, west of Valdosta
      along U.S. Highway 84 in the southwest corner of the state in the heart of
      Georgia’s “Plantation Trace”, a region dotted with historic antebellum-era
      plantations and farms.  Also, both communities are within 42 miles of
      the Tallahassee, Florida MSA.  We have 35 employees, four branches,
      and five ATM’s serving our customers in these communities.  Prior to
      their merger with the Bank in 2002, the Bainbridge and Cairo offices were part
      of the First Community Bank of Southwest Georgia charter, with the Cairo office
      using the trade name Bank of Grady County.  First Community Bank of
      Southwest Georgia was formed in 1998 from the merger of First Federal Savings
      Bank and Bainbridge National Bank.





**Statesboro**,
      161 miles northeast of Valdosta, sits at the intersection of U.S. Highway 80
      and
      U.S. Highway 301, off of Interstate 16, in Southeast
      Georgia.  Statesboro is also 53 miles west of the Savannah
      MSA.  We have 20 employees, two branches, and three ATM’s in this
      community.  Prior to its merger with the Bank in 2002, the Statesboro
      offices had operated under the Eagle Bank and Trust charter.  Georgia
      Southern University is located in Statesboro.





**Baxley**and **Hazlehurst** are both approximately 90 miles
      northeast of Valdosta.  The two communities are located 16 miles apart
      along U.S. Highway 341 in Southeast Georgia.  We have 19 employees,
      two branches, and two ATM’s serving our customers in these
      communities.  Prior to its merger with the Bank in 2002, the Baxley
      and Hazlehurst offices operated under the Baxley Federal Savings Bank thrift
      charter.  The Georgia Power Company’s Edwin I. Hatch Nuclear Power
      Plant located in Appling County is one of the area’s largest
      employers.





North
      Georgia


During
      the fourth quarter of 2000, we adopted an expansion strategy to enter into
      higher growth metropolitan markets that would complement our South Georgia
      market.  This expansion began with the opening of an office in
      McDonough (Henry County) in October 2000.  In October 2001, we opened
      an office in Oakwood (Hall County).  Both the McDonough and Oakwood
      offices initially began as loan production offices and were subsequently
      developed into full service branches.  In October 2003, we opened a
      loan production office in Athens (Clarke County).  This Athens loan
      production office was converted into our full service branch in Oconee County
      in
      October 2006.  In July 2004, we expanded our presence in Henry County
      with the opening of a branch office in Stockbridge.  In April 2005, we
      opened a loan production office in Cobb County, and in December 2005, we opened
      a loan production office in Snellville (Gwinnett County).  In February
      2007, we opened a branch in Snellville and a loan production office in Cumming
      (Forsyth County).  Our offices in Henry, Hall, Oconee, Cobb, Gwinnett
      and Forsyth counties are also referred to collectively as our “North Georgia”
market in this Report.  Due to our relative newness and the lack of a
      large retail branch network, we do not have a significant retail presence or
      deposit market share in the North Georgia market.  Thus far, we have
      primarily catered to residential and commercial builders and developers and
      small- to medium-sized commercial operations in the North Georgia
      market.




_______________________________________
 1
        Based on the
        FDIC/OTS Summary of Deposits report as of June 30, 2006.
 2
        Regions 9-12 (58
        counties) as defined by the Georgia Department of Community
        Affairs.




5
 *Table
          of Contents*


**McDonough**
      and **Stockbridge** are located along Interstate 75 in Henry
      County.  Henry County is the southern-most county of the Atlanta
      MSA.  McDonough is 30 miles south of Downtown Atlanta.  We
      have 24 employees, two branches, and three ATM’s serving our customers in these
      communities.  Our McDonough office opened in 2000 and our Stockbridge
      location opened in 2004.  Henry County has consistently been ranked
      among the fastest growing counties in the nation over the past several
      years.  We have been actively involved in financing several
      residential and commercial construction and development projects in Henry and
      surrounding counties, as we have also worked to increase our retail presence
      in
      the county.





**Oakwood**
      is 8 miles south of Gainesville along Interstate 985 in Hall
      County.  Oakwood is 50 miles northeast of Downtown Atlanta and 12
      miles north of the Mall of Georgia retail shopping complex in Gwinnett
      County.  Oakwood is part of the Gainesville MSA.  We have
      nine employees, one branch, and one ATM serving our customers in this
      community.  The poultry industry has been a significant economic
      factor for the region over the past several decades.  As the Atlanta
      MSA continues its urban sprawl, Hall County has experienced significant growth
      in recent years.  Our primary focus in Hall County has been in
      commercial lending.





**Athens**
      is 70 miles east of Downtown Atlanta.  The consolidated city/county
      government of Athens-Clarke County and neighboring Oconee County comprise the
      Athens-Clarke County MSA.  The University of Georgia is located in
      Athens and is the single largest economic factor in the Athens-Clarke County
      MSA.  Prior to October 2006, we had one loan production office in this
      area.  In October 2006, we closed the loan production office and
      opened a newly constructed full service branch in Oconee County.  We
      now have eight employees and one ATM serving our customers in this community
      through this branch.





Our
      **Cobb County** office is 12 miles northwest of Downtown
      Atlanta.  We opened a commercial loan production office near Vinings
      just inside the Interstate 285 loop around the City of Atlanta in April
      2005.  We have three employees in this office and focus on commercial
      loan production.





**Snellville**is 25 miles northeast of Downtown Atlanta along U.S. Highway 78 in
      Gwinnett County.  We acquired an office condominium and opened a
      commercial loan production office in December 2005.  In September
      2006, we entered into a ten-year agreement to lease office space for a
      full-service branch within this area.  The branch was completed and
      opened in February 2007.  With the addition of this full service
      branch, we now have seven employees, two offices and one ATM serving our
      customers in this community.





**Cumming**is located 40 miles northeast of Downtown Atlanta along Georgia Highway
      400 in Forsyth County.  We opened a loan production office in February
      2007 with three employees.  Our primary focus will be commercial loan
      production from this office.




Florida


In
      December 2000, we acquired Friendship Community Bank in Ocala (Marion
      County).  The acquired bank was merged into the Bank in
      2001.  In September 2003, we opened a loan production office in St.
      Augustine (St. Johns County).  In 2006, we entered into a five year
      agreement to lease space in the Jacksonville (Duval County) market for a full
      service branch.  This branch opened in December 2006.  Our
      offices in Ocala, Jacksonville and St. Augustine are collectively referred
      to as
      our “Florida” market.





Our
      **Ocala** office is near several retirement communities and has
      served primarily as a deposit gathering facility for the Bank.  Ocala
      is located in Central Florida, 130 miles south of Valdosta along Interstate
      75.  We have 12 employees, one branch, and one ATM serving our
      customers in this community.  Ocala is known for its equestrian
      training facilities and retirement communities due to its mild year-round
      climate.





**Jacksonville**
      is located on the northeastern coast of Florida.  We have five
      employees and one branch serving our customers in this
      community.  With over $23.2 billion in deposits3, Duval
      County is
      the largest deposit market in which we have a deposit branch.





Our
      **St. Augustine** loan production office serves as the base for a
      lender who calls on commercial customers along Interstate 95 between
      Jacksonville (40 miles to the North) and Palm Coast (25 miles to the
      South).  We primarily originate and service the financing of our
      construction and development loans in and around these coastal communities
      from
      this office.






3Based
        on the
        FDIC/OTS Summary of Deposits report as of June 30, 2006.




6
 *Table
          of Contents*


The
      table
      below provides basic information and summary demographic data on each of our
      markets.




**Market/**
                County
              
              #
                  of
                Offices
              
              
              Total
                Loans4
              
              
              Total
                Deposits4
              
              
              Market
                Share
                  (%)5
              
              
              Population6
              
              
              Population
                Growth
                  (%)7
              
              
              Employment
                Growth
                  (%)8
              
              
              Unemployment
                Rate
                  (%)9**South
                  Georgia**Lowndes
              
              
              4
              
              
              $
              205,802
              
              
              $
              262,932
              
              
              
              17.4
              
              
              
              96,705
              
              
              
              5.0
              
              
              
              3.3
              
              
              
              4.1Cook
              
              
              1
              
              
              
              10,580
              
              
              
              44,339
              
              
              
              23.5
              
              
              
              16,366
              
              
              
              3.8
              
              
              
              2.8
              
              
              
              5.3Decatur
              
              
              3
              
              
              
              41,585
              
              
              
              114,040
              
              
              
              29.7
              
              
              
              28,618
              
              
              
              1.3
              
              
              
              2.4
              
              
              
              5.6Grady
              
              
              1
              
              
              
              13,717
              
              
              
              19,048
              
              
              
              7.6
              
              
              
              24,466
              
              
              
              3.4
              
              
              
              3.2
              
              
              
              4.5Appling
              
              
              1
              
              
              
              22,146
              
              
              
              38,482
              
              
              
              15.7
              
              
              
              17,954
              
              
              
              3.1
              
              
              
              2.6
              
              
              
              5.6Jeff
                  Davis
              
              
              1
              
              
              
              8,125
              
              
              
              45,220
              
              
              
              27.4
              
              
              
              13,083
              
              
              
              3.2
              
              
              
              2.2
              
              
              
              6.4Bulloch
              
              
              2
              
              
              
              41,889
              
              
              
              67,621
              
              
              
              6.9
              
              
              
              61,454
              
              
              
              9.8
              
              
              
              1.9
              
              
              
              4.113
              
              
              $
              343,844
              
              
              $
              591,682**North
                  Georgia**Henry
              
              
              2
              
              
              $
              227,085
              
              
              $
              84,287
              
              
              
              4.9
              
              
              
              167,848
              
              
              
              40.7
              
              
              
              3.4
              
              
              
              4.1Hall
              
              
              1
              
              
              
              92,816
              
              
              
              34,478
              
              
              
              1.4
              
              
              
              165,771
              
              
              
              19.0
              
              
              
              3.1
              
              
              
              3.8Oconee
              
              
              1
              
              
              
              49,511
              
              
              
              3,252
              
              
              
              -
              
              
              
              29,748
              
              
              
              13.4
              
              
              
              3.4
              
              
              
              2.9Cobb
              
              
              1
              
              
              
              9,289
              
              
              
              1,401
              
              
              
              -
              
              
              
              663,818
              
              
              
              9.2
              
              
              
              3.4
              
              
              
              4.2Gwinnett
              
              
              2
              
              
              
              21,915
              
              
              
              8,489
              
              
              
              -
              
              
              
              726,273
              
              
              
              23.4
              
              
              
              3.4
              
              
              
              4.0Forsyth
              
              
              1
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              140,393
              
              
              
              42.7
              
              
              
              3.4
              
              
              
              2.88
              
              
              $
              400,616
              
              
              $
              131,907**Florida**Marion
              
              
              1
              
              
              $
              15,161
              
              
              $
              136,316
              
              
              
              2.8
              
              
              
              303,442
              
              
              
              17.2
              
              
              
              4.0
              
              
              
              3.4Duval
              
              
              1
              
              
              
              5,166
              
              
              
              2,554
              
              
              
              -
              
              
              
              826,436
              
              
              
              6.1
              
              
              
              4.1
              
              
              
              3.9St.
                  Johns
              
              
              1
              
              
              
              46,317
              
              
              
              325
              
              
              
              -
              
              
              
              161,525
              
              
              
              31.2
              
              
              
              4.1
              
              
              
              2.73
              
              
              $
              66,644
              
              
              $
              139,195





*Employees*


On
      December 31, 2006, we had a total of 311 full-time and 19 part-time
      employees.  We consider our relationship with our employees to be
      excellent.  We offer a competitive compensation and benefits package
      to our employees.





*Availability
      of Information*


More
      information on the Company is available on our internet website at
*www.pabbankshares.com* and on the Bank at
*www.parkavebank.com*.  We are not incorporating by
      reference into this Report the information contained on our websites and,
      therefore, the content of our websites is not a part of this
      Report.  Copies of this Report and other reports filed or furnished
      pursuant to Section 13(a) or 15(d) of the Exchange Act, including exhibits,
      are
      available free of charge on our website under the “Investor Relations” link as
      soon as reasonably practicable after they have been filed or furnished
      electronically to the Securities and Exchange Commission (the
“SEC”).  Copies of these filings may also be obtained free of charge
      on the SEC’s website at *www.sec.gov*.







4
            Dollar
                amounts are presented in thousands as of December 31,
                2006.  Amounts exclude $9.2 million in loans and $45.7 million
                in deposits assigned to the “Treasury” that are not allocated to any
                particular market (i.e. participation loans, employee and director
                accounts, brokered deposits, official checks,
                etc.).


5
            Based
                on the FDIC/OTS Summary of Deposits report as of June 30,
                2006.


6
            Estimated
                2005 population provided by the U.S. Census
                Bureau.


7
            Estimated
                percentage population change from 2000 to 2005 provided by the U.S.
                Census
                Bureau.


8
            Total
                employment growth (not seasonally adjusted) for the Third Quarter
                2006
                Year-To-Date percentage change from the prior year’s Year-To-Date data
                provided by the Bureau of Labor Statistics Household
                Survey.


9
            Unemployment
                rate (not seasonally adjusted) for the Third Quarter 2006 provided
                by the
                Bureau of Labor Statistics.


7
 *Table
          of Contents*





**Supervision
      and Regulation**





The
      banking industry is heavily regulated at both the federal and state
      levels.  Legislation and regulations authorized by legislation
      influence, among other things:





·
            How,
                when and where we may expand
                geographically;


·
            Into
                what product or service market we may
                enter;


·
            How
                we must manage our assets; and


·
            Under
                what circumstances money may or must flow between the parent bank
                holding
                company and the subsidiary bank.





Set
      forth
      below is an explanation of the major pieces of legislation affecting our
      industry and how that legislation affects our actions.





*General*


PAB
      is a
      bank holding company registered with the Board of Governors of the Federal
      Reserve System (the “Federal Reserve”) and the Georgia Department of Banking and
      Finance (the “Georgia Department”) under the Bank Holding Company Act of 1956,
      as amended (the “BHC Act”) and the Financial Institutions Code of Georgia,
      respectively.





The
      Bank
      is a member of the Federal Deposit Insurance Corporation (“FDIC”), and as such,
      our deposits are insured by the FDIC to the maximum extent provided by
      law.  The Bank is also a state member bank of the Federal Reserve and
      it is subject to regulation, supervision, and examination by the Federal Reserve
      and the Georgia Department.  These regulatory agencies regularly
      examine our operations and are given authority to approve or disapprove mergers,
      consolidations, the establishment of branches, and similar corporate
      actions.  The agencies also have the power to prevent the continuance
      or development of unsafe or unsound banking practices or other violations of
      law.





*Acquisitions*


The
      BHC
      Act requires every bank holding company to obtain the prior approval of the
      Federal Reserve before:  (i) it may acquire direct or indirect
      ownership or control of any voting shares of any bank if, after such
      acquisition, the bank holding company will directly or indirectly own or control
      more than 5% of the voting shares of the bank; (ii) it or any of its
      subsidiaries, other than a bank, may acquire all or substantially all of the
      assets of any bank; or (iii) it may merge or consolidate with any other
      bank holding company.





The
      BHC
      Act further provides that the Federal Reserve may not approve any transaction
      that would result in a monopoly or would be in furtherance of any combination
      or
      conspiracy to monopolize or attempt to monopolize the business of banking in
      any
      section of the United States, or the effect of which may be substantially to
      lessen competition or to tend to create a monopoly in any section of the
      country, or that in any other manner would be in restraint of trade, unless
      the
      anticompetitive effects of the proposed transaction are clearly outweighed
      by
      the public interest in meeting the convenience and needs of the communities
      to
      be served.  The Federal Reserve is also required to consider the
      financial and managerial resources and future prospects of the bank holding
      companies and banks involved and the convenience and needs of the communities
      to
      be served.  Consideration of financial resources generally focuses on
      capital adequacy, and consideration of convenience and needs issues generally
      focuses on the parties' performance under the Community Reinvestment Act of
      1977.





Under
      the
      Riegle-Neal Interstate Banking and Branching Efficiency Act, the restrictions
      on
      interstate acquisitions of banks by bank holding companies were
      repealed.  As a result, PAB, and any other bank holding company
      located in Georgia, is able to acquire a bank located in any other state, and
      a
      bank holding company located outside of Georgia can acquire any Georgia-based
      bank, in either case subject to certain deposit percentage and other
      restrictions.  The legislation provides that unless an individual
      state has elected to prohibit out-of-state banks from operating interstate
      branches within its territory, adequately capitalized and managed bank holding
      companies are able to consolidate their multistate banking operations into
      a
      single bank subsidiary and to branch interstate through
      acquisitions.  De novo branching by an out-of-state bank is permitted
      only if it is expressly permitted by the laws of the host
      state.  Georgia does not permit de novo branching by an out-of-state
      bank.  Therefore, the only method by which an out-of-state bank or
      bank holding company may enter Georgia is through an
      acquisition.  Georgia has adopted an interstate banking statute that
      removes the existing restrictions on the ability of banks to branch interstate
      through mergers, consolidations and acquisitions.  However, Georgia
      law prohibits a bank holding company from acquiring control of a financial
      institution until the target financial institution has been incorporated for
      three years.


8
 *Table
          of Contents*


*Activities*


The
      BHC
      Act has generally prohibited a bank holding company from engaging in activities
      other than banking or managing or controlling banks or other permissible
      subsidiaries and from acquiring or retaining direct or indirect control of
      any
      company engaged in any activities other than those determined by the Federal
      Reserve to be closely related to banking or managing or controlling banks as
      to
      be a proper incident thereto.  Provisions of the Gramm-Leach-Bliley
      Act (the “GLB Act”), discussed below, have expanded the permissible activities
      of a bank holding company that qualifies as a financial holding
      company.  In determining whether a particular activity is permissible,
      the Federal Reserve must consider whether the performance of such an activity
      can be reasonably expected to produce benefits to the public, such as a greater
      convenience, increased competition, or gains in efficiency, that outweigh
      possible adverse effects such as undue concentration of resources, decreased
      or
      unfair competition, conflicts of interest, or unsound banking
      practices.





*Gramm-Leach-Bliley
      Act*


The
      GLB
      Act implemented major changes to the statutory framework for providing banking
      and other financial services in the United States.  The GLB Act, among
      other things, eliminated many of the restrictions on affiliations among banks
      and securities firms, insurance firms, and other financial service
      providers.  A bank holding company that qualifies as a financial
      holding company will be permitted to engage in activities that are financial
      in
      nature or incidental or complimentary to a financial activity.  The
      GLB Act specifies certain activities that are deemed to be financial in nature,
      including underwriting and selling insurance, providing financial and investment
      advisory services, underwriting, dealing in, or making a market in securities,
      limited merchant banking activities, and any activity currently permitted for
      bank holding companies under Section 4(c)(8) of the BHC Act.





To
      become
      eligible for these expanded activities, a bank holding company must qualify
      as a
      financial holding company.  To qualify as a financial holding company,
      each insured depository institution controlled by the bank holding company
      must
      be well-capitalized, well-managed, and have at least a satisfactory rating
      under
      the Community Reinvestment Act.  In addition, the bank holding company
      must file a declaration with the Federal Reserve of its intention to become
      a
      financial holding company.





The
      GLB
      Act designates the Federal Reserve as the overall umbrella supervisor of the
      new
      financial services holding companies.  The GLB Act adopts a system of
      functional regulation where the primary regulator is determined by the nature
      of
      activity rather than the type of institution.  Under this principle,
      securities activities are regulated by the SEC and other securities regulators,
      insurance activities by the state insurance authorities, and banking activities
      by the appropriate banking regulator.  As a result, to the extent that
      we engage in non-banking activities permitted under the GLB Act, we will be
      subject to the regulatory authority of the SEC or state insurance authority,
      as
      applicable.





*Payment
      of Dividends*


PAB
      is a
      legal entity separate and distinct from its subsidiaries.  Its
      principal source of cash flow is dividends from its subsidiary
      bank.  There are statutory and regulatory limitations on the payment
      of dividends by its operating subsidiary, the Bank, to PAB, as well as by PAB
      to
      its stockholders.





If,
      in
      the opinion of the federal banking agencies, a depository institution under
      its
      jurisdiction is engaged in or is about to engage in an unsafe or unsound
      practice (which, depending on the financial condition of the depository
      institution, could include the payment of dividends), such authority may
      require, after notice and hearing, that such institution cease and desist from
      such practice.  The federal banking agencies have indicated that
      paying dividends that deplete a depository institution's capital base to an
      inadequate level would be an unsafe and unsound banking
      practice.  Under the Federal Deposit Insurance Corporation Improvement
      Act of 1991 (“FDICIA”), a depository institution may not pay any dividend if
      payment would cause it to become undercapitalized or if it already is
      undercapitalized.  See *“Prompt Corrective
      Action”.*  Moreover, the federal agencies have issued policy
      statements that provide that bank holding companies and insured banks should
      generally pay dividends only out of current operating earnings.





During
      2006, PAB paid a total of $.54 per share in dividends to its
      stockholders.  At December 31, 2006, the Bank could declare
      approximately $7.44 million in dividends to PAB without further regulatory
      approval.





*Capital
      Adequacy*


We
      are
      required to comply with the capital adequacy standards established by the
      federal banking agencies.  There are two basic measures of capital
      adequacy for bank holding companies that have been promulgated by the Federal
      Reserve: a risk-based measure and a leverage measure.  All applicable
      capital standards must be satisfied for a bank holding company to be considered
      in compliance.


9
 *Table
          of Contents*


The
      risk-based capital standards are designed to make regulatory capital
      requirements more sensitive to differences in risk profiles among banks and
      bank
      holding companies, to account for off-balance-sheet exposure, and to minimize
      disincentives for holding liquid assets.  Assets and off-balance-sheet
      items are assigned to broad risk categories, each with appropriate
      weights.  The resulting capital ratios represent capital as a
      percentage of total risk-weighted assets and off-balance-sheet
      items.





The
      minimum guideline for the ratio of Total Capital to risk-weighted assets
      (including certain off-balance-sheet items, such as standby letters of credit)
      is 8.0%.  Total Capital consists of Tier 1 Capital, which is comprised
      of common stock, undivided profits, minority interests in the equity accounts
      of
      consolidated subsidiaries and non-cumulative perpetual preferred stock, less
      goodwill and certain other intangible assets, and Tier 2 Capital, which consists
      of subordinated debt, other preferred stock, and a limited amount of loan loss
      reserves.  At December 31, 2006, our consolidated Total Capital
      Ratio and our Tier 1 Capital Ratio were 12.32% and 11.08%,
      respectively.





In
      addition, the Federal Reserve has established minimum leverage ratio guidelines
      for bank holding companies.  These guidelines provide for a minimum
      ratio (the “Leverage Ratio”) of Tier 1 Capital to average assets, less goodwill
      and certain other intangible assets, of 3.0% for bank holding companies that
      meet certain specified criteria, including those having the highest regulatory
      rating.  All other bank holding companies generally are required to
      maintain a Leverage Ratio of at least 3.0%, plus an additional cushion of 100
      to
      200 basis points.  Our Leverage Ratio at December 31, 2006 was
      9.06%.  The guidelines also provide that bank holding companies
      experiencing internal growth or making acquisitions will be expected to maintain
      strong capital positions substantially above the minimum supervisory levels
      without significant reliance on intangible assets.  Furthermore, the
      Federal Reserve has indicated that it will consider a “tangible Tier 1 Capital
      Leverage Ratio” (deducting all intangibles) and other indicators of capital
      strength in evaluating proposals for expansion or new activities.





The
      Bank
      is subject to risk-based and leverage capital requirements adopted by its
      federal banking regulators, which are substantially similar to those adopted
      by
      the Federal Reserve for bank holding companies.





Failure
      to meet capital guidelines could subject a bank or bank holding company to
      a
      variety of enforcement remedies, including issuance of a capital directive,
      the
      termination of deposit insurance by the FDIC, a prohibition on the taking of
      brokered deposits, and certain other restrictions on its business.  As
      described below, substantial additional restrictions can be imposed upon
      FDIC-insured depository institutions that fail to meet applicable capital
      requirements.  See *“Prompt Corrective Action”.*





The
      federal bank agencies continue to indicate their desire to raise capital
      requirements applicable to banking organizations beyond their current
      levels.  In this regard, the Federal Reserve and the FDIC have,
      pursuant to FDICIA, recently adopted final regulations requiring regulators
      to
      consider interest rate risk (when the interest rate sensitivity of an
      institution's assets does not match the sensitivity of its liabilities or its
      off-balance-sheet position) in the evaluation of a bank's capital
      adequacy.  The bank regulatory agencies have concurrently proposed a
      methodology for evaluating interest rate risk that would require banks with
      excessive interest rate risk exposure to hold additional amounts of capital
      against such exposures.





*Support
      of Subsidiary Institutions*


Under
      Federal Reserve policy, we are expected to act as a source of financial strength
      for, and to commit resources to support, the Bank.  This support may
      be required at times when, absent such Federal Reserve policy, we may not be
      inclined to provide such support.  In addition, any capital loans by a
      bank holding company to any of its banking subsidiaries are subordinate in
      right
      of payment to deposits and to certain other indebtedness of such subsidiary
      banks.  In the event of a bank holding company's bankruptcy, any
      commitment by a bank holding company to a federal bank regulatory agency to
      maintain the capital of a banking subsidiary will be assumed by the bankruptcy
      trustee and entitled to a priority of payment.





*Prompt
      Corrective Action*


FDICIA
      established a system of prompt corrective action to resolve the problems of
      undercapitalized institutions.  Under this system, the federal banking
      regulators have established five capital categories (well capitalized,
      adequately capitalized, undercapitalized, significantly undercapitalized and
      critically undercapitalized), and are required to take certain mandatory
      supervisory actions, and are authorized to take other discretionary actions,
      with respect to institutions in the three undercapitalized
      categories.  The severity of the action will depend upon the capital
      category in which the institution is placed.  Generally, subject to a
      narrow exception, the banking regulator must appoint a receiver or conservator
      for an institution that is critically undercapitalized.  The federal
      banking agencies have specified by regulation the relevant capital level for
      each category.


10
 *Table
          of Contents*


An
      institution that is categorized as undercapitalized, significantly
      undercapitalized, or critically undercapitalized is required to submit an
      acceptable capital restoration plan to its appropriate federal banking
      agency.  A bank holding company must guarantee that a subsidiary
      depository institution meets its capital restoration plan, subject to certain
      limitations.  The controlling holding company's obligation to fund a
      capital restoration plan is limited to the lesser of 5.0% of an undercapitalized
      subsidiary's assets or the amount required to meet regulatory capital
      requirements.  An undercapitalized institution is also generally
      prohibited from increasing its average total assets, making acquisitions,
      establishing any branches or engaging in any new line of business, except under
      an accepted capital restoration plan or with FDIC approval.  In
      addition, the appropriate federal banking agency may treat an undercapitalized
      institution in the same manner as it treats a significantly undercapitalized
      institution if it determines that those actions are necessary.





At
      December 31, 2006, the Bank had the requisite capital level to qualify as
“well capitalized” under the regulatory framework for prompt corrective
      action.





*FDIC
      Insurance Assessments*


The
      FDIC
      establishes rates for the payment of premiums by federally insured banks and
      thrifts for deposit insurance.  Member institutions pay deposit
      insurance assessments to the Deposit Insurance Fund, or the
“DIF.”  The FDIC previously maintained the Savings Association
      Insurance Fund and the Bank Insurance Fund, which primarily insured the deposits
      of banks and state chartered savings banks.  These two funds were
      merged into the DIF effective March 31, 2006.





The
      FDIC
      recently amended its risk-based assessment system for 2007 to implement
      authority that the FDIC was granted under the Federal Deposit Insurance Reform
      Act of 2005, or the “Reform Act.”  Under the revised system, insured
      institutions are assigned to one of four risk categories based on supervisory
      evaluations, regulatory capital levels and other factors.  The new
      regulation allows the FDIC to more closely tie each financial institution’s
      deposit insurance premiums to the risk it poses to the DIF. The assessment
      rate
      of an institution depends upon the category to which it is
      assigned.  Risk Category I, which contains the least risky depository
      institutions, is expected to include more than 90 percent of all
      institutions.  Risk Category I, unlike the other risk categories,
      contains further risk differentiation based on the FDIC’s analysis of financial
      ratios, examination components and other information.  The new
      assessment rates for nearly all financial institutions (Risk Category I) are
      expected to vary between five and seven basis points, or five to seven cents
      for
      every $100 of domestic deposits.  The riskiest institutions (Risk
      Category IV) may be assessed up to 43 basis points.  The FDIC may
      adjust rates uniformly from one quarter to the next, except that no single
      adjustment can exceed three basis points.





In
      addition to the assessments for deposit insurance, institutions are required
      to
      make payments on bonds which were issued in the late 1980s by the Financing
      Corporation in order to recapitalize the predecessor to the Savings Association
      Insurance Fund.  During 2006, Financing Corporation payments for
      Savings Association Insurance Fund members approximated 1.28 basis points of
      assessable deposits. These assessments, which are adjusted quarterly, will
      continue until the Financing Corporation bonds mature in 2017.





The
      FDIC
      may terminate its insurance of deposits if it finds that the institution has
      engaged in unsafe and unsound practices, is in an unsafe or unsound condition
      to
      continue operations or has violated any applicable law, regulation, rule, order
      or condition imposed by the FDIC.


11
 *Table
          of Contents*


*Safety
      and Soundness Standards*


The
      Federal Deposit Insurance Act, as amended by the FDICIA and the Riegle Community
      Development and Regulatory Improvement Act of 1994, requires the federal bank
      regulatory agencies to prescribe standards, by regulations or guidelines,
      relating to internal controls, information systems and internal audit systems,
      loan documentation, credit underwriting, interest rate risk exposure, asset
      growth, asset quality, earnings, stock valuation and compensation, fees and
      benefits, and such other operational and managerial standards as the agencies
      deem appropriate.  The federal bank regulatory agencies have adopted a
      set of guidelines prescribing safety and soundness standards pursuant to FDICIA,
      as amended.  The guidelines establish general standards relating to
      internal controls and information systems, internal audit systems, loan
      documentation, credit underwriting, interest rate exposure, asset growth and
      compensation and fees and benefits.  In general, the guidelines
      require, among other things, appropriate systems and practices to identify
      and
      manage the risks and exposures specified in the guidelines.  The
      guidelines prohibit excessive compensation as an unsafe and unsound practice
      and
      describe compensation as excessive when the amounts paid are unreasonable or
      disproportionate to the services performed by an executive officer, employee,
      director, or principal shareholder.  In addition, the agencies adopted
      regulations that authorize, but do not require, an agency to order an
      institution that has been given notice by an agency that it is not satisfying
      any of such safety and soundness standards to submit a compliance
      plan.  If, after being so notified, an institution fails to submit an
      acceptable compliance plan or fails in any material respect to implement an
      acceptable compliance plan, the agency must issue an order directing action
      to
      correct the deficiency and may issue an order directing other actions of the
      types to which an undercapitalized institution is subject under the “prompt
      corrective action” provisions of FDICIA.  See *“Prompt Corrective
      Action”.*  If an institution fails to comply with such an order,
      the agency may seek to enforce such order in judicial proceedings and to impose
      civil money penalties.  The federal regulatory agencies also proposed
      guidelines for asset quality and earnings standards.





*Community
      Reinvestment Act*


Under
      the
      Community Reinvestment Act (“CRA”) the Bank, as an FDIC insured institution, has
      a continuing and affirmative obligation to help meet the credit needs of the
      entire community, including low- and moderate-income neighborhoods, consistent
      with safe and sound banking practices. The CRA requires the appropriate federal
      regulator, in connection with its examination of an insured institution, to
      assess the institution's record of meeting the credit needs of its community
      and
      to take such record into account in its evaluation of certain applications,
      such
      as applications for a merger or the establishment of a branch.  An
      unsatisfactory rating may be used as the basis for the denial of an application
      by the federal banking regulator.  The Bank received satisfactory
      ratings in its most recent CRA examinations.





*Restrictions
      on Transactions with Affiliates*


PAB
      and
      the Bank are subject to the provisions of Section 23A of the Federal Reserve
      Act.  Section 23A places limits on: the amount of a bank’s loans or
      extensions of credit to affiliates; a bank’s investment in affiliates; assets a
      bank may purchase from affiliates, except for real and personal property
      exemption by the Federal Reserve; the amount of loans or extensions of credit
      to
      third parties collateralized by the securities or obligations of affiliates;
      and
      a bank’s guarantee, acceptance or letter of credit issued on behalf of an
      affiliate.





The
      total
      amount of the above transactions is limited in amount, as to any one affiliate,
      to 10.0% of a bank’s capital and surplus and, as to all affiliates combined, to
      20.0% of a bank’s capital and surplus.  In addition to the limitation
      on the amount of these transactions, each of the above transactions must also
      meet specified collateral requirements.  The Bank must also comply
      with other provisions designed to avoid the taking of low-quality
      assets.





PAB
      and
      the Bank are also subject to the provisions of Section 23B of the Federal
      Reserve Act which, among other things, prohibit an institution from engaging
      in
      the above transactions with affiliates unless the transactions are on terms
      substantially the same, or at least as favorable to the institution or its
      subsidiaries, as those prevailing at the time for comparable transactions with
      nonaffiliated companies.





The
      Bank
      is also subject to restrictions on extensions of credit to its executive
      officers, directors, principal shareholders and their related
      interests.  These extensions of credit must be made on substantially
      the same terms, including interest rates and collateral, as those prevailing
      at
      the time for comparable transactions with third parties, and must not involve
      more than the normal risk of repayment or present other unfavorable
      features.


12
 *Table
            of Contents*
  *Privacy*
 The
        GLB
        Act also modified laws related to financial privacy.  The new
        financial privacy provisions generally prohibit a financial institution from
        disclosing nonpublic personal financial information about consumers to third
        parties unless consumers have the opportunity to “opt out” of the
        disclosure.  A financial institution is also required to provide its
        privacy policy annually to its customers.  Compliance with the
        implementing regulations was mandatory effective July 1, 2001.  The
        Bank implemented the required financial privacy provisions by July 1,
        2001.


*Effect
      of Governmental Monetary Policies*


The
      earnings of the Bank are affected by domestic and foreign conditions,
      particularly by the monetary and fiscal policies of the United States government
      and its agencies.  The Federal Reserve has had, and will continue to
      have, an important impact on the operating results of commercial banks through
      its power to implement monetary policy in order, among other things, to mitigate
      recessionary and inflationary pressures by regulating the national money
      supply.  The techniques used by the Federal Reserve include setting
      the reserve requirements of member banks and establishing the discount rate
      on
      member bank borrowings.  The Federal Reserve also conducts open market
      transactions in United States government securities.





*USA
      Patriot Act of 2001*


In
      October 2001, the USA Patriot Act of 2001 (the “Patriot Act”) was enacted in
      response to the terrorist attacks in New York, Pennsylvania, and Washington,
      D.C. that occurred on September 11, 2001.  The Patriot Act impacts
      financial institutions in particular through its anti-money laundering and
      financial transparency laws.  The Patriot Act amended the Bank Secrecy
      Act and the rules and regulations of the Office of Foreign Assets Control to
      establish regulations which, among others, set standards for identifying
      customers who open an account and promoting cooperation with law enforcement
      agencies and regulators in order to effectively identify parties that may be
      associated with, or involved in, terrorist activities or money
      laundering.





On
      March
      2, 2006, Congress passed the USA Patriot Act Improvement and Reauthorization
      Act
      of 2005.  This act reauthorized all provisions of the Patriot Act that
      would otherwise have expired, made 14 of the 16 sunsetting provisions permanent,
      and extended the sunset period of the remaining two for an additional four
      years.





*Proposed
      Legislation and Regulatory Action*


New
      regulations and statutes are regularly proposed that contain certain
      wide-ranging proposals for altering the structures, regulations, and competitive
      relationships of the nation’s financial institutions.  We cannot
      predict whether or in what form any proposed regulation or statute will be
      adopted or the extent to which our business may be affected by any new
      regulation or statute.








**ITEM
                1A.**
            **RISK
                FACTORS**





Our
      business is subject to certain risks, including those described
      below.  The risks below do not describe all risks applicable to our
      business and are intended only as a summary of certain material factors that
      affect our operations in our industry and markets. New
      risks
      may emerge at any time, and we cannot predict such risks or estimate the extent
      to which they may affect our financial performance in which we
      operate.  More detailed information concerning these and other risks
      is contained in other sections of this Annual Report on Form 10-K, including
      “Business” and “Management’s Discussion and Analysis of Financial Condition and
      Results of Operations.”





*We
      face strong competition from other financial services
      providers.*


We
      operate in a highly competitive market for the products and services we offer.
      The competition among financial services providers to attract and retain
      customers is strong. Customer loyalty can be easily influenced by a competitor’s
      new products, especially offerings that could provide cost savings or a higher
      return to the customer. Some of our competitors may be better able to provide
      a
      wider range of products and services over a greater geographic
      area.  We compete with commercial banks, credit unions, savings and
      loan associations, mortgage banking firms, consumer finance companies,
      securities brokerage firms, insurance companies, money market funds, and other
      mutual funds, as well as other super-regional, national and international
      financial institutions that operate offices in our market areas and
      elsewhere.  Moreover, this highly competitive industry could become
      even more competitive as a result of legislative, regulatory and technological
      changes and continued consolidation. Many of our competitors have fewer
      regulatory constraints and some have lower cost structures.  While we
      believe we can and do successfully compete with these other financial
      institutions in our market areas, we may face a competitive disadvantage as
      a
      result of our smaller size, lack of geographic diversification and inability
      to
      spread our marketing costs across a broader market.


13
 *Table
          of Contents*


*Our
      business is subject to the success of the economic conditions of the United
      States and the markets in which we operate.*


The
      success of our business and earnings is affected by general business and
      economic conditions in the United States and our market areas, particularly
      the
      Georgia counties of Lowndes, Cook, Decatur, Appling, Bulloch, Jeff Davis, Grady,
      Henry, Hall, Oconee, Cobb, Gwinnett and Forsyth and the Florida counties of
      Duval, Marion, and St. Johns. If the communities in which we operate do not
      grow
      as anticipated or if prevailing economic conditions locally or nationally are
      unfavorable, our business may be negatively impacted.  An economic
      downturn, an increase in unemployment, or other events that affect household
      and/or corporate incomes either nationally or locally could decrease the demand
      for loans and our other products and services and increase the number of
      customers who fail to pay interest or principal on their
      loans.  Moreover, we cannot give any assurance that we will benefit
      from any market growth or favorable economic conditions in our market areas
      if
      they do occur.





In
      addition, the market value of the real estate securing loans as collateral
      could
      be adversely affected by unfavorable changes in market and economic conditions.
      As of December 31, 2006, approximately 89% of our total loans were secured
      by
      real estate. Any sustained period of increased payment delinquencies,
      foreclosures or losses caused by adverse market or economic conditions in our
      market areas could adversely affect the value of our assets, our revenues,
      results of operations and financial condition.





*Our
      recent operating results may not be indicative of our future operating
      results.*


We
      may
      not be able to sustain our historical rate of growth or may not even be able
      to
      grow our business at all.  In the future, we may not have the benefit
      of a favorable interest rate environment or a strong real estate market. Various
      factors, such as economic conditions, regulatory and legislative considerations
      and competition, may also impede or prohibit our ability to expand our market
      presence. If we experience a significant decrease in our historical rate of
      growth, our results of operations and financial condition may be adversely
      affected due to a high percentage of our operating costs being fixed
      expenses.





*Risks
      associated with unpredictable economic and political conditions may be amplified
      as a result of our limited market areas.*


Conditions
      such as inflation, recession, unemployment, high interest rates, short money
      supply, scarce natural resources, international disorders, terrorism and other
      factors beyond our control may adversely affect our profitability. Because
      the
      majority of our borrowers are individuals and businesses located and doing
      business in the Georgia counties of Lowndes, Cook, Decatur, Appling, Bulloch,
      Jeff Davis, Grady, Henry, Hall, Oconee, Cobb, Gwinnett and Forsyth and the
      Florida counties of Duval, Marion and St. Johns, our success will depend
      significantly upon the economic conditions in those and the surrounding
      counties. Due to our limited market areas, these negative conditions may have
      a
      more noticeable effect on us than would be experienced by a larger institution
      more able to spread these risks of unfavorable local economic conditions across
      a large number of diversified economies.





*If
      our allowance for loan losses is not sufficient to cover actual loan losses,
      or
      if credit delinquencies increase, our earnings could decrease.*


Like
      other financial institutions, we face the risk that our customers will not
      repay
      their loans, that the collateral securing the payment of those loans may be
      insufficient to assure repayment, and that we may be unsuccessful in recovering
      the remaining loan balances. Management makes various assumptions and judgments
      about the collectibility of our loan portfolio, including the creditworthiness
      of our borrowers and the value of the real estate and other assets serving
      as
      collateral for the repayment of many of our loans. Based in part on those
      assumptions and judgments, we maintain an allowance for loan losses in an
      attempt to cover any loan losses which may occur. In determining the size of
      the
      allowance, we also rely on an analysis of our loan portfolio based on historical
      loss experience, volume and types of loans, trends in classification,
      delinquencies and non-accruals, national and local economic conditions and
      other
      pertinent information.  However, those established loan loss reserves
      may prove insufficient.  If we are unable to raise revenue to
      compensate for these losses, such losses could have a material adverse effect
      on
      our operating results.





In
      addition, federal and state regulators periodically review our allowance for
      loan losses and may require us to increase our allowance for loan losses or
      recognize further loan charge-offs, based on judgments different than those
      of
      our management. Higher charge-off rates and an increase in our allowance for
      loan losses may hurt our overall financial performance and may increase our
      cost
      of funds.


14
 *Table
          of Contents*


*Departures
      of our key personnel may harm our ability to operate
      successfully.*


Our
      success has been and continues to be largely dependent upon the services of
      our
      senior management team, including our senior loan officers, and our board of
      directors, many of whom have significant relationships with our customers.
      Our
      continued success will depend, to a significant extent, on the continued service
      of these key personnel. The prolonged unavailability or the unexpected loss
      of
      any of them could have an adverse effect on our financial condition and results
      of operations. We cannot be assured of the continued service of our senior
      management team or our board of directors with us.





*We
      may face risks with respect to the future expansion of our
      business.*


As
      we
      expand our business in the future into new and emerging markets, we may also
      consider and enter into new lines of business or offer new products or
      services.  Such expansion involves risks, including:





·
            entry
                into new markets where we lack
                experience;


·
            the
                introduction of new products or services into our business with which
                we
                lack experience;


·
            the
                time and cost associated with identifying and evaluating potential
                markets, products and services, hiring experienced local management
                and
                opening new offices;


·
            potential
                time lags between preparatory activities and the generation of sufficient
                assets and deposits to support the costs of expansion;
                and


·
            the
                estimates and judgments used to evaluate market risks with respect
                to new
                markets, products and services may not be
                accurate.







*Future
      growth may require us to raise additional capital, but that capital may not
      be
      available when it is needed.*


We
      are
      required by federal and state regulatory authorities to maintain adequate levels
      of capital to support our operations. We anticipate that our capital resources
      will continue to satisfy our capital requirements for the foreseeable future.
      We
      may at some point, however, need to raise additional capital to support our
      continued growth.





Our
      ability to raise additional capital, if needed, will depend on conditions in
      the
      capital markets at that time and on our financial performance. Accordingly,
      we
      cannot ensure our ability to raise additional capital if needed on favorable
      terms. If we cannot raise additional capital when needed, our ability to expand
      our operations through internal growth and acquisitions could be materially
      impaired.





*We
      are subject to extensive regulation that could limit or restrict our activities
      and adversely affect our earnings.*


We
      operate in a highly regulated industry and are subject to examination,
      supervision, and comprehensive regulation by various federal and state agencies.
      Our compliance with these regulations is costly and restricts certain of our
      activities, including payment of dividends, mergers and acquisitions,
      investments, loans and interest rates charged, interest rates paid on deposits
      and locations of offices. Many of these regulations are intended to protect
      depositors, the public and the FDIC rather than shareholders.  The
      laws and regulations applicable to the banking industry could change at any
      time, and we cannot predict the effects of these changes on our business and
      profitability. In addition, the Sarbanes-Oxley Act of 2002, and the related
      rules and regulations promulgated by the SEC and NASDAQ, that are now applicable
      to us, have increased the scope, complexity and cost of corporate governance,
      reporting and disclosure practices, including the costs of completing our audit
      and maintaining our internal controls.





*The
      monetary policies and laws of the United States, including interest rate
      policies of the Federal Reserve Board, could affect our
      earnings.*


The
      Board
      of Governors of the Federal Reserve System regulates the supply of money and
      credit in the United States. Its policies determine in large part our cost
      of
      funds for lending and investing and our return on those loans and investments,
      both of which affect our net interest margin. They can also materially affect
      the value of financial instruments we hold.  Changes in interest rates
      by the Federal Reserve may affect our level of interest income and interest
      expense.  In a period of rising interest rates, our interest expense
      could increase in different amounts and at different rates while the interest
      that we earn on our assets may not change in the same amounts or at the same
      rates. Accordingly, increases in interest rates could decrease our net interest
      income.  In addition, an increase in interest rates may decrease the
      demand for consumer and commercial credit, including real estate loans, which
      are a major component of our loan portfolio.


15
 *Table
          of Contents*


Changes
      in the level of interest rates also may negatively affect our ability to
      originate real estate loans, the value of our assets and our ability to realize
      gains from the sale of our assets, all of which ultimately affect our earnings.
      A decline in the market value of our assets may limit our ability to borrow
      additional funds or result in our lenders requiring additional collateral from
      us under our loan agreements. As a result, we could be required to sell some
      of
      our loans and investments under adverse market conditions, upon terms that
      are
      not favorable to us, in order to maintain our liquidity. If those sales are
      made
      at prices lower than the amortized costs of the investments, we will incur
      losses. Changes in Federal Reserve Board policies and laws are beyond our
      control and hard to predict.





*Fluctuations
      in our expenses and other costs may hurt our financial
      results.*


Our
      expenses and other costs, such as operating and marketing expenses, directly
      affect our earnings results. In light of the extremely competitive environment
      in which we operate, and because the size and scale of many of our competitors
      provides them with increased operational efficiencies, we must successfully
      manage such expenses. As our business develops, changes or expands, additional
      expenses can arise.





*We
      must respond to rapid technological changes and these changes may be more
      difficult or expensive than anticipated.*


If
      our
      competitors introduce new products and services embodying new technologies,
      or
      if new industry standards and practices emerge, our existing product and service
      offerings, technology and systems may become obsolete. Further, if we fail
      to
      adopt or develop new technologies or to adapt our products and services to
      emerging industry standards, we may lose current and future customers, which
      could have a material adverse effect on our business, financial condition and
      results of operations. The financial services industry is changing rapidly
      and
      in order to remain competitive, we must continue to enhance and improve the
      functionality and features of our products, services and technologies. These
      changes may be more difficult or expensive than we anticipate.





*Changes
      in accounting policies and practices, as may be adopted by the regulatory
      agencies, the Financial Accounting Standards Board, or other authoritative
      bodies, could materially impact our financial statements.*


Our
      accounting policies and methods are fundamental to how we record and report
      our
      financial condition and results of operations. From time to time, the regulatory
      agencies, the Financial Accounting Standards Board, and other authoritative
      bodies change the financial accounting and reporting standards that govern
      the
      preparation of our financial statements. These changes can be hard to predict
      and can materially impact how we record and report our financial condition
      and
      results of operations.





*The
      costs and effects of litigation, investigations or similar matters, or adverse
      facts and developments related thereto, could materially affect our business,
      operating results and financial condition.*


We
      may be
      involved from time to time in a variety of litigation, investigations or similar
      matters arising out of our business. Our insurance may not cover all claims
      that
      may be asserted against it, and any claims asserted against us, regardless
      of
      merit or eventual outcome, may harm our reputation. Should the ultimate
      judgments or settlements in any litigation or investigation significantly exceed
      our insurance coverage, they could have a material adverse effect on our
      business, financial condition and results of operations. In addition, we may
      not
      be able to obtain appropriate types or levels of insurance in the future, nor
      may we be able to obtain adequate replacement policies with acceptable terms,
      if
      at all.





*Various
      domestic or international military or terrorist activities or conflicts could
      affect our business and financial condition.*


Acts
      or
      threats of war or terrorism, actions taken by the United States or other
      governments in response to such acts or threats could negatively affect business
      and economic conditions in the United States. If terrorist activity, acts of
      war
      or other international hostilities cause an overall economic decline, our
      financial condition and results of operations could be adversely affected.
      The
      potential for future terrorist attacks, the national and international responses
      to terrorist attacks or perceived threats to national security and other actual
      or potential conflicts or acts of war, including war in the Middle East, have
      created many economic and political uncertainties that could seriously harm
      our
      business and results of operations in ways that we cannot predict.





*Our
      directors and executive officers own a significant portion of our common
      stock.*


Our
      directors and executive officers, as a group, beneficially owned approximately
      24% of our outstanding common stock as of December 31, 2006. As a result of
      their ownership, the directors and executive officers will have the ability,
      by
      voting their shares in concert, to significantly influence the outcome of all
      matters submitted to our shareholders for approval, including the election
      of
      directors.


16
 *Table
          of Contents*


*The
      trading volume in our common stock has been low, and the sale of substantial
      amounts of our common stock in the public market could depress the price of
      our
      common stock.*


The
      trading volume in our common stock on the NASDAQ Global Select Market and,
      prior
      to November 1, 2005, on the American Stock Exchange, has been relatively low
      when compared with larger companies listed on NASDAQ or other stock exchanges.
      We cannot say with any certainty that a more active and liquid trading market
      for our common stock will develop. Because of this, it may be more difficult
      for
      you to sell a substantial number of shares for the same price at which you
      could
      sell a smaller number of shares.





We
      cannot
      predict the effect, if any, that future sales of our common stock in the market,
      or the availability of shares of common stock for sale in the market, will
      have
      on the market price of our common stock. We, therefore, can give no assurance
      that sales of substantial amounts of common stock in the market, or the
      potential for large amounts of sales in the market, would not cause the price
      of
      our common stock to decline or impair our future ability to raise capital
      through sales of our common stock.





*Our
      ability to pay dividends is limited and we may be unable to pay future
      dividends.*


Our
      ability to pay dividends is limited by regulatory restrictions and the need
      to
      maintain sufficient consolidated capital. The ability of our Bank subsidiary
      to
      pay dividends to us is limited by its obligations to maintain sufficient capital
      and by other general restrictions on its dividends that are applicable to our
      Bank and banks that are regulated by the Federal Reserve.  If we do
      not satisfy these regulatory requirements, we will be unable to pay dividends
      on
      our common stock.




**ITEM
                1B.**
            **UNRESOLVED
                STAFF
                COMMENTS**





None








**ITEM
                2.**
            **PROPERTIES**





We
      currently operate 20 bank branches, four loan production offices, an operations
      center, an executive office suite and an administrative
      building.  With the exception of our Ocala and Jacksonville, Florida
      branches and our Stockbridge and Snellville, Georgia branches, we own all of
      the
      real property and/or buildings in which our bank branch offices are
      located.  The Ocala office is under a five-year operating lease that
      expires in December 2008.  The Jacksonville branch is under a
      five-year operating lease that expires in September 2011.  The
      Stockbridge office is under a five-year operating lease that expires in May
      2009.  The Snellville branch is under a ten-year operating lease that
      expires in December 2016.  We own the real property where our
      Snellville, Georgia loan production office is located.  The other
      three loan production offices and a 4,300 square-foot executive office suite
      in
      McDonough, Georgia are located in leased office space.  In addition,
      we own a three-story, 10,000 square-foot administrative building, which houses
      our corporate offices, and a 12,000 square-foot operations center in Valdosta,
      Georgia.  All of the properties are in a good state of repair and are
      appropriately designed for the purposes for which they are used.





Other
      than real estate held for future branch expansion and the normal real estate
      and
      commercial lending activities of the Bank, we generally do not invest in real
      estate, interests in real estate, real estate mortgages, or securities of
      persons primarily engaged in real estate activities.





**ITEM
                3.**
            **LEGAL
                PROCEEDINGS**





The
      nature of the business of PAB and the Bank ordinarily results in a certain
      amount of litigation.  Accordingly, we are party to a limited number
      of lawsuits incidental to our respective businesses.  In our opinion,
      the ultimate disposition of these matters will not have a material adverse
      impact on our consolidated financial position or results of
      operations.





**ITEM
                4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS**





No
      matters were submitted to a vote of our stockholders during the fourth quarter
      of 2006.


17
 *Table
          of Contents*





**PART
      II**





**ITEM
                5.**
            **MARKET
                FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS****AND
                ISSUER PURCHASES OF EQUITY
                SECURITIES**





Our
      common stock has been traded on NASDAQ under the symbol “PABK” since November 1,
      2005.  From July 9, 1996 to October 31, 2005, our common stock was
      listed for quotation on the American Stock Exchange under the symbol
“PAB”.  On February 28, 2007, there were 2,152 holders of record of
      our common stock.





Our
      ability to pay dividends is primarily dependent on earnings from operations,
      the
      adequacy of capital and the availability of liquid assets for
      distribution.  Our ability to generate liquid assets for distribution
      is primarily dependent on the ability of the Bank to pay dividends up to the
      parent holding company.  The payment of dividends is an integral part
      of our goal to retain sufficient capital to support future growth and to meet
      regulatory requirements while providing a competitive return on investment
      to
      our stockholders.  When possible, it is our current intent to pay out
      35-45% of our net earnings in the form of cash dividends to our stockholders
      on
      a quarterly basis; however, there is no assurance that we will do so in the
      future.





The
      following table sets forth, for the indicated periods, the high and low closing
      sales prices for our common stock, the cash dividends declared, and the diluted
      earnings per share.





Sales
                PriceCalendar
                Period
            
            High
            
            
            Low
            
            
            Dividends
            
            
            Earnings2005First
                Quarter
            
            $
            14.50
            
            
            $
            13.11
            
            
            $
            0.11
            
            
            $
            0.26Second
                Quarter
            
            
            15.70
            
            
            
            14.03
            
            
            
            0.12
            
            
            
            0.32Third
                Quarter
            
            
            17.25
            
            
            
            15.38
            
            
            
            0.12
            
            
            
            0.36Fourth
                Quarter
            
            
            18.65
            
            
            
            15.45
            
            
            
            0.125
            
            
            
            0.342006First
                Quarter
            
            $
            22.20
            
            
            $
            18.24
            
            
            $
            0.125
            
            
            $
            0.34Second
                Quarter
            
            
            21.73
            
            
            
            18.35
            
            
            
            0.135
            
            
            
            0.37Third
                Quarter
            
            
            21.12
            
            
            
            17.90
            
            
            
            0.14
            
            
            
            0.36Fourth
                Quarter
            
            
            22.49
            
            
            
            19.86
            
            
            
            0.14
            
            
            
            0.34




18
 *Table
          of Contents*


*Performance
      Graph*


The
      following graph compares our yearly percentage change in cumulative, five-year
      shareholder return with the NASDAQ – Composite Index and the SNL Southeast Bank
      Index.  We have determined that the SNL Southeast Bank Index provides
      an appropriate and accurate comparison with our industry peers.  The
      graph assumes that the value of the investment in the Company’s common stock and
      in each index was $100 on December 31, 2001 and that all dividends were
      reinvested.  The change in cumulative total return is measured by
      dividing (i) the sum of (a) the cumulative amount of dividends for the period,
      and (b) the change in share price between the beginning and the end of the
      period, by (ii) the share price at the beginning of the period.











***Period
                Ending******Index***
            
            **12/31/01**
            
            
            **12/31/02**
            
            
            **12/31/03**
            
            
            **12/31/04**
            
            
            **12/31/05**
            
            
            **12/31/06**PAB
                Bankshares, Inc.
            
            
            100.00
            
            
            
            81.86
            
            
            
            159.23
            
            
            
            137.95
            
            
            
            197.87
            
            
            
            237.57NASDAQ
                Composite Index
            
            
            100.00
            
            
            
            68.76
            
            
            
            103.67
            
            
            
            113.16
            
            
            
            115.57
            
            
            
            127.58SNL
                Southeast Bank Index
            
            
            100.00
            
            
            
            110.46
            
            
            
            138.72
            
            
            
            164.50
            
            
            
            168.39
            
            
            
            197.45





*The
      foregoing Total Return Performance Graph shall not be deemed to be “soliciting
      material” or to be “filed” with the SEC, nor shall such information be
      incorporated by reference into any future filing under the Securities Act of
      1933, as amended, or the Exchange Act, except to the extent the Company
      specifically incorporates it by reference into such filing.*





*Stock
      Buyback Plan*


A
      summary
      of our purchases of PAB common stock during the fourth quarter ended December
      31, 2006 follows.





Total
                number of shares purchased
            
            
            Average
                price paid per share
            
            
            Number
                of shares purchased as part of publicly announced plans or
                programs
            
            
            Maximum
                number of shares that may yet be purchased under the plans or
                programs1October
            
            
            404
            
            
            
            $
                19.74
            
            
            
            404
            
            
            
            234,726November
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            234,726December
            
            
            109
            
            
            
            19.74
            
            
            
            109
            
            
            
            234,617Total
            
            
            513
            
            
            
            $
                19.74
            
            
            
            513
            
            
            
            234,617




1
            On
                May 23, 2006, the Board of Directors renewed its annual plan to purchase
                up to 300,000 shares of the Company's common stock over a 12 month
                period.  The plan will expire May 23,
                2007.


19
 *Table
          of Contents*


**ITEM
                6.**
            **SELECTED
                FINANCIAL
                DATA**





The
      following table presents selected
      consolidated financial data for PAB.  This selected financial data is
      derived in part from, and should be read in conjunction with, the Consolidated
      Financial Statements and the Notes in Item 8 and Management’s Discussion and
      Analysis of Financial Condition and Results of Operations in Item 7 of this
      Report.





(In
                thousands, except per share and other data)
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003
            
            
            2002Summary
                of Operations:Interest
                income
            
            $
            77,566
            
            
            $
            59,371
            
            
            $
            40,597
            
            
            $
            40,040
            
            
            $
            48,079Interest
                expense
            
            
            33,555
            
            
            
            20,398
            
            
            
            10,624
            
            
            
            12,467
            
            
            
            19,989Net
                interest income
            
            
            44,011
            
            
            
            38,973
            
            
            
            29,973
            
            
            
            27,573
            
            
            
            28,090Provision
                for loan losses
            
            
            -
            
            
            
            1,189
            
            
            
            600
            
            
            
            -
            
            
            
            2,575Other
                income
            
            
            5,380
            
            
            
            5,813
            
            
            
            6,344
            
            
            
            8,616
            
            
            
            8,013Other
                expense
            
            
            28,167
            
            
            
            24,778
            
            
            
            23,055
            
            
            
            25,702
            
            
            
            24,368Income
                before income tax expense
            
            
            21,224
            
            
            
            18,819
            
            
            
            12,662
            
            
            
            10,487
            
            
            
            9,160Income
                tax expense
            
            
            7,488
            
            
            
            6,366
            
            
            
            4,144
            
            
            
            3,361
            
            
            
            2,813Net
                income
            
            $
            13,736
            
            
            $
            12,453
            
            
            $
            8,518
            
            
            $
            7,126
            
            
            $
            6,347Net
                interest income on a taxable-equivalent basis
            
            $
            44,507
            
            
            $
            39,195
            
            
            $
            30,148
            
            
            $
            27,759
            
            
            $
            28,225Selected
                Average Balances:Total
                assets
            
            $
            1,067,362
            
            
            $
            948,457
            
            
            $
            765,016
            
            
            $
            736,367
            
            
            $
            779,958Earning
                assets
            
            
            1,004,981
            
            
            
            890,337
            
            
            
            704,345
            
            
            
            675,718
            
            
            
            719,352Loans
            
            
            792,278
            
            
            
            706,052
            
            
            
            569,858
            
            
            
            540,787
            
            
            
            586,712Deposits
            
            
            859,216
            
            
            
            741,409
            
            
            
            575,767
            
            
            
            576,871
            
            
            
            641,448Stockholders’
                equity
            
            
            91,611
            
            
            
            85,431
            
            
            
            79,499
            
            
            
            74,229
            
            
            
            67,975Selected
                Year End Balances:Total
                assets
            
            $
            1,120,804
            
            
            $
            1,017,326
            
            
            $
            868,975
            
            
            $
            730,741
            
            
            $
            747,911Earning
                assets
            
            
            1,048,239
            
            
            
            957,918
            
            
            
            808,886
            
            
            
            666,488
            
            
            
            683,456Loans
            
            
            820,304
            
            
            
            752,938
            
            
            
            646,149
            
            
            
            538,644
            
            
            
            555,238Allowance
                for loan losses
            
            
            11,006
            
            
            
            11,079
            
            
            
            9,066
            
            
            
            10,139
            
            
            
            12,097Deposits
            
            
            908,483
            
            
            
            815,681
            
            
            
            657,550
            
            
            
            556,917
            
            
            
            606,730Stockholders’
                equity
            
            
            95,316
            
            
            
            87,001
            
            
            
            81,000
            
            
            
            76,062
            
            
            
            71,265Common
                Share Data:Outstanding
                at year end
            
            
            9,504,969
            
            
            
            9,469,017
            
            
            
            9,495,320
            
            
            
            9,484,660
            
            
            
            9,430,413Weighted
                average outstanding
            
            
            9,499,434
            
            
            
            9,514,775
            
            
            
            9,499,709
            
            
            
            9,476,158
            
            
            
            9,426,761Diluted
                weighted average outstanding
            
            
            9,706,989
            
            
            
            9,686,894
            
            
            
            9,642,065
            
            
            
            9,686,617
            
            
            
            9,459,768Per
                Share Ratios:Net
                income - basic
            
            $
            1.45
            
            
            $
            1.31
            
            
            $
            0.89
            
            
            $
            0.75
            
            
            $
            0.67Net
                income - diluted
            
            
            1.41
            
            
            
            1.28
            
            
            
            0.88
            
            
            
            0.74
            
            
            
            0.67Dividends
                declared
            
            
            0.54
            
            
            
            0.475
            
            
            
            0.34
            
            
            
            0.18
            
            
            
            0.11Book
                value
            
            
            10.03
            
            
            
            9.19
            
            
            
            8.53
            
            
            
            8.02
            
            
            
            7.56Tangible
                book value
            
            
            9.40
            
            
            
            8.56
            
            
            
            7.90
            
            
            
            7.39
            
            
            
            6.92Profitability
                Ratios:Return
                on average assets
            
            
            1.29
            %
            
            
            1.31
            %
            
            
            1.11
            %
            
            
            0.97
            %
            
            
            0.81
            %Return
                on average equity
            
            
            14.99
            %
            
            
            14.58
            %
            
            
            10.71
            %
            
            
            9.60
            %
            
            
            9.34
            %Net
                interest margin
            
            
            4.43
            %
            
            
            4.40
            %
            
            
            4.28
            %
            
            
            4.11
            %
            
            
            3.92
            %Efficiency
                ratio
            
            
            55.88
            %
            
            
            54.94
            %
            
            
            63.18
            %
            
            
            68.90
            %
            
            
            67.04
            %Liquidity
                Ratios:Total
                loans to total deposits
            
            
            90.29
            %
            
            
            92.31
            %
            
            
            98.27
            %
            
            
            96.72
            %
            
            
            91.51
            %Average
                loans to average earning assets
            
            
            78.84
            %
            
            
            79.30
            %
            
            
            80.91
            %
            
            
            80.03
            %
            
            
            81.56
            %Noninterest-bearing
                deposits to total deposits
            
            
            11.11
            %
            
            
            13.23
            %
            
            
            15.15
            %
            
            
            17.04
            %
            
            
            14.45
            %Capital
                Adequacy Ratios:Average
                equity to average assets
            
            
            8.58
            %
            
            
            9.01
            %
            
            
            10.39
            %
            
            
            10.08
            %
            
            
            8.72
            %Dividend
                payout ratio
            
            
            37.36
            %
            
            
            36.29
            %
            
            
            37.93
            %
            
            
            23.89
            %
            
            
            16.39
            %Asset
                Quality Ratios:Net
                charge-offs to average loans
            
            
            0.01
            %
            
            
            -0.12
            %
            
            
            0.29
            %
            
            
            0.36
            %
            
            
            1.06
            %Nonperforming
                loans to total loans
            
            
            0.49
            %
            
            
            1.04
            %
            
            
            0.54
            %
            
            
            1.53
            %
            
            
            2.09
            %Nonperforming
                assets to total assets
            
            
            0.45
            %
            
            
            0.78
            %
            
            
            0.40
            %
            
            
            1.75
            %
            
            
            1.72
            %Allowance
                for loan losses to total loans
            
            
            1.34
            %
            
            
            1.47
            %
            
            
            1.40
            %
            
            
            1.88
            %
            
            
            2.18
            %Allowance
                for loan losses to nonperforming loans
            
            
            271.95
            %
            
            
            140.98
            %
            
            
            261.04
            %
            
            
            123.41
            %
            
            
            104.33
            %




20
 *Table
          of Contents*




**GAAP
      Reconciliation and Management Explanation for Non-GAAP Financial
      Measures**





Certain
      financial information included in “Selected Financial Data” above is determined
      by methods other than in accordance with GAAP.  “Tangible book value”
is a non-GAAP financial measure that our management uses in its analysis of
      our
      performance.





“Tangible
      book value” is defined as total equity reduced by recorded intangible assets
      divided by total common shares outstanding.  This measure is important
      to investors interested in changes from period to period in book value per
      share
      exclusive of changes in intangible assets.  Goodwill, an intangible
      asset that is recorded in a purchase business combination, has the effect of
      increasing total book value while not increasing the tangible assets of the
      company.  For companies that have engaged in multiple business
      combinations, purchase accounting can result in the recording of significant
      amounts of goodwill related to such transactions.





2006
            
            
            2005
            
            
            2004
            
            
            2003
            
            
            2002Book
                value per common share
            
            $
            10.03
            
            
            $
            9.19
            
            
            $
            8.53
            
            
            $
            8.02
            
            
            $
            7.56Effect
                of intangible assets per share
            
            
            0.63
            
            
            
            0.63
            
            
            
            0.63
            
            
            
            0.63
            
            
            
            0.64Tangible
                book value per common share
            
            $
            9.40
            
            
            $
            8.56
            
            
            $
            7.90
            
            
            $
            7.39
            
            
            $
            6.92





**ITEM
                  7.**
              **MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                  RESULTS OF
                  OPERATIONS**





The
      following discussion and analysis of the consolidated financial condition and
      results of operations of PAB should be read in conjunction with the Consolidated
      Financial Statements and related Notes, and is qualified in its entirety by
      the
      foregoing and other more detailed financial information appearing
      elsewhere.  Historical results of operations and the percentage
      relationships among any amounts included, and any trends which may appear to
      be
      inferred, should not be taken as being necessarily indicative of trends in
      operations or results of operations for any future periods.





We
      have
      made, and will continue to make, various forward-looking statements with respect
      to financial and business matters.  Comments regarding our business
      which are not historical facts are considered forward-looking statements that
      involve inherent risks and uncertainties.  Actual results may differ
      materially from those contained in these forward-looking
      statements.  For additional information regarding our cautionary
      disclosures, see the *“Cautionary Notice Regarding Forward-Looking
      Statements”* at the beginning of this Report.








**OVERVIEW
      OF KEY FINANCIAL, STRATEGIC AND PERFORMANCE FACTORS**





Our
      operating subsidiary, The Park Avenue Bank, is a $1.12 billion community bank
      with 20 branches and four loan production offices in Georgia and
      Florida.  We have offices in both smaller, rural communities as well
      as larger, metropolitan areas.  We provide traditional banking
      products and services to both commercial and individual customers in our
      markets.  For additional information on our markets, see the
*“**Markets and Competition”* section in Part I of this
      Report.  As a bank, we operate in a highly regulated and competitive
      environment.  Our primary objective is to increase the return on our
      stockholders’ investment over the long-term by accepting deposits and borrowing
      additional funds as needed at low costs and investing those proceeds in a safe
      and sound manner in loans and investments at a higher
      yield.  Competition, regulation, credit risk, and interest rate risk
      are the primary factors that we must manage in order to be
      successful.





Our
      future success is dependent on our ability to effectively execute our de novo
      branching strategy, attract and retain excellent employees, utilize technology
      and support components efficiently, and keep our focus on sales and
      service.





*Earnings*


We
      posted
      our second consecutive year of record earnings for the Company in
      2006.  Our net income increased 10.3% from $12.45 million in 2005 to
      $13.74 million in 2006.  Our diluted earnings per share (“EPS”)
      increased 10.07% from $1.28 in 2005 to $1.41 in 2006.  Our total
      revenues (which is net interest income plus noninterest income) increased 10.3%
      from $44.79 million in 2005 to $49.39 million in 2006.  Our return on
      average assets (“ROA”) decreased slightly from 1.31% in 2005 to 1.29% as our
      average assets increased 12.5% in 2006.  Our return on average equity
      (“ROE”) improved from 14.58% in 2005 to 14.99% in 2006.  The primary
      reasons for our record level of profitability in 2006 and our reasons for
      cautious optimism for 2007 are outlined in the section titled “Results of
      Operations” below.  The following table summarizes our net income,
      EPS, ROA, and ROE for the past five years.


21
 *Table
          of Contents*





Year
            
            Net
                Income
            
            
            EPS
            
            
            ROA
            
            
            ROE(In
                Thousands)2002
            
            $
            6,347
            
            
            $
            0.67
            
            
            
            0.81
            %
            
            
            9.34
            %2003
            
            
            7,126
            
            
            
            0.74
            
            
            
            0.97
            %
            
            
            9.60
            %2004
            
            
            8,518
            
            
            
            0.88
            
            
            
            1.11
            %
            
            
            10.71
            %2005
            
            
            12,453
            
            
            
            1.28
            
            
            
            1.31
            %
            
            
            14.58
            %2006
            
            
            13,736
            
            
            
            1.41
            
            
            
            1.29
            %
            
            
            14.99
            %





*Loan
      and Deposit Growth*


During
      2006, total assets increased $103.5 million, or 10.2%, from $1.02 billion at
      the
      end of 2005 to $1.12 billion at the end of 2006.  Total loans
      increased $67.4 million, or 8.9%, and total deposits increased $92.8 million,
      or
      11.4%, during 2006.  In our South Georgia market, loans increased 6.7%
      due primarily to an increase in construction and development lending and
      deposits increased 11.5% due primarily to a successful money market program
      and
      a temporary influx of $24.2 million of public funds deposits in
      December.  In our North Georgia market, loans increased 13.3% due
      primarily to an increase in commercial lending and commercial mortgages and
      deposits increased 19.8% due to CD marketing campaigns.  However,
      total loans in our Cobb County office decreased $15.8 million in 2006 due to
      the
      loss of a commercial lender to a competitor.  In our Florida market,
      loans increased 5.2% due to an increase in commercial mortgages and deposits
      increased 10.3% due to CD marketing campaigns.





Overall
      our construction and development loans increased $26.6 million, or 9.9%, and
      our
      commercial mortgages increased $23.9 million, or 10.3%, during
      2006.  However, during the fourth quarter of 2006, we began to see a
      slowdown in the demand for new construction and development financing
      opportunities.  From September 30 to December 31, 2006, our
      construction and development loans decreased $1.8 million, or 0.6%.





In
      an
      effort to diversify our loan portfolio from commercial real estate (which
      includes construction and development lending and commercial mortgages), we
      increased our efforts in non-real estate secured commercial lending and in
      residential mortgages.  Our commercial loans increased $15.5 million,
      or 30.5%, during 2006.  As a percentage of total loans, this segment
      of our portfolio increased from 6.8% at the end of 2005 to 8.1% at the end
      of
      2006.





A
      breakdown of loans and deposits as of December 31, 2006 and 2005 and the
      percentage of net growth (or contraction) in 2006 for each market is provided
      in
      the table below.





**Market/**
            
            #
                of
            
            
            Total
                Loans
            
            
            
            
            
            Total
                DepositsCounty
            
            Offices
            
            
            2006
            
            
            2005
            
            
            %
                Chg
            
            
            2006
            
            
            2005
            
            
            %
                Chg(Dollars
                in Thousands)**South
                Georgia**Lowndes
            
            
            4
            
            
            $
            205,802
            
            
            $
            179,001
            
            
            
            15.0
            
            
            $
            262,932
            
            
            $
            238,829
            
            
            
            10.1Cook
            
            
            1
            
            
            
            10,580
            
            
            
            9,248
            
            
            
            14.4
            
            
            
            44,339
            
            
            
            39,053
            
            
            
            13.5Decatur
            
            
            3
            
            
            
            41,585
            
            
            
            42,650
            
            
            
            (2.5
            )
            
            
            114,040
            
            
            
            92,851
            
            
            
            22.8Grady
            
            
            1
            
            
            
            13,717
            
            
            
            12,923
            
            
            
            6.1
            
            
            
            19,048
            
            
            
            18,511
            
            
            
            2.9Appling
            
            
            1
            
            
            
            22,146
            
            
            
            24,606
            
            
            
            (10.0
            )
            
            
            38,482
            
            
            
            40,544
            
            
            
            (5.1
            )Jeff
                Davis
            
            
            1
            
            
            
            8,125
            
            
            
            8,138
            
            
            
            (0.2
            )
            
            
            45,220
            
            
            
            39,500
            
            
            
            14.5Bulloch
            
            
            2
            
            
            
            41,889
            
            
            
            45,809
            
            
            
            (8.6
            )
            
            
            67,621
            
            
            
            61,431
            
            
            
            10.1$
            343,844
            
            
            $
            322,375
            
            
            
            6.7
            
            
            $
            591,682
            
            
            $
            530,719
            
            
            
            11.5**North
                Georgia**Henry
            
            
            2
            
            
            $
            227,085
            
            
            $
            206,467
            
            
            
            10.0
            
            
            $
            84,287
            
            
            $
            81,804
            
            
            
            3.0Hall
            
            
            1
            
            
            
            92,816
            
            
            
            80,219
            
            
            
            15.7
            
            
            
            34,478
            
            
            
            23,775
            
            
            
            45.0Oconee
            
            
            1
            
            
            
            49,511
            
            
            
            41,904
            
            
            
            18.2
            
            
            
            3,252
            
            
            
            755
            
            
            
            330.7Cobb
            
            
            1
            
            
            
            9,289
            
            
            
            25,098
            
            
            
            (63.0
            )
            
            
            1,401
            
            
            
            3,739
            
            
            
            (62.5
            )Gwinnett
            
            
            1
            
            
            
            21,915
            
            
            
            -
            
            
            
            -
            
            
            
            8,489
            
            
            
            -
            
            
            
            -$
            400,616
            
            
            $
            353,688
            
            
            
            13.3
            
            
            $
            131,907
            
            
            $
            110,073
            
            
            
            19.8**Florida**Marion
            
            
            1
            
            
            $
            15,161
            
            
            $
            10,742
            
            
            
            41.1
            
            
            $
            136,316
            
            
            $
            125,579
            
            
            
            8.5Duval
            
            
            1
            
            
            
            5,166
            
            
            
            -
            
            
            
            -
            
            
            
            2,554
            
            
            
            -
            
            
            
            -St.
                Johns
            
            
            1
            
            
            
            46,317
            
            
            
            52,605
            
            
            
            (12.0
            )
            
            
            325
            
            
            
            673
            
            
            
            (51.7
            )$
            66,644
            
            
            $
            63,347
            
            
            
            5.2
            
            
            $
            139,195
            
            
            $
            126,252
            
            
            
            10.3**Treasury**
            
            
            -
            
            
            $
            9,200
            
            
            $
            13,528
            
            
            
            (32.0
            )
            
            $
            45,699
            
            
            $
            48,637
            
            
            
            (6.0
            )Total
            
            
            
            
            
            $
            820,304
            
            
            $
            752,938
            
            
            
            8.9
            
            
            $
            908,483
            
            
            $
            815,681
            
            
            
            11.4




22
 *Table
          of Contents*


In
      2005,
      we opened loan production offices in Cobb and Gwinnett Counties (Georgia)
      located in the Atlanta MSA.  In 2006, we opened full service branches
      in the Athens (Georgia) MSA and the Jacksonville (Florida)
      MSA.  During the first quarter of 2007, we will open a full service
      branch at a second location in Gwinnett County and a loan production office
      in
      Forsyth County also located in the Atlanta MSA.  We intend to continue
      to expand our presence in the higher growth markets in and around the Atlanta
      MSA and in north and central Florida.





Total
      stockholders’ equity increased $8.3 million, or 9.6%, during
      2006.  Stockholders’ equity increased primarily from the retention of
      $8.6 million in earnings (net income of $13.7 million less $5.1 million in
      dividends paid) in 2006.  As a percentage of total assets,
      stockholders’ equity represented 8.5% at end of 2006, compared to 8.6% at the
      end of 2005, as the pace of asset growth slightly exceeded the net increase
      in
      equity.





*Asset
      Quality Issues in 2001*


To
      truly
      appreciate the Company’s accomplishments of 2004 through 2006, one must
      understand the challenges we overcame in preceding years.  A summary
      of the events in 2001 and our subsequent progression follows.





In
      2001,
      we initiated several strategic changes: we had changes in senior management,
      we
      began the process of consolidating our six separate bank charters into one,
      we
      engaged a new audit firm, and we switched our primary federal bank regulator
      from the FDIC to the Federal Reserve.  Problems with our credit
      quality and weaknesses in our credit administration began to surface as we
      implemented these changes.  In addition, as these changes were being
      made, the economy was in the midst of a recession and terrorists had attacked
      our country, further stressing the environment that we operated
      within.  Our nonperforming loans rose from $7.4 million at the
      beginning of 2001 to $12.2 million at the end of that year.  During
      the fourth quarter of 2001, the Federal Reserve began an examination of the
      Bank
      that led to the identification of many of these problems.  As a
      result, we provided $11.2 million to the allowance for loan losses during the
      fourth quarter of 2001 that basically negated our earnings for the entire
      year.





After
      the
      conclusion of their examination, on May 20, 2002, the Federal Reserve required
      our Board of Directors to adopt the Resolution to improve the financial
      condition of the Bank and correct the weaknesses identified in their
      examination.  In addition, the Resolution restricted us from redeeming
      our capital stock, paying dividends, modifying existing debt agreements, or
      incurring additional debt without prior regulatory approval.  Over the
      next 15 months, little was accomplished that did not relate to addressing the
      provisions of the Resolution.  On August 25, 2003, the Federal Reserve
      terminated the Resolution with the Company.





From
      the
      third quarter of 2001, when our credit problems began to surface, to the third
      quarter of 2003, when our Resolution with the Federal Reserve was terminated,
      our balance sheet went through a period of contraction.  While part of
      the decline was due to the work out or charge-off of certain loans, we also
      lost
      some business to former lenders and our competitors while our attention was
      diverted from business development.  In addition, we saw a decline in
      overall demand for loans with the downturn in the economy.





Without
      the loan demand, we had to reduce our level of rate-sensitive deposits in order
      to stabilize our earnings.  From the third quarter of 2001 to the
      third quarter of 2004, our quarterly average balance of time deposits declined
      $192.1 million, or 43.2%.  During the same period of time, our
      quarterly average balance of demand and savings deposit accounts increased
      $67.1
      million, or 27.6%, as we focused on retaining and attracting core, in-market
      customer relationships.  We realize that some portion of that increase
      is possibly the result of our customers temporarily “parking” their excess
      liquidity due to lower interest rates and an overall lack of investment and
      capital spending in the economy during this period of time.





**STATISTICAL
      DISCLOSURES**





**Distribution
      of Assets, Liabilities and Stockholders’ Equity; Interest Rates and Interest
      Differential**





From
      June
      2004 to June 2006, the Federal Open Market Committee of the Federal Reserve
      (“FOMC”) increased the federal funds rate seventeen consecutive times, in 25
      basis point increments, from 1.00% to 5.25%.  Since June 2006, the
      FOMC has held the federal funds rate steady at 5.25%.  Being in an
      asset-sensitive interest rate position on our balance sheet (our earning assets
      reprice more frequently than our rate-sensitive liabilities), we benefited
      during the period of rising interest rates.  Conversely, all other
      factors remaining unchanged, we would expect our earnings to decrease from
      current levels in a declining interest rate environment.  We discuss
      our interest rate risk in further detail in Item 7A.  Below, we have
      summarized the impact that changes in interest rates and changes in our balance
      sheet have had on our earnings over the past three years.


23
 *Table
            of Contents*




The
      next
      two tables illustrate the effects of the continued repricing in interest rates
      and the changes in the volume of loans and deposits on our net interest
      income.




*Rate
      / Volume Analysis*


The
      following table shows a summary of the changes in interest income and interest
      expense on a fully taxable equivalent basis resulting from changes in volume
      and
      changes in rates for each category of interest-earning assets and
      interest-bearing liabilities.  The change in interest attributable to
      rate has been determined by applying the change in rate between years to average
      balances outstanding in the later year.  The change in interest due to
      volume has been determined by applying the rate from the earlier year to the
      change in average balances outstanding between years.  Thus, changes
      that are not solely due to volume have been consistently attributed to
      rate.





For
                the Years Ended December 31,
            
            2006
                vs. 2005
            
            
            2005
                vs. 2004Increase
            
            
            Changes
                Due To
            
            
            Increase
            
            
            Changes
                Due To(Decrease)
            
            
            Rate
            
            
            Volume
            
            
            (Decrease)
            
            
            Rate
            
            
            Volume(Dollars
                In Thousands)Increase
                (decrease) in  income from earning assets:Loans
            
            $
            15,549
            
            
            $
            9,222
            
            
            $
            6,327
            
            
            $
            16,709
            
            
            $
            8,321
            
            
            $
            8,388Taxable
                securities
            
            
            2,138
            
            
            
            779
            
            
            
            1,359
            
            
            
            558
            
            
            
            137
            
            
            
            421Nontaxable
                securities
            
            
            783
            
            
            
            -
            
            
            
            783
            
            
            
            121
            
            
            
            (7
            )
            
            
            128Other
                short-term investments
            
            
            -
            
            
            
            506
            
            
            
            (506
            )
            
            
            1,433
            
            
            
            908
            
            
            
            525Total
                interest income
            
            
            18,470
            
            
            
            10,507
            
            
            
            7,963
            
            
            
            18,821
            
            
            
            9,359
            
            
            
            9,462Increase
                (decrease) in  expense from interest-bearing
                liabilities:Demand
                deposits
            
            
            4,858
            
            
            
            3,881
            
            
            
            977
            
            
            
            2,163
            
            
            
            1,936
            
            
            
            227Savings
                deposits
            
            
            213
            
            
            
            234
            
            
            
            (21
            )
            
            
            79
            
            
            
            79
            
            
            
            -Time
                deposits
            
            
            6,909
            
            
            
            4,693
            
            
            
            2,216
            
            
            
            6,048
            
            
            
            2,932
            
            
            
            3,116FHLB
                advances
            
            
            794
            
            
            
            995
            
            
            
            (201
            )
            
            
            1,518
            
            
            
            836
            
            
            
            682Notes
                payable
            
            
            282
            
            
            
            152
            
            
            
            130
            
            
            
            172
            
            
            
            172
            
            
            
            -Other
                short-term borrowings
            
            
            102
            
            
            
            119
            
            
            
            (17
            )
            
            
            (206
            )
            
            
            34
            
            
            
            (240
            )Total
                interest expense
            
            
            13,158
            
            
            
            10,074
            
            
            
            3,084
            
            
            
            9,774
            
            
            
            5,989
            
            
            
            3,785Net
                interest income
            
            $
            5,312
            
            
            $
            433
            
            
            $
            4,879
            
            
            $
            9,047
            
            
            $
            3,370
            
            
            $
            5,677




24
 *Table
          of Contents*


*Average
      Balances, Interest and Yields*


The
      following table details the average balance of interest-earning assets and
      interest-bearing liabilities, the amount of interest earned and paid, and the
      average yields and rates realized for each of the last three
      years.  Federally tax-exempt income is presented on a
      taxable-equivalent basis assuming a 35% Federal tax rate for 2006 and 2005,
      and
      a 34% Federal tax rate in 2004.  Loan average balances include loans
      on nonaccrual status.  Other short-term investments include federal
      funds sold and interest-bearing deposits in other banks.




For
                  the Years EndedDecember
                  31,
              
              2006
              
              
              2005
              
              
              2004Average
                  Balance
              
              
              Interest
                  Income/Expense
              
              
              Average
                  Yield/Rate
              
              
              Average
                  Balance
              
              
              Interest
                  Income/Expense
              
              
              Average
                  Yield /Rate
              
              
              Average
                  Balance
              
              
              Interest
                  Income/Expense
              
              
              Average
                  Yield/Rate(Dollars
                  In Thousands)ASSETSInterest-earning
                  assets:Loans
              
              $
              792,278
              
              
              $
              67,354
              
              
              
              8.50
              %
              
              $
              706,052
              
              
              $
              51,805
              
              
              
              7.34
              %
              
              $
              569,858
              
              
              $
              35,096
              
              
              
              6.16
              %Investment
                  securities:Taxable
              
              
              156,059
              
              
              
              7,719
              
              
              
              4.95
              %
              
              
              125,491
              
              
              
              5,581
              
              
              
              4.45
              %
              
              
              115,781
              
              
              
              5,023
              
              
              
              4.34
              %Nontaxable
              
              
              24,104
              
              
              
              1,419
              
              
              
              5.89
              %
              
              
              10,802
              
              
              
              635
              
              
              
              5.88
              %
              
              
              8,645
              
              
              
              514
              
              
              
              5.95
              %Other
                  short-term investments
              
              
              32,540
              
              
              
              1,571
              
              
              
              4.83
              %
              
              
              47,992
              
              
              
              1,572
              
              
              
              3.28
              %
              
              
              10,061
              
              
              
              139
              
              
              
              1.38
              %Total
                  interest-  earning assets
              
              
              1,004,981
              
              
              
              78,063
              
              
              
              7.77
              %
              
              
              890,337
              
              
              
              59,593
              
              
              
              6.69
              %
              
              
              704,345
              
              
              
              40,772
              
              
              
              5.79
              %Noninterest-earning
                  assets:Cash
              
              
              20,927
              
              
              
              
              
              
              
              
              
              
              
              21,688
              
              
              
              
              
              
              
              
              
              
              
              20,258Allowance
                  for loan losses
              
              
              (10,966
              )
              
              
              
              
              
              
              
              
              
              
              (10,283
              )
              
              
              
              
              
              
              
              
              
              
              (9,586
              )Unrealized
                  gain (loss)on securities available for sale
              
              
              (2,818
              )
              
              
              
              
              
              
              
              
              
              
              (930
              )
              
              
              
              
              
              
              
              
              
              
              (352
              )Other
                  assets
              
              
              55,238
              
              
              
              
              
              
              
              
              
              
              
              47,645
              
              
              
              
              
              
              
              
              
              
              
              50,351Total
                  assets
              
              $
              1,067,362
              
              
              
              
              
              
              
              
              
              
              $
              948,457
              
              
              
              
              
              
              
              
              
              
              $
              765,016LIABILITIES
                  AND STOCKHOLDERS' EQUITYInterest-bearing
                  liabilities:Demand
                  deposits
              
              $
              266,374
              
              
              $
              8,221
              
              
              
              3.09
              %
              
              $
              206,418
              
              
              $
              3,363
              
              
              
              1.63
              %
              
              $
              173,555
              
              
              $
              1,200
              
              
              
              0.69
              %Savings
                  deposits
              
              
              39,366
              
              
              
              526
              
              
              
              1.34
              %
              
              
              42,154
              
              
              
              313
              
              
              
              0.74
              %
              
              
              42,137
              
              
              
              234
              
              
              
              0.56
              %Time
                  deposits
              
              
              453,004
              
              
              
              19,708
              
              
              
              4.35
              %
              
              
              386,137
              
              
              
              12,800
              
              
              
              3.31
              %
              
              
              264,216
              
              
              
              6,752
              
              
              
              2.56
              %FHLB
                  advances
              
              
              90,115
              
              
              
              3,848
              
              
              
              4.27
              %
              
              
              96,467
              
              
              
              3,053
              
              
              
              3.16
              %
              
              
              66,787
              
              
              
              1,535
              
              
              
              2.30
              %Notes
                  payable
              
              
              12,118
              
              
              
              1,021
              
              
              
              8.42
              %
              
              
              10,310
              
              
              
              739
              
              
              
              7.17
              %
              
              
              10,310
              
              
              
              567
              
              
              
              5.50
              %Other
                  short-term borrowings
              
              
              6,843
              
              
              
              232
              
              
              
              3.39
              %
              
              
              7,868
              
              
              
              130
              
              
              
              1.65
              %
              
              
              27,408
              
              
              
              336
              
              
              
              1.23
              %Total
                  interest-bearing liabilities
              
              
              867,820
              
              
              
              33,556
              
              
              
              3.87
              %
              
              
              749,354
              
              
              
              20,398
              
              
              
              2.72
              %
              
              
              584,413
              
              
              
              10,624
              
              
              
              1.82
              %Noninterest-bearing
                  liabilities and stockholders' equity:Demand
                  deposits
              
              
              100,472
              
              
              
              
              
              
              
              
              
              
              
              106,700
              
              
              
              
              
              
              
              
              
              
              
              95,859Other
                  liabilities
              
              
              7,459
              
              
              
              
              
              
              
              
              
              
              
              6,972
              
              
              
              
              
              
              
              
              
              
              
              5,245Stockholders'
                  equity
              
              
              91,611
              
              
              
              
              
              
              
              
              
              
              
              85,431
              
              
              
              
              
              
              
              
              
              
              
              79,499Total
                  liabilities and  stockholders' equity
              
              $
              1,067,362
              
              
              
              
              
              
              
              
              
              
              $
              948,457
              
              
              
              
              
              
              
              
              
              
              $
              765,016Interest
                  rate spread
              
              
              
              
              
              
              
              
              
              
              3.90
              %
              
              
              
              
              
              
              
              
              
              
              3.97
              %
              
              
              
              
              
              
              
              
              
              
              3.97
              %Net
                  interest income
              
              
              
              
              
              $
              44,507
              
              
              
              
              
              
              
              
              
              
              $
              39,195
              
              
              
              
              
              
              
              
              
              
              $
              30,148Net
                  interest margin
              
              
              
              
              
              
              
              
              
              
              4.43
              %
              
              
              
              
              
              
              
              
              
              
              4.40
              %
              
              
              
              
              
              
              
              
              
              
              4.28
              %


25
 *Table
          of Contents*


**Investment
      Portfolio**





The
      book
      value of investment securities at the indicated dates are presented
      below.  Changes in the mix of our investment portfolio will vary over
      time in response to changes in market conditions and liquidity needs of the
      Bank.





As
                of December 31,
            
            2006
            
            
            2005
            
            
            2004(Dollars
                in Thousands)U.
                S. Government agency securities
            
            $
            82,294
            
            
            $
            70,635
            
            
            $
            52,519State
                and municipal securities
            
            
            28,892
            
            
            
            14,063
            
            
            
            8,738Mortgage-backed
                securities
            
            
            58,875
            
            
            
            59,858
            
            
            
            54,997Corporate
                debt securities
            
            
            4,528
            
            
            
            3,580
            
            
            
            4,318Equity
                securities
            
            
            9,504
            
            
            
            9,319
            
            
            
            8,112$
            184,093
            
            
            $
            157,455
            
            
            $
            128,684





At
      December 31, 2006, the estimated fair market value of our investment portfolio
      was approximately $1,679,000, or 0.9%, below our amortized cost; however, market
      values may fluctuate significantly as interest rates change.





Our
      investment portfolio policy stresses quality and liquidity.  The bonds
      which are purchased as investments carry an “A” rating or better by either
      Standard and Poor’s or Moody’s Investors Service, Inc. or have been reviewed for
      credit and market risk and deemed appropriate for the Bank’s portfolio by
      management.  The portfolio is monitored to assure there is no
      unreasonable concentration of securities in the obligations of a single
      debtor.





The
      following table shows the maturities of non-equity investment securities at
      December 31, 2006 and the weighted-average yields (on a fully taxable basis
      assuming a 35% tax rate) on such securities.  The maturities presented
      for mortgage-backed securities are based on the average lives of those bonds
      at
      the then projected prepayment speeds.  Actual maturities usually
      differ from contractual maturities because certain security issuers have the
      right to call or prepay obligations with or without call or prepayment
      penalties.  Of the investments in U.S. Government agency securities
      maturing after one year, approximately $28.7 million, or 35%, are potentially
      callable at par value within one year.





U.S.
                Government
              Agency
                Securities
            
            
            State
                and Municipal
              Securities
            
            
            Mortgage-Backed
              Securities
            
            
            Corporate
                Debt
              SecuritiesAs
                of December 31, 2006
            
            Amount
            
            
            Yield
            
            
            Amount
            
            
            Yield
            
            
            Amount
            
            
            Yield
            
            
            Amount
            
            
            Yield(Dollars
                in Thousands)Due
                in one year or less
            
            $
            -
            
            
            
            -
            
            
            $
            2,902
            
            
            
            4.89
            %
            
            $
            -
            
            
            
            -
            
            
            $
            -
            
            
            
            -Due
                after one year through five years
            
            
            32,070
            
            
            
            4.53
            %
            
            
            5,940
            
            
            
            5.05
            %
            
            
            49,054
            
            
            
            4.88
            %
            
            
            2,531
            
            
            
            7.35
            %Due
                after five years through ten years
            
            
            22,379
            
            
            
            5.18
            %
            
            
            8,647
            
            
            
            5.94
            %
            
            
            9,821
            
            
            
            5.11
            %
            
            
            1,500
            
            
            
            6.36
            %Due
                after ten years
            
            
            27,845
            
            
            
            5.67
            %
            
            
            11,403
            
            
            
            5.99
            %
            
            
            -
            
            
            
            -
            
            
            
            497
            
            
            
            5.52
            %Total
            
            $
            82,294
            
            
            
            5.09
            %
            
            $
            28,892
            
            
            
            5.67
            %
            
            $
            58,875
            
            
            
            4.92
            %
            
            $
            4,528
            
            
            
            6.82
            %





**Loan
      Portfolio**





We
      make
      both secured and unsecured loans to individuals, corporations, and other
      entities with the goals of safety, soundness, profitability and responsiveness
      to community needs.  Our loan portfolio contains no foreign or
      energy-related loans or significant concentrations in any one industry or loan
      type, with the exception of loans secured by residential and commercial real
      estate in our market areas.


26
 *Table
          of Contents*





*Types
      of Loans*


The
      amount of loans outstanding at the indicated dates is presented in the following
      table according to type of loan.





As
                of December 31,
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003
            
            
            2002(Dollars
                in Thousands)Commercial
                and financial
            
            $
            66,376
            
            
            $
            50,860
            
            
            $
            59,703
            
            
            $
            53,849
            
            
            $
            62,653Agricultural
                (including loans secured by farmland)
            
            
            43,302
            
            
            
            55,830
            
            
            
            26,704
            
            
            
            24,071
            
            
            
            21,777Real
                estate - construction
            
            
            295,246
            
            
            
            268,629
            
            
            
            166,854
            
            
            
            100,150
            
            
            
            83,836Real
                estate - commercial
            
            
            255,462
            
            
            
            231,601
            
            
            
            239,032
            
            
            
            203,465
            
            
            
            193,298Real
                estate - residential
            
            
            142,501
            
            
            
            127,326
            
            
            
            136,190
            
            
            
            128,539
            
            
            
            145,470Installment
                loans to individuals and other
            
            
            18,414
            
            
            
            20,380
            
            
            
            19,552
            
            
            
            29,366
            
            
            
            48,934821,301
            
            
            
            754,626
            
            
            
            648,035
            
            
            
            539,440
            
            
            
            555,461Deferred
                loan fees and unearned interest, net
            
            
            (997
            )
            
            
            (1,688
            )
            
            
            (1,886
            )
            
            
            (796
            )
            
            
            (223
            )820,304
            
            
            
            752,938
            
            
            
            646,149
            
            
            
            538,644
            
            
            
            555,238Allowance
                for loans losses
            
            
            (11,006
            )
            
            
            (11,079
            )
            
            
            (9,066
            )
            
            
            (10,139
            )
            
            
            (12,097
            )Loans,
                net
            
            $
            809,298
            
            
            $
            741,859
            
            
            $
            637,083
            
            
            $
            528,505
            
            
            $
            543,141








The
      percentage of loans outstanding at the indicated dates is presented in the
      following table according to type of loan.





As
                of December 31,
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003
            
            
            2002Commercial
                and financial
            
            
            8.09
            %
            
            
            6.75
            %
            
            
            9.24
            %
            
            
            10.00
            %
            
            
            11.28
            %Agricultural
                (including loans secured by farmland)
            
            
            5.28
            %
            
            
            7.41
            %
            
            
            4.13
            %
            
            
            4.47
            %
            
            
            3.92
            %Real
                estate - construction
            
            
            35.99
            %
            
            
            35.68
            %
            
            
            25.82
            %
            
            
            18.59
            %
            
            
            15.10
            %Real
                estate - commercial
            
            
            31.14
            %
            
            
            30.76
            %
            
            
            36.99
            %
            
            
            37.78
            %
            
            
            34.82
            %Real
                estate - residential
            
            
            17.37
            %
            
            
            16.91
            %
            
            
            21.08
            %
            
            
            23.86
            %
            
            
            26.20
            %Installment
                loans to individuals and other
            
            
            2.24
            %
            
            
            2.71
            %
            
            
            3.03
            %
            
            
            5.45
            %
            
            
            8.72
            %100.12
            %
            
            
            100.22
            %
            
            
            100.29
            %
            
            
            100.15
            %
            
            
            100.04
            %Deferred
                loan fees and unearned interest, net
            
            
            -0.12
            %
            
            
            -0.22
            %
            
            
            -0.29
            %
            
            
            -0.15
            %
            
            
            -0.04
            %100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %Allowance
                for loans losses
            
            
            -1.34
            %
            
            
            -1.47
            %
            
            
            -1.40
            %
            
            
            -1.88
            %
            
            
            -2.18
            %Loans,
                net
            
            
            98.66
            %
            
            
            98.53
            %
            
            
            98.60
            %
            
            
            98.12
            %
            
            
            97.82
            %








Overall,
      the loan portfolio increased $67.4 million, or 9.0%, from $752.9 million at
      the
      beginning of the year to $820.3 million at year end.  In 2006, the
      composition of the loan portfolio continued to shift as loans secured by real
      estate represented 89.5% of the total portfolio at the end of 2006, as compared
      to 78.4% at the end of 2002.  At the end of 2002, Installment loans to
      individuals represented 8.7% of our loan portfolio, while it only represented
      2.2% of our portfolio at the end of 2006.  Commercial and financial
      loans decreased from 11.3% of our portfolio to 8.1% of our portfolio during
      that
      same time.  Residential real estate mortgages decreased from 26.2% of
      our portfolio in 2002 to 17.4% of our portfolio in 2006.





Our
      construction and land development loans increased from 15.1% of our portfolio
      in
      2002 to 36.0% of our portfolio in 2006.  Growth in all of our markets
      contributed to the $26.6 million increase in construction loans; however, the
      majority of our construction and development loans are in our North Georgia
      market.  Of the $295.2 million in construction and development loans
      outstanding at the end of 2006, $190.6 million, or 64.6%, originated in our
      North Georgia offices.


27
 *Table
          of Contents*


Because
      we have a significant concentration in construction and development loans and
      commercial real estate loans we must monitor and estimate trends in our real
      estate markets.  We will adjust our strategies or underwriting
      requirements in an effort to manage the risks associated with these types of
      lending.  Below is a table showing the collateral distribution of our
      construction and commercial real estate loans as of December 31,
      2006.





Construction
            
            
            %
                of Total
            
            
            
            Commercial
            
            
            %
                of Total(Dollars
                in Thousands)Acquisition
                and Development:
            
            
            
            
            
            
            Owner-occupied:1-4
                family residential
            
            $
            134,559
            
            
            
            45.58
            %
            Office
            
            $
            31,210
            
            
            
            12.22
            %Commercial
                and multi-family
            
            
            78,611
            
            
            
            26.63
            %
            Retail
            
            
            23,117
            
            
            
            9.05
            %Construction:
            
            
            
            
            
            
            
            
            Other
            
            
            38,151
            
            
            
            14.93
            %1-4
                family residential spec
            
            
            34,347
            
            
            
            11.63
            %
            Not
                owner-occupied:1-4
                family residential pre-sold
            
            
            1,930
            
            
            
            0.65
            %
            Office
            
            
            28,686
            
            
            
            11.23
            %1-4
                family residential other
            
            
            7,273
            
            
            
            2.46
            %
            Retail
            
            
            31,503
            
            
            
            12.33
            %Commercial
                owner-occupied
            
            
            6,685
            
            
            
            2.26
            %
            Other
            
            
            26,072
            
            
            
            10.21
            %Commercial
                not owner-occupied
            
            
            8,831
            
            
            
            2.99
            %
            Other:Hotel/motel
            
            
            7,683
            
            
            
            2.60
            %
            Hotel/motel
            
            
            16,131
            
            
            
            6.31
            %Industrial
            
            
            -
            
            
            
            -
            
            Industrial
            
            
            3,246
            
            
            
            1.27
            %Multi-family
                properties
            
            
            10,362
            
            
            
            3.51
            %
            Multi-family
                properties
            
            
            19,379
            
            
            
            7.59
            %Special
                purpose property
            
            
            1,050
            
            
            
            0.36
            %
            Special
                purpose property
            
            
            37,938
            
            
            
            14.85
            %Other
            
            
            3,915
            
            
            
            1.33
            %
            Other
            
            
            29
            
            
            
            0.01
            %Total
                Construction and Development
            
            $
            295,246
            
            
            
            100.00
            %
            Total
                Commercial Real Estate
            
            $
            255,462
            
            
            
            100.00
            %





A
      summary
      of loans from each market outstanding at December 31, 2006 is presented in
      the
      following table.





South
                Georgia
              Market
            
            
            North
                Georgia
              Market
            
            
            Florida
              Market
            
            
            Treasury
            
            
            Total(Dollars
                in Thousands)Commercial
                and financial
            
            $
            32,066
            
            
            $
            33,810
            
            
            $
            448
            
            
            $
            52
            
            
            $
            66,376Agricultural
                (including loans secured by farmland)
            
            
            37,735
            
            
            
            4,581
            
            
            
            986
            
            
            
            -
            
            
            
            43,302Real
                estate - construction
            
            
            69,616
            
            
            
            190,644
            
            
            
            34,954
            
            
            
            32
            
            
            
            295,246Real
                estate - commercial
            
            
            79,574
            
            
            
            145,969
            
            
            
            24,448
            
            
            
            5,471
            
            
            
            255,462Real
                estate - residential
            
            
            109,065
            
            
            
            24,908
            
            
            
            6,219
            
            
            
            2,309
            
            
            
            142,501Installment
                loans to individuals and others
            
            
            15,692
            
            
            
            1,312
            
            
            
            87
            
            
            
            1,323
            
            
            
            18,414343,748
            
            
            
            401,224
            
            
            
            67,142
            
            
            
            9,187
            
            
            
            821,301Deferred
                loan fees and unearned interest, net
            
            
            96
            
            
            
            (608
            )
            
            
            (498
            )
            
            
            13
            
            
            
            (997
            )343,844
            
            
            
            400,616
            
            
            
            66,644
            
            
            
            9,200
            
            
            
            820,304Allowance
                for loan losses
            
            
            (4,338
            )
            
            
            (5,443
            )
            
            
            (896
            )
            
            
            (329
            )
            
            
            (11,006
            )$
            339,506
            
            
            $
            395,173
            
            
            $
            65,748
            
            
            $
            8,871
            
            
            $
            809,298




In
      addition to the geographic concentrations noted in the tables above, we had
      approximately $70.5 million in loans secured by real estate in Florida to
      customers of our South Georgia, North Georgia and Treasury offices.





In
      2006,
      loans in our North Georgia market increased 13.3% and loans in our Florida
      market increased 5.2%.  While these are relatively new markets for us
      and some level of growth is expected, the growth that we have experienced from
      these markets is attributable to the addition of experienced lenders with
      contacts in these markets and strong local economic activity.  Our
      ability to continue to grow in these markets is dependent upon a continuation
      of
      these favorable attributes.


28
 *Table
          of Contents*





*Maturities
      and Sensitivities of Loans to Changes in Interest Rates*


A
      schedule of loans maturing, based on contractual terms, is presented in the
      following table for selected loan types.





As
                of December 31, 2006
            
            Commercial
              &
                Financial
            
            
            Agricultural
            
            
            Real
                Estate –
              Construction
            
            
            Real
                Estate –
              Commercial
            
            
            Real
                Estate –
              Residential
            
            
            All
                Other
              Loans
            
            
            Total(Dollars
                in Thousands)Due
                in one year or less
            
            $
            32,103
            
            
            $
            30,629
            
            
            $
            200,021
            
            
            $
            71,798
            
            
            $
            31,757
            
            
            $
            10,090
            
            
            $
            376,398Due
                after one year through five years
            
            
            32,129
            
            
            
            11,230
            
            
            
            91,027
            
            
            
            142,085
            
            
            
            65,656
            
            
            
            7,023
            
            
            
            349,150Due
                after five years
            
            
            2,144
            
            
            
            1,443
            
            
            
            4,198
            
            
            
            41,579
            
            
            
            45,088
            
            
            
            1,301
            
            
            
            95,753Total
            
            $
            66,376
            
            
            $
            43,302
            
            
            $
            295,246
            
            
            $
            255,462
            
            
            $
            142,501
            
            
            $
            18,414
            
            
            $
            821,301Of
                the above loans maturing after one year,those
                with predetermined fixed rates
            
            $
            11,925
            
            
            $
            7,339
            
            
            $
            13,176
            
            
            $
            127,232
            
            
            $
            70,199
            
            
            $
            6,770
            
            
            $
            236,641those
                with floating or adjustable rates
            
            
            22,348
            
            
            
            5,334
            
            
            
            82,049
            
            
            
            56,432
            
            
            
            40,545
            
            
            
            1,554
            
            
            
            208,262Total
                maturing after one year
            
            $
            34,273
            
            
            $
            12,673
            
            
            $
            95,225
            
            
            $
            183,664
            
            
            $
            110,744
            
            
            $
            8,324
            
            
            $
            444,903








While
      we
      make some long-term, fixed rate commercial real estate loans with short-term
      and
      long-term interest rates nearly the same, we have historically preferred to
      offer loans to our commercial customers on a floating rate basis, usually tied
      to a prime interest rate.  This preference has contributed to our
      asset-sensitive interest rate risk position.  During 2006, we
      moderated our preferences and began competing for more fixed-rate commercial
      and
      residential mortgages.  At December 31, 2006, approximately 65% of our
      loan portfolio will either mature or reprice within the next 12 months, a 6%
      decrease compared to 71% of our loan portfolio maturing or repricing within
      one
      year at December 31, 2005.





*Nonaccrual,
      Past Due and Restructured Loans*


The
      amount of nonperforming loans outstanding at the indicated dates is presented
      in
      the following table by category.





As
                of December 31,
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003
            
            
            2002(Dollars
                in Thousands)Loans
                accounted for on a nonaccrual basis
            
            $
            4,013
            
            
            $
            7,856
            
            
            $
            1,417
            
            
            $
            7,048
            
            
            $
            10,378Accruing
                loans which are contractually past due    90 days or
                more as to principal or interest payments
            
            
            34
            
            
            
            2
            
            
            
            11
            
            
            
            -
            
            
            
            -Troubled
                debt restructurings not included above
            
            
            -
            
            
            
            -
            
            
            
            2,045
            
            
            
            1,168
            
            
            
            1,217Total
                nonperforming loans
            
            $
            4,047
            
            
            $
            7,858
            
            
            $
            3,473
            
            
            $
            8,216
            
            
            $
            11,595Ratio
                of nonperforming loans to total loans (%)
            
            
            0.49
            
            
            
            1.04
            
            
            
            0.54
            
            
            
            1.53
            
            
            
            2.09Allowance
                for loan losses to nonperforming loans (%)
            
            
            271.95
            
            
            
            140.98
            
            
            
            261.04
            
            
            
            123.41
            
            
            
            104.33








At
      December 31, 2006, we had $2.3 million in total delinquent loans (loans past
      due
      30 days or more) and still accruing interest, or 0.28% of total loans,
      representing a slight increase from 0.17% one year ago.





The
      accrual of interest on loans is discontinued when, in our judgment, the borrower
      may be unable to meet payments as they become due, unless the loan is well
      secured.  All interest accrued for loans that are placed on nonaccrual
      status is reversed against interest income.  Interest income on
      nonaccrual loans is subsequently recognized only to the extent cash payments
      are
      received or until the loan is returned to accrual status.  For the
      year ended December 31, 2006, the gross interest income that would have been
      recorded if our nonperforming loans had been current in accordance with their
      original terms was approximately $262,000.  The amount of interest
      income on the above nonperforming loans that was included in net income for
      the
      year ended December 31, 2006 was approximately $52,000.  The allowance
      for loan losses related to our nonperforming loans amounted to approximately
      $602,000 and $1.2 million at December 31, 2006 and 2005,
      respectively.


29
 *Table
          of Contents*





**Allowance
      For Loan Losses**





At
      December 31, 2006, the allowance as a percentage of total loans was 1.34%,
      compared to 1.47% at December 31, 2005.  We consider the current level
      of the allowance for loan losses adequate to absorb losses from loans in the
      portfolio.  As an integral part of our credit risk management process,
      we regularly review loans in our portfolio for credit quality and documentation
      of collateral.  The lenders are primarily responsible for assigning a
      risk grade to each loan in their portfolio.  Their assessments are
      supplemented with independent reviews conducted by our internal audit department
      and external loan review consultants.  All loans in excess of $100,000
      that have been identified for potential credit weakness are reviewed quarterly
      by a management committee, which further enhances the process for timely
      recognition of losses and for determining appropriate reserves.





We
      have a
      comprehensive methodology for determining the adequacy of our allowance for
      loan
      losses.  We perform an allowance analysis at least quarterly that is
      broken down into the following three components: (1) specific allowances for
      individual loans, (2) allowances for pools of loans identified by credit risk
      grades or delinquency status, and (3) general allowances for all other loans
      pooled by loan type.  A management committee has the responsibility
      for assessing the risk elements, determining the specific allowance valuations,
      and affirming the methodology used.  The Board of Directors reviews
      management’s assessment and affirms the amount recorded.





The
      first
      component of the allowance for loan loss methodology covers the measurement
      of
      specific allowances for individual impaired loans as required by Financial
      Accounting Standards Board (“FASB”) Statement No. 114, *Accounting by
      Creditors for Impairment of a Loan*.  Each loan relationship with
      amounts due in excess of $500,000 that has been identified for potential credit
      weakness is evaluated for impairment.  A loan is impaired when, based
      on current information and events, it is probable that the borrower will be
      unable to pay all amounts due according to the contractual terms of the loan
      agreement.  By definition, we consider all loans on nonaccrual status
      and all loans whose terms have been modified in a troubled debt restructuring
      as
      impaired.  If impairment is determined, a specific valuation is
      assessed on that loan based on realizable collateral values (if collateral
      dependent), discounted cash flows, or observable market values.  At
      December 31, 2006, we did not have any specific reserves on any individually
      evaluated impaired and other significant potential problem
      loans.  This is a decrease from the $1.16 million in specific reserves
      on $7.28 million in individually evaluated loans at December 31,
      2005.





The
      second component of the allowance for loan loss methodology addresses all loans
      not individually evaluated for impairment but are either internally rated,
      criticized by our banking examiners, or past due 30 day or more.  The
      allowance factors are based on industry standards and supported by our own
      historical loss analysis.  At December 31, 2006, we had $3.22 million
      in general reserves allocated to $85.0 million rated and delinquent
      loans.  This is an increase from the $2.78 million reserved on a lower
      balance of $74.0 million rated and delinquent loans at December 31,
      2005.  We had a slight increase in the less severe internal loan
      rating categories over the past 12 months.





The
      third
      component of the allowance addresses general allowances on all loans not
      individually reserved due to impairment, rating or delinquency
      status.  These loans are divided into smaller homogenous groups based
      on loan type.  The allowances are determined by applying loss factors
      to each pool of loans with similar characteristics.  The factors used
      are based on the five-year historical loss percentages for each pool adjusted
      by
      current known and documented internal and external environmental
      factors.  The environmental factors considered in developing our loss
      measurements include:





·
            levels
                of and trends in delinquencies and impaired
                loans;


·
            levels
                of and trends in charge-offs and
                recoveries;


·
            trends
                in volume and terms of loans;


·
            effects
                of any changes in risk selection and underwriting standards and other
                changes in lending policies, procedures, and
                practices;


·
            experience,
                ability, and depth of lending management and other relevant
                staff;


·
            national
                and local economic trends and
                conditions;


·
            industry
                conditions; and


·
            effects
                of changes in credit
                concentrations.





The
      quantitative risk factors used in determining these general reserves require
      a
      high degree of management judgment.  At December 31, 2006, we had
      $6.89 million in general reserves compared to $6.49 million one year
      ago.  This 6.4% increase in the general reserve over last year is
      primarily due to loan growth and additional caution taken into consideration
      for
      our increased concentration in construction and development
      lending.


30
 *Table
          of Contents*


This
      evaluation is inherently subjective as it requires estimates that are
      susceptible to significant revision as more information becomes
      available.  While we use the best information available to make the
      evaluation, future adjustments to the allowance may be necessary if there are
      significant changes in economic conditions or other environmental
      factors.  In addition, regulatory agencies, as an integral part of
      their examination process, periodically review the Bank’s allowance for loan
      losses, and may require the Bank to make additions to the allowance based on
      their judgment about information available to them at the time of their
      examinations.





*Allocation
      of the Allowance for Loan Losses*


We
      have
      allocated the allowance for credit losses according to the amount 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.  The allocation of the allowance to each category is not
      necessarily indicative of future losses and does not restrict the use of the
      allowance to absorb losses in any other category.  The components of
      the allowance for credit losses for each of the past five years are presented
      below.





As
                of December 31,
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003
            
            
            2002Amount
            
            
            Percentage
                of Loans in Category to Total Loans
            
            
            Amount
            
            
            Percentage
                of Loans in Category to Total Loans
            
            
            Amount
            
            
            Percentage
                of Loans in Category to Total Loans
            
            
            Amount
            
            
            Percentage
                of Loans in Category to Total Loans
            
            
            Amount
            
            
            Percentage
                of Loans in Category to Total Loans(Dollars
                in Thousands)Commercial
                and financial
            
            $
            972
            
            
            
            8.1
            %
            
            $
            2,670
            
            
            
            6.7
            %
            
            $
            1,167
            
            
            
            8.9
            %
            
            $
            1,570
            
            
            
            9.8
            %
            
            $
            1,063
            
            
            
            11.3
            %Agricultural
                (including loans secured by farmland)
            
            
            1,184
            
            
            
            5.3
            %
            
            
            323
            
            
            
            7.4
            %
            
            
            490
            
            
            
            4.2
            %
            
            
            741
            
            
            
            4.5
            %
            
            
            1,357
            
            
            
            3.9
            %Real
                estate - construction
            
            
            4,875
            
            
            
            35.9
            %
            
            
            4,427
            
            
            
            35.5
            %
            
            
            2,211
            
            
            
            25.8
            %
            
            
            1,169
            
            
            
            18.6
            %
            
            
            1,293
            
            
            
            15.1
            %Real
                estate - commercial
            
            
            2,276
            
            
            
            31.1
            %
            
            
            2,280
            
            
            
            30.8
            %
            
            
            3,514
            
            
            
            37.0
            %
            
            
            3,793
            
            
            
            37.8
            %
            
            
            4,741
            
            
            
            34.8
            %Real
                estate - residential
            
            
            547
            
            
            
            17.4
            %
            
            
            208
            
            
            
            16.9
            %
            
            
            1,337
            
            
            
            21.1
            %
            
            
            1,557
            
            
            
            23.9
            %
            
            
            2,919
            
            
            
            26.2
            %Consumer
                and other loans
            
            
            255
            
            
            
            2.2
            %
            
            
            512
            
            
            
            2.7
            %
            
            
            335
            
            
            
            3.0
            %
            
            
            548
            
            
            
            5.4
            %
            
            
            724
            
            
            
            8.7
            %Unallocated
            
            
            897
            
            
            
            
            
            
            
            659
            
            
            
            
            
            
            
            12
            
            
            
            
            
            
            
            761
            
            
            
            
            
            
            
            -Total
            
            $
            11,006
            
            
            
            100.0
            %
            
            $
            11,079
            
            
            
            100.0
            %
            
            $
            9,066
            
            
            
            100.0
            %
            
            $
            10,139
            
            
            
            100.0
            %
            
            $
            12,097
            
            
            
            100.0
            %




31
 *Table
          of Contents*





*Summary
      of Loan Loss Experience*


The
      following table summarizes the activity in the allowance for loan losses, the
      average balance of loans outstanding, and the ratio of net losses experienced
      for each of the last five years.





For
                the Years Ended December 31,
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003
            
            
            2002(Dollars
                in Thousands)Balance
                at beginning of year
            
            $
            11,079
            
            
            $
            9,066
            
            
            $
            10,139
            
            
            $
            12,097
            
            
            $
            15,765Charge-offs:Commercial
                and financial
            
            
            115
            
            
            
            31
            
            
            
            511
            
            
            
            365
            
            
            
            3,771Agricultural
                (including loans secured by farmland)
            
            
            -
            
            
            
            -
            
            
            
            24
            
            
            
            890
            
            
            
            6Real
                estate - construction
            
            
            24
            
            
            
            -
            
            
            
            -
            
            
            
            9
            
            
            
            -Real
                estate - commercial
            
            
            314
            
            
            
            7
            
            
            
            1,228
            
            
            
            443
            
            
            
            1,595Real
                estate - residential
            
            
            208
            
            
            
            43
            
            
            
            467
            
            
            
            401
            
            
            
            157Installment
                loans to individuals and other loans
            
            
            160
            
            
            
            200
            
            
            
            343
            
            
            
            1,011
            
            
            
            1,073821
            
            
            
            281
            
            
            
            2,573
            
            
            
            3,119
            
            
            
            6,602Recoveries:Commercial
                and financial
            
            
            118
            
            
            
            111
            
            
            
            117
            
            
            
            673
            
            
            
            89Agricultural
                (including loans secured by farmland)
            
            
            41
            
            
            
            247
            
            
            
            151
            
            
            
            14
            
            
            
            6Real
                estate - construction
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Real
                estate - commercial
            
            
            335
            
            
            
            394
            
            
            
            268
            
            
            
            137
            
            
            
            93Real
                estate - residential
            
            
            87
            
            
            
            148
            
            
            
            52
            
            
            
            43
            
            
            
            26Installment
                loans to individuals and other loans
            
            
            167
            
            
            
            205
            
            
            
            312
            
            
            
            294
            
            
            
            145748
            
            
            
            1,105
            
            
            
            900
            
            
            
            1,161
            
            
            
            359Net
                charge-offs (recoveries)
            
            
            73
            
            
            
            (824
            )
            
            
            1,673
            
            
            
            1,958
            
            
            
            6,243Additions
                provided to the allowance charged to operations
            
            
            -
            
            
            
            1,189
            
            
            
            600
            
            
            
            -
            
            
            
            2,575Balance
                at end of year
            
            $
            11,006
            
            
            $
            11,079
            
            
            $
            9,066
            
            
            $
            10,139
            
            
            $
            12,097Average
                balance of loans outstanding
            
            $
            792,278
            
            
            $
            706,052
            
            
            $
            569,858
            
            
            $
            540,787
            
            
            $
            586,712Ratio
                of net charge-offs (recoveries) during the year to average loans
                outstanding during the year (%)
            
            
            0.01
            
            
            
            (0.12
            )
            
            
            0.29
            
            
            
            0.36
            
            
            
            1.06


32
 *Table
          of Contents*


**Deposits**





The
      following table summarizes average balances of deposits and related weighted
      average rates of interest paid for each of the three years
      presented.





For
                the Year Ended December 31,
            
            2006
            
            
            2005
            
            
            2004Average
                Balance
            
            
            Rate
            
            
            Average
                Balance
            
            
            Rate
            
            
            Average
                Balance
            
            
            Rate(Dollars
                in Thousands)Noninterest-bearing
                demand
            
            $
            100,472
            
            
            
            -
            
            
            $
            106,700
            
            
            
            -
            
            
            $
            95,859
            
            
            
            -Interest-bearing
                demand
            
            
            266,374
            
            
            
            3.09
            %
            
            
            206,418
            
            
            
            1.63
            %
            
            
            173,555
            
            
            
            0.69
            %Savings
            
            
            39,366
            
            
            
            1.34
            %
            
            
            42,154
            
            
            
            0.74
            %
            
            
            42,137
            
            
            
            0.56
            %Time
            
            
            453,004
            
            
            
            4.35
            %
            
            
            386,137
            
            
            
            3.31
            %
            
            
            264,216
            
            
            
            2.56
            %Total
            
            $
            859,216
            
            
            
            3.31
            %
            
            $
            741,409
            
            
            
            2.22
            %
            
            $
            575,767
            
            
            
            1.42
            %





Our
      total
      deposit portfolio grew $92.8 million, or 11.4%, in 2006.  Of this
      increase, $55.1 million is from time deposits.  The average rate paid
      on time deposits increased 104 basis points from 3.31% in 2005 to 4.35% in
      2006.  While we have historically enjoyed a relatively low cost of
      funds from our core deposits, with the current rate environment and our plan
      to
      grow the balance sheet, we expect our cost of funds to continue to increase,
      thus adding significant pressure to our ability to maintain our net interest
      margin at or near the level posted in 2006.





The
      maturities of time deposits as of December 31, 2006 are summarized
      below.





Retail
                time deposits
              < 
                $100,000
            
            
            Retail
                time deposits
              $100,000
            
            
            Brokered
                time deposits
              $100,000
            
            
            Total
                time deposits(Dollars
                in Thousands)Three
                months or less
            
            $
            56,778
            
            
            $
            39,216
            
            
            $
            9,185
            
            
            $
            105,179Over
                three through six months
            
            
            53,951
            
            
            
            34,399
            
            
            
            5,500
            
            
            
            93,850Over
                six months through twelve months
            
            
            80,280
            
            
            
            42,758
            
            
            
            2,781
            
            
            
            125,819Over
                twelve months
            
            
            88,927
            
            
            
            44,681
            
            
            
            20,288
            
            
            
            153,896Total
            
            $
            279,936
            
            
            $
            161,054
            
            
            $
            37,754
            
            
            $
            478,744








**LIQUIDITY
      AND CAPITAL RESOURCES**





Liquidity
      is an important factor in our financial condition and affects our ability to
      meet the borrowing needs and deposit withdrawal requirements of our
      customers.  Assets, consisting primarily of loans and investment
      securities, are funded by customer deposits, borrowed funds, and retained
      earnings.  Maturities in the investment and loan portfolios also
      provide a steady flow of funds for reinvestment.  In addition, our
      liquidity continues to be enhanced by a relatively stable core deposit base
      and
      the availability of additional funding sources**.**





At
      December 31, 2006, our liquidity position, which is an internally-calculated
      ratio of short-term funds available to short-term and potentially volatile
      liabilities, was 20.79%.  Our net noncore funding dependency ratio,
      which is the difference between regulatory defined non-core liabilities and
      short-term investments, divided by long-term assets, was 25.36%.  Our
      liquidity and funding policy provides that we maintain a liquidity position
      of
      greater than or equal to 15% and a net noncore funding dependency ratio of
      less
      than or equal to 35%.


33
 *Table
          of Contents*


*Investment
      Portfolio*


The
      Bank’s investment portfolio is another primary source of
      liquidity.  Maturities of securities provide a constant flow of funds
      that are available for cash needs.  In addition, mortgage-backed
      securities and securities with call provisions create cash flows earlier than
      the contractual maturities.  Estimates of prepayments on
      mortgage-backed securities and call provisions on Federal agency and state
      and
      municipals increase the forecasted cash flows from the investment
      portfolio.  The following table summarizes the differences between the
      contractual maturities and the expected available cash flows from our non-equity
      investments.





As
                of December 31, 2006
            
            Contractual
                Maturities
            
            
            Expected
                Cash Flows
            
            
            Difference(Dollars
                in Thousands)Due
                in one year or less
            
            $
            2,902
            
            
            $
            22,294
            
            
            $
            19,392Due
                after one year through five years
            
            
            89,595
            
            
            
            81,096
            
            
            
            (8,499
            )Due
                after five years through ten years
            
            
            42,348
            
            
            
            54,810
            
            
            
            12,462Due
                after ten years
            
            
            39,744
            
            
            
            16,389
            
            
            
            (23,355
            )Total
            
            $
            174,589
            
            
            $
            174,589
            
            
            $
            -





Our
      liquidity from investments is somewhat limited since we pledge certain
      investments to secure public deposits and certain borrowing
      arrangements.  At December 31, 2006, approximately 63.4% of our $184.1
      million investment portfolio was pledged as collateral to others.





*Borrowings*


As
      with
      most community banks, loan volume is the driver for the remainder of our balance
      sheet.  With strong loan demand, we continue to compete to increase
      deposits within our markets.  As a result of our efforts, we have been
      able to reduce our reliance on brokered deposits to fund our loan
      growth.  Our brokered deposits decreased 10.3% from $42.1 million at
      December 31, 2005 to $37.8 million at December 31, 2006.  We have
      slightly increased our advances from the Federal Home Loan Bank of Atlanta
      (the
“FHLB”) from $90.0 million at December 31, 2005 to $90.2 million at December 31,
      2006.





On
      October 5, 2006, PAB Bankshares Capital Trust II (“PAB Trust II”) issued $10
      million of Floating Rate Capital Securities, also referred to as “trust
      preferred securities”.  We formed PAB Trust II, a statutory business
      trust created under the laws of the State of Delaware, for the sole purpose
      of
      issuing the trust preferred securities and investing the proceeds in Floating
      Rate Junior Subordinated Debentures (the “Debentures”) issued by
      us.  The interest rates on both the trust preferred securities and the
      Debentures are reset quarterly at three-month LIBOR plus 1.63% (initially
      7.00%).  We entered into agreements which, taken collectively, fully,
      irrevocably and unconditionally guarantee, on a subordinated basis, all of
      PAB
      Trust II’s obligations under the trust preferred securities.  PAB
      Trust II’s sole asset is the Debentures issued by us.  The Debentures
      will mature on December 31, 2036, but are callable at par at our option in
      whole
      or in part anytime on or after December 31, 2011.  The proceeds from
      the issuance of these trust preferred securities qualify as Tier 1 capital
      under
      the risk-based capital guidelines established by the Federal
      Reserve.





On
      November 28, 2001, PAB Bankshares Capital Trust I (“PAB Trust I”) issued $10
      million of Floating Rate Capital Securities, also referred to as “trust
      preferred securities”.  We formed PAB Trust I, a statutory business
      trust created under the laws of the State of Delaware, for the sole purpose
      of
      issuing the trust preferred securities and investing the proceeds in Floating
      Rate Junior Subordinated Debentures issued by us.  The interest rates
      on both the trust preferred securities and the debentures are reset
      semi-annually at LIBOR plus 3.75% with a rate cap of 11.0% through December
      8,
      2006.  We entered into agreements which, taken collectively, fully,
      irrevocably and unconditionally guarantee, on a subordinated basis, all of
      PAB
      Trust I’s obligations under the trust preferred securities.  PAB Trust
      I’s sole asset is the debentures issued by us.  The debentures were
      scheduled to mature on December 8, 2031, but were callable at par at our option
      in whole or in part anytime on or after December 8, 2006.  We
      exercised our call option on the Debentures and redeemed the Debentures and
      the
      trust preferred securities on December 8, 2006.





During
      the first quarter of 2004, the Company adopted FASB Interpretation No. 46R
      (Revised December 2003), *Consolidation of Variable Interest
      Entities*.  This Interpretation addresses consolidation by
      business entities of variable interest entities and when such entities are
      subject to consolidation under the provisions of this
      Interpretation.  The Company has determined that the revised
      provisions required deconsolidation of PAB Trust I and PAB Trust
      II.  The interpretation did not have a material effect on the
      Company’s financial condition or results of operations.





At
      December 31, 2006, we had $17.4 million in an available secured credit line
      with
      the FHLB and an additional $50.0 million in unsecured Fed Funds lines of credit
      available with correspondent banks.


34
 *Table
          of Contents*


*Contractual
      Obligations*


Summarized
      below are our contractual obligations as of December 31, 2006.





Contractual
                Obligations
            
            Total
            
            
            1
                year or less
            
            
            Over
                1 to 3 years
            
            
            Over
                3 to 5 years
            
            
            More
                than 5 years(Dollars
                in Thousands)FHLB
                Advances
            
            $
            90,191
            
            
            $
            22
            
            
            $
            11,289
            
            
            $
            42,248
            
            
            $
            36,632Operating
                Lease Obligations
            
            
            1,959
            
            
            
            371
            
            
            
            620
            
            
            
            462
            
            
            
            506Guaranteed
                Preferred Beneficial Interests in Debentures
            
            
            10,310
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            10,310$
            102,460
            
            
            $
            393
            
            
            $
            11,909
            
            
            $
            42,710
            
            
            $
            47,448





*Off-Balance-Sheet
      Financing*


Our
      financial statements do not reflect various commitments and contingent
      liabilities that arise in the normal course of business.  These
      off-balance-sheet financial instruments include commitments to extend credit
      and
      standby letters of credit.  These financial instruments are included
      in the financial statements when funds are distributed or the instruments become
      payable.  Weuse the same credit policies in making these commitments as we do for
      on-balance-sheet instruments.Our exposure to credit loss in
      the event of nonperformance by the other party to the financial instrument
      for
      commitments to extend credit, standby letters of credit and credit card
      commitments is represented by the contractual amount of those instruments.
At December
      31,
      2006, we had outstanding commitments to extend credit through open lines of
      credit of approximately $154.5 million and outstanding standby letters of credit
      of approximately $7.3 million.





In
      June 2006, we entered into
      a $50 million notional amount, 3-year, 8.25% Prime rate floor contract to hedge
      against interest rate risk in a declining rate environment.  Notional
      amounts provide the basis for calculating payments between counterparties and
      do
      not represent amounts to be exchanged between parties, and are not a measure
      of
      financial risk.  The risk of loss with our counterparty is limited to
      a small fraction of the notional amount.  We only deal with
      counterparties that have strong credit ratings and are approved by our
      Board.  Due to these factors, we feel our credit risk exposure at
      December 31, 2006 was not material.





*Commitments
      of Capital*


In
      September 2006, we entered into an agreement to lease space for a full service
      branch in Snellville, Georgia.  At year-end, we had spent
      approximately $240,000 on improvements and furnishings for this property, and
      we
      have allocated an additional $377,000 to complete the leasehold improvements,
      furnish and equip the branch.  We were also in the process of
      replacing the carpet in our main office in Valdosta for a remaining cost of
      $50,000.





*Stockholders’
      Equity*


We
      are
      required to comply with capital adequacy standards established by our regulatory
      agencies.  See the section titled “*Capital Adequacy*” under
      the caption “*Supervision and Regulation*” in Item 1 of this Report for
      more information on the regulatory capital adequacy standards.





The
      following table summarizes our consolidated regulatory capital ratios at
      December 31, 2006, 2005 and 2004.





2006
            
            
            2005
            
            
            2004
            
            
            Minimum
                Regulatory RequirementTotal
                Capital to Risk Weighted Assets
            
            
            12.3
            %
            
            
            12.4
            %
            
            
            13.5
            %
            
            
            8.0
            %Tier
                1 Capital to Risk Weighted Assets
            
            
            11.1
            %
            
            
            11.1
            %
            
            
            12.2
            %
            
            
            4.0
            %Tier
                1 Capital to Average Assets (Leverage Ratio)
            
            
            9.1
            %
            
            
            9.2
            %
            
            
            10.4
            %
            
            
            4.0
            %




35
 *Table
          of Contents*


**RESULTS
      OF OPERATIONS**





**Net
      Interest Income**





The
      primary component of a financial institution’s profitability is net interest
      income, or the difference between the interest income earned on assets,
      primarily loans and investments, and interest paid on liabilities, primarily
      deposits and other borrowed funds.  Our net interest income for 2006,
      on a tax equivalent basis, increased by $5.31 million, or 13.6%, over
      2005.  Interest income (on a tax equivalent basis) increased $18.47
      million, or 31.0%, and interest expense increased by $13.16 million, or 64.5%,
      during 2006.  The growth in interest income is the result of a $114.6
      million increase in the average balance of our earning assets and a 108 basis
      point improvement in the average yield on those earning assets during the year,
      from 6.69% in 2005 to 7.77% in 2006.  The increase in interest expense
      is the result of a $118.5 million increase in the average balance of our
      interest-bearing liabilities and a 115 basis point rise in the average rate
      paid
      on those interest-bearing liabilities from 2.72% in 2005 to 3.87% in
      2006.





Our
      net
      interest income for 2005, on a tax equivalent basis, increased by $9.05 million,
      or 30.0%, over 2004.  Interest income (on a tax equivalent basis)
      increased $18.82 million, or 46.2%, and interest expense increased by $9.77
      million, or 92.0%, during 2005.  The growth in interest income is the
      result of a $186.0 million increase in the average balance of our earning assets
      and a 90 basis point improvement in the average yield on those earning assets
      during the year, from 5.79% in 2004 to 6.69% in 2005.  The increase in
      interest expense is the result of a $164.9 million increase in the average
      balance of our interest-bearing liabilities and a 90 basis point rise in the
      average rate paid on those interest-bearing liabilities from 1.82% in 2004
      to
      2.72% in 2005.





The
      net
      interest margin is net interest income expressed as a percentage of average
      earning assets.   Our net interest margin increased from 4.40% in
      2005 to 4.43% in 2006, a 3 basis point improvement.  Although our net
      interest margin improved for 2006, our ability to continue to improve our net
      interest margin in 2007 is not expected considering the current inversion of
      the
      interest rate curve, narrowing spreads on our earning assets, and our rising
      incremental cost of funds.  In fact, our net interest margin for the
      fourth quarter of 2006 was 4.09%, a 39 basis point decrease from the 4.48%
      net
      interest margin posted for the third quarter of 2006.





**Provision
      for Loan Losses**





The
      provision for loan losses is the charge to operating earnings necessary to
      maintain an adequate allowance for loan losses.  Through the
      provision, we maintain an allowance for loan losses that we believe is adequate
      to absorb losses inherent in our loan portfolio.  However, future
      additions to the allowance may be necessary based on growth in the loan
      portfolio, changes in economic conditions and other internal and external
      environmental factors.  In addition, various regulatory agencies, as
      an integral part of their examination procedures, periodically review our
      allowance for loan losses.  Based on their judgments about information
      available to them at the time of their examination, such agencies may require
      us
      to recognize additions to the allowance for loan losses.





For
      the
      year ended December 31, 2006, we did not incur a provision for loan losses,
      compared to a $1.19 million provision for the year 2005.  Factors
      necessitating a need for a provision, such as loan growth and credit and
      concentration risks were offset by low net charge-offs and a decline in the
      level of nonperforming loans since December 31, 2005.





We
      recorded $821,000 in loan charge-offs against the allowance for loan losses
      in
      2006, a 192.2% increase compared to $281,000 in charge-offs in
      2005.  However, we recovered $748,000 in previously charged-off loans
      during 2006, bringing our net charge-offs to $73,000, or 0.01% of average loans,
      for the year.


36
 *Table
          of Contents*


**Noninterest
      Income**





The
      following table summarizes noninterest income during the last three
      years.





For
                the Year Ended December 31,
            
            2006
            
            
            
            
            
            2005
            
            
            
            
            
            2004Amount
            
            
            Percentage
                Change
              2006
                vs. 2005
            
            
            Amount
            
            
            Percentage
                Change
              2005
                vs. 2004
            
            
            Amount(Dollars
                In Thousands)Service
                charges on deposit accounts
            
            $
            3,875
            
            
            
            -3.5
            %
            
            $
            4,017
            
            
            
            -9.1
            %
            
            $
            4,417Mortgage
                origination fees
            
            
            499
            
            
            
            -17.0
            %
            
            
            601
            
            
            
            15.1
            %
            
            
            522Brokerage
                commissions and fees
            
            
            10
            
            
            
            -23.1
            %
            
            
            13
            
            
            
            -89.3
            %
            
            
            121ATM
                / debit card fee income
            
            
            561
            
            
            
            19.4
            %
            
            
            470
            
            
            
            12.2
            %
            
            
            419Other
                commissions and fees
            
            
            246
            
            
            
            3.8
            %
            
            
            237
            
            
            
            5.3
            %
            
            
            225Securities
                transactions, net
            
            
            (542
            )
            
            
            4,827.3
            %
            
            
            (11
            )
            
            
            -320.0
            %
            
            
            5Earnings
                of bank-owned life insurance
            
            
            394
            
            
            
            14.5
            %
            
            
            344
            
            
            
            9.2
            %
            
            
            315Gain
                (loss) on disposal / write-down of assets
            
            
            23
            
            
            
            -129.1
            %
            
            
            (79
            )
            
            
            -166.4
            %
            
            
            119Other
                noninterest income
            
            
            314
            
            
            
            42.1
            %
            
            
            221
            
            
            
            10.0
            %
            
            
            201Total
                Noninterest Income
            
            $
            5,380
            
            
            
            -7.4
            %
            
            $
            5,813
            
            
            
            -8.4
            %
            
            $
            6,344





Noninterest
      income decreased 7.4% in 2006.  As a percentage of average assets,
      noninterest income, excluding securities transactions and other non-recurring
      gains and losses, has been 0.55%, 0.62% and 0.81% for each of the last three
      years ended December 31, 2006, 2005 and 2004, respectively.





Service
      charges on deposit accounts have declined over the past three years due to
      competitive pricing issues and the introduction of a free checking product
      with
      no monthly service fees.  Our NSF fees have also gradually decreased
      over the past few years, while overdraft fees have remained constant as we
      continue to offer overdraft protection on many of our deposit
      products.





Mortgage
      origination fees increased in 2005 due to an increase in the refinancing
      activity during the year, but decreased in 2006 as the refinancing activity
      slowed and due to turnover in mortgage originators during the year.





Brokerage
      income declined due to the sale of that business unit in February
      2004.





Fee
      income from ATM and debit cards increased in 2006 as the volume of point-of-sale
      transactions has continued to increase from previous years.  We also
      placed three additional ATMs in service during the fourth quarter of
      2006.  However, we are considering offering a no-fee ATM deposit
      product in selective markets for competitive reasons in 2007, which may reduce
      our ATM fee income opportunities going forward.





We
      incurred a net $542,000 loss on security transactions during 2006, compared
      to
      an $11,000 net loss in 2005.  During the first quarter of 2006, we
      sold $12.0 million in lower-yielding, cash flow bonds and replaced them with
      higher-yielding, call protected bonds to protect us in a declining interest
      rate
      environment.  During the third quarter of 2006, we sold a $5.0 million
      4.0% Agency bond and replaced it with a 6.0% Agency bond.  We incurred
      a net loss of $707,000 on these large securities transactions that we expect
      to
      recover in the form of an increase in interest income over the next few
      years.  These losses were partially offset by a $167,000 gain on sale
      of equity securities during the fourth quarter of 2006.





Earnings
      on bank-owned life insurance increased in 2006 due to the higher earnings credit
      on the policies resulting from the rising interest rate
      environment.





We
      recorded a net gain on the sale of ORE in 2006 of $23,000.  In 2005,
      the $79,000 loss on disposal of assets was due primarily to the write-down
      of
      obsolete equipment.  In 2004, we had a $200,000 gain on the sale of
      our brokerage services business unit and a $27,000 gain on the sale of a former
      branch office facility in Ocala, Florida.




37
 *Table
          of Contents*




**Noninterest
      Expense**





The
      following table summarizes noninterest expense during the last three
      years.





For
                the Year Ended December 31,
            
            2006
            
            
            
            
            
            2005
            
            
            
            
            
            2004Amount
            
            
            Percentage
                Change 2006 vs. 2005
            
            
            Amount
            
            
            Percentage
                Change 2005 vs. 2004
            
            
            Amount(Dollars
                In Thousands)Salaries
                and wages
            
            $
            15,396
            
            
            
            15.6
            %
            
            $
            13,322
            
            
            
            9.2
            %
            
            $
            12,201Deferred
                loan cost
            
            
            (1,774
            )
            
            
            10.3
            %
            
            
            (1,609
            )
            
            
            62.5
            %
            
            
            (990
            )Employee
                benefits
            
            
            4,396
            
            
            
            29.4
            %
            
            
            3,398
            
            
            
            18.7
            %
            
            
            2,862Net
                occupancy expense of premises
            
            
            2,005
            
            
            
            2.1
            %
            
            
            1,963
            
            
            
            4.5
            %
            
            
            1,878Furniture
                and equipment expense
            
            
            2,203
            
            
            
            5.8
            %
            
            
            2,082
            
            
            
            -0.4
            %
            
            
            2,091Advertising
                and business development
            
            
            573
            
            
            
            5.9
            %
            
            
            541
            
            
            
            9.1
            %
            
            
            496Supplies
                and printing
            
            
            496
            
            
            
            -5.9
            %
            
            
            527
            
            
            
            24.3
            %
            
            
            424Telephone
                and internet charges
            
            
            471
            
            
            
            28.3
            %
            
            
            367
            
            
            
            7.3
            %
            
            
            342Postage
                and courier
            
            
            569
            
            
            
            -6.4
            %
            
            
            608
            
            
            
            11.4
            %
            
            
            546Legal
                and accounting fees
            
            
            447
            
            
            
            7.5
            %
            
            
            416
            
            
            
            36.8
            %
            
            
            304Consulting
                fees
            
            
            307
            
            
            
            -25.7
            %
            
            
            413
            
            
            
            120.9
            %
            
            
            187Director
                fees and expenses
            
            
            435
            
            
            
            5.6
            %
            
            
            412
            
            
            
            47.7
            %
            
            
            279Service
                charges and fees
            
            
            504
            
            
            
            0.0
            %
            
            
            504
            
            
            
            16.4
            %
            
            
            433Other
                noninterest expense
            
            
            2,139
            
            
            
            16.6
            %
            
            
            1,834
            
            
            
            -8.4
            %
            
            
            2,002Total
                Noninterest Expense
            
            $
            28,167
            
            
            
            13.7
            %
            
            $
            24,778
            
            
            
            9.2
            %
            
            $
            23,055





Noninterest
      expense increased 13.7% in 2006, from $24.8 million in 2005 to $28.2 million
      in
      2006.  As a percentage of average assets, noninterest expense was
      2.64%, 2.61% and 3.01% in 2006, 2005 and 2004, respectively.  Our
      overhead efficiency ratio, a measure of noninterest expense as a percentage
      of
      net interest income plus other noninterest income, increased slightly from
      54.94% in 2005 to 55.88% in 2006.





The
      15.6%
      increase in salaries and wages is due to a 7.0% increase in the number of full
      time employees and annual raises.  We increased our staffing as we
      converted our Athens loan production office into a full service branch and
      we
      hired employees for our new Jacksonville and Snellville
      branches.  During the fourth quarter of 2005, we added two new members
      to our executive management team - a new Regional President for our South
      Georgia and Florida markets and a new Regional President for our North Georgia
      markets.





Deferred
      loan cost, which is a credit against salaries and wages, increased 10.3% from
      2005 and resulted in a decrease in expense reported during 2006, compared to
      2005.  The increase in the deferral of loan costs is due to an
      increase in loan volume and an increase in most standard loan costs during
      2006.





Employee
      benefits increased due to a 25% increase in health insurance costs and an
      increase in employees during 2006.  In 2006, we incurred additional
      deferred compensation expense of $238,000 due to adjusting the rate used in
      calculating the net present value of our deferred compensation
      obligations.  We also incurred $290,000 in stock option compensation
      expense during 2006, due to the implementation of FAS 123R.  (See Note
      17 – Stock Plans and Stock-Based Employee Compensation in the Notes to the
      Consolidated Financial Statements for a further discussion of FAS
      123R).





Occupancy
      expense and furniture and equipment expense increased in 2006 due to the
      addition of new facilities and the typical annual increases in property taxes
      and insurance, plus depreciation, repairs and utilities.





Telephone
      and internet charges increased significantly during 2006 due to the opening
      of
      new offices, additional lines needed for data transmission, the addition of
      redundant communication lines for contingencies and increased telecommunications
      rates and fees.





The
      7.5%
      increase in legal and accounting fees is related to an increase in our external
      accounting and audit fees.  Our legal fees remained constant from
      2005.


38
 *Table
          of Contents*


Consulting
      fees decreased 25.7% in 2006, due primarily to the reduction of pre-employment
      and recruiting costs paid to outside consultants and
      recruiters.  During 2006, the Company employed a recruiter to work
      exclusively for the Company.





The
      5.6%
      increase in director fees is attributable to additional committee meetings,
      director training and costs to hold a director strategic planning session during
      2006.





**Income
      Taxes**





The
      provision for income tax expense as a percentage of pre-tax income was 35.3%,
      33.8% and 32.7% for 2006, 2005 and 2004, respectively.  Due to an
      increase in taxable income, we shifted into the highest corporate income tax
      bracket in 2005.  There is also a difference between the effective
      rate and the statutory federal rate of 35% due to income earned on tax-exempt
      municipalities, earnings on the cash value of our bank-owned life insurance
      and
      state income taxes.  During 2006, we incurred additional Georgia
      income tax expense as a result of filing unconsolidated 2005 tax returns with
      our banking subsidiary, The Park Avenue Bank.





**Fourth
      Quarter Results**





For
      the
      fourth quarter of 2006, our net income was $3.3 million, or $0.34 per diluted
      share, compared to net income of $3.3 million, or $0.34 per share, posted in
      the
      fourth quarter of 2005.  However, we recorded $166,000 in securities
      gains during the fourth quarter of 2006 compared to a $10,000 loss on securities
      transaction in the fourth quarter of 2005.  Also, in the fourth
      quarter of 2006, we did not incur a provision for loan losses, compared to
      a
      $300,000 loan loss provision in the fourth quarter of 2005.  Our net
      interest margin for the fourth quarter of 2006 was 4.09% compared to 4.45%
      in
      2005.  The average yield on earning assets increased 66 basis points
      to 7.77% in the fourth quarter of 2006 from 7.11% in 2005.  However,
      the average rate paid on interest-bearing liabilities increased 110 basis
      points, from 3.14% in 2005 to 4.24% in the fourth quarter of 2006.





**Impact
      of Inflation**





Inflation
      impacts the growth in total assets in the banking industry and causes a need
      to
      increase equity capital at higher than normal rates to meet capital adequacy
      requirements.  We cope with the effects of inflation through managing
      our interest rate sensitivity gap position, by periodically reviewing and
      adjusting our pricing of services to consider current costs, and through
      managing our dividend payout policy relative to our level of
      income.  There has been minimal inflation experienced in the last
      three years.





**Critical
      Accounting Policies**





The
      preparation of financial statements and the related disclosures in conformity
      with accounting principles generally accepted in the United States requires
      that
      management make estimates and assumptions which affect the reported amounts
      of
      assets and liabilities and disclosure of contingent assets and liabilities
      at
      the date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period.  Actual results could differ
      from those estimates.  We believe that our determination of the
      allowance for loan losses and the fair value of assets, including the impairment
      of goodwill, affect our most significant judgments and estimates used in the
      preparation of our consolidated financial statements.  The Company’s
      accounting policies are described in detail in Note 1 of our Consolidated
      Financial Statements provided in Item 8 of this Report.  The following
      is a brief description of the Company’s critical accounting policies involving
      significant management valuation judgment.  Management has discussed
      these critical accounting policies with the Audit Committee.





*Allowance
      for Loan Losses*


The
      allowance for loan losses represents management’s estimate of losses inherent in
      the existing loan portfolio.  The allowance for loan losses is
      increased by the provision for loan losses charged to expense and reduced by
      loans charged off, net of recoveries.  The allowance for loan losses
      is determined based on management’s assessment of several factors including, but
      not limited to, reviews and evaluations of specific loans, changes in the nature
      and volume of the loan portfolio, current economic conditions and the related
      impact on segments of the loan portfolio, historical loan loss experiences
      and
      the level of classified and nonperforming loans.


39
 *Table
          of Contents*


Loans
      are
      considered impaired if, based on current information and events, it is probable
      that the Bank will be unable to collect the scheduled payments of principal
      or
      interest when due according to the contractual terms of the loan
      agreement.  The measurement of impaired loans is based on either the
      fair value of the underlying collateral, the present value of the future cash
      flows discounted at the historical effective interest rate stipulated in the
      loan agreement, or the estimated market value of the loan.  In
      measuring the fair value of the collateral, management uses assumptions (e.g.,
      discount rate) and methodologies (e.g., comparison to the recent selling price
      of similar assets) consistent with those that would be utilized by unrelated
      third parties.





Management’s
      assessment is inherently subjective, as it requires estimates that are
      susceptible to significant revision as more information becomes
      available.  Changes in various internal and external environmental
      factors including, but not limited to, the financial condition of individual
      borrowers, economic conditions, historical loss experience, or the condition
      of
      the various markets in which collateral may be sold may affect the required
      level of the allowance for loan losses and the associated provision for loan
      losses.  Should these environmental factors change, a different amount
      may be reported for the allowance for loan losses and the associated provision
      for loan losses.





*Estimates
      of Fair Value*


The
      estimation of fair value is significant to a number of the Company’s assets,
      including, but not limited to, investment securities, goodwill, other real
      estate owned, and other repossessed assets.  These are all recorded at
      either fair value or at the lower of cost or fair value.  Fair values
      are volatile and may be influenced by a number of
      factors.  Circumstances that could cause estimates of the fair value
      of certain assets and liabilities to change include a change in prepayment
      speeds, discount rates, or market interest rates.  Our estimates and
      assumptions are reviewed periodically and the effects of revisions are reflected
      in the consolidated financial statements in the period they are determined
      to be
      necessary.





Fair
      values for most investment securities are based on quoted market
      prices.  If quoted market prices are not available, fair values are
      based on the quoted prices of similar instruments.  The fair values of
      other real estate owned are typically determined based on appraisals by third
      parties, less estimated costs to sell.





Estimates
      of fair value are also required in performing an impairment analysis of
      goodwill.  The Company reviews goodwill for impairment on at least an
      annual basis and whenever events or circumstances indicate the carrying value
      may not be recoverable.  An impairment would be indicated if the
      carrying value exceeds the fair value of a reporting unit.





**Recent
      Accounting Pronouncements**





In
      management’s opinion, there are no recent accounting pronouncements that have
      had a material impact on PAB’s earnings or financial position as of or for the
      year ended December 31, 2006.  For more detailed disclosure on recent
      accounting developments, see Note 1 to the Consolidated Financial Statements
      included in Item 8 of this Report.





**ITEM
                7A.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**





We
      are
      subject to exposure from U.S. dollar interest rate changes and accordingly,
      we
      manage our exposure by considering the possible changes in the net interest
      margin.  We do not engage in trading activity nor do we classify any
      portion of the investment portfolio as held for trading.  Finally, we
      have no material direct exposure to foreign currency exchange rate risk,
      commodity price risk, and other market risks.





Interest
      rates play a major part in the net interest income of a financial
      institution.  The sensitivity to rate changes is known as “interest
      rate risk.”  The repricing of interest earning assets and
      interest-bearing liabilities can influence the changes in net interest
      income.  As part of our asset/liability management program, the timing
      of repriced assets and liabilities is referred to as gap
      management.  It is our policy to maintain a gap ratio in the one-year
      time horizon between 0.80 and 1.20.  At December 31, 2006, our
      one-year management-adjusted gap ratio of 0.96 was within our policy
      guidelines.  This is a significant improvement compared to our
      one-year gap position of 1.37 at December 31, 2005.  Although we are
      now showing a slightly liability-sensitive balance sheet gap position in the
      one-year time horizon, we still consider ourselves asset-sensitive relative
      to
      the impact on our earnings in a changing rate environment as evidenced by our
      three-month gap ratio of 1.36 at year-end.





After
      suffering through a period of rapidly declining interest rates that compressed
      our net interest margins by 103 basis points from 2000 to 2001, we have reduced
      the level of asset-sensitivity on the Company’s balance sheet in anticipation of
      another eventual downturn in interest rates.  We accomplished this by
      conscientiously lengthening the duration of our earning assets and shortening
      the duration of our deposits and other borrowings.  In June 2006, we
      entered into a $50 million 3-year 8.25% Prime rate floor contract in an
      additional effort to hedge our interest rate risk in a declining interest rate
      environment.


40
 *Table
          of Contents*


The
      table
      below has two measures of gap: regulatory and
      management-adjusted.  The regulatory gap considers only contractual
      maturities or repricings.  The management-adjusted gap includes
      assumptions regarding prepayment speeds on certain rate sensitive assets, the
      repricing frequency of interest-bearing demand and savings accounts, and the
      stability of core deposit levels, all of which are adjusted periodically as
      market conditions change.  The management-adjusted gap indicates we
      are highly asset sensitive in relation to changes in market interest rates
      in
      the short-term.  Being asset sensitive would result in net interest
      income increasing in a rising rate environment and decreasing in a declining
      rate environment.





Cumulative
                Repricing Gap Analysis3-Month
            
            
            6-Month
            
            
            1-Year(Dollars
                in Thousands)*Regulatory
                Defined*Rate
                Sensitive Assets (RSA)
            
            $
            580,846
            
            
            $
            605,934
            
            
            $
            655,199Rate
                Sensitive Liabilities (RSL)
            
            
            533,983
            
            
            
            628,562
            
            
            
            773,951RSA
                minus RSL (Gap)
            
            $
            46,863
            
            
            $
            (22,628
            )
            
            $
            (118,752
            )Gap
                Ratio (RSA/RSL)
            
            
            1.09
            
            
            
            0.96
            
            
            
            0.85*Management-Adjusted*Rate
                Sensitive Assets (RSA)
            
            $
            586,281
            
            
            $
            615,580
            
            
            $
            672,480Rate
                Sensitive Liabilities (RSL)
            
            
            431,742
            
            
            
            526,320
            
            
            
            701,193RSA
                minus RSL (Gap)
            
            $
            154,539
            
            
            $
            89,260
            
            
            $
            (28,713
            )Gap
                Ratio (RSA/RSL)
            
            
            1.36
            
            
            
            1.17
            
            
            
            0.96




We
      use
      simulation analysis to monitor changes in net interest income due to changes
      in
      market interest rates.  The simulation of rising, declining, and flat
      interest rate scenarios allows us to monitor and adjust interest rate
      sensitivity to minimize the impact of market interest rate
      swings.  The analysis of the impact on net interest income over a
      twelve-month period is subjected to increases or decreases in market rates
      on
      net interest income and is monitored on a quarterly basis.  Our policy
      states that net interest income cannot be reduced by more than 10% using this
      analysis.  As of December 31, 2006, the simulation model projected net
      interest income would increase 6.98% over the next year if market rates
      immediately rose by 200 basis points and the model projected net interest income
      to decrease 5.51% over the next year if market rates immediately fell by 200
      basis points.  These projections are a significant change from a
      13.54% increase projected at December 31, 2005 if market rates had increased
      by
      200 basis points and a 15.37% decrease projected at December 31, 2005 if market
      rates had fallen by 200 basis points.  The lower volatility in our
      results is due primarily to our efforts to neutralize our asset-sensitive
      balance sheet mix, to improve our asset/liability modeling with updated
      behavioral assumptions for repricing and prepayment speeds and to implement
      an
      off-balance sheet derivative hedging program.





The
      following table shows the results of these projections for net interest income
      expressed as a percentage change over net interest income in a flat rate
      scenario for both a gradual change in market interest rates over a twelve-month
      period and an immediate change, or “shock”, in market interest
      rates.




Market
              Effect
                  on Net Interest IncomeRate
                  Change
              Gradual
              Immediate+300
                  bps
              7.88%
              10.28%+200
                  bps
              6.66%
              6.98%+100
                  bps
              3.90%
              3.88%-100
                  bps
              -2.88%
              -3.01%-200
                  bps
              -4.21%
              -5.51%-300
                  bps
              -5.25%
              -10.32%




41
 *Table
          of Contents*


**ITEM
                8.**
            **FINANCIAL
                STATEMENTS AND SUPPLEMENTARY
                DATA**





**Quarterly
      Financial Summary for 2006 and 2005**


(The
      sum
      of the quarterly results presented may not agree with the results for the full
      year due to rounding.)





Quarterly
                Period EndedMarch
                31
            
            
            June
                30
            
            
            September
                30
            
            
            December
                31Year
                ended December 31, 2006:Interest
                income
            
            $
            17,848
            
            
            $
            19,306
            
            
            $
            20,173
            
            
            $
            20,239Interest
                expense
            
            
            6,956
            
            
            
            8,006
            
            
            
            8,936
            
            
            
            9,658Net
                interest income
            
            
            10,892
            
            
            
            11,300
            
            
            
            11,237
            
            
            
            10,581Provision
                for loan losses
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
                interest income after provision for loan losses
            
            
            10,892
            
            
            
            11,300
            
            
            
            11,237
            
            
            
            10,581Other
                income
            
            
            1,041
            
            
            
            1,557
            
            
            
            1,204
            
            
            
            1,578Other
                expenses
            
            
            6,756
            
            
            
            7,182
            
            
            
            7,000
            
            
            
            7,230Income
                before income taxes
            
            
            5,177
            
            
            
            5,675
            
            
            
            5,441
            
            
            
            4,929Income
                tax
            
            
            1,865
            
            
            
            2,083
            
            
            
            1,908
            
            
            
            1,632Net
                income
            
            $
            3,312
            
            
            $
            3,592
            
            
            $
            3,533
            
            
            $
            3,297Basic
                earnings per share
            
            $
            0.35
            
            
            $
            0.38
            
            
            $
            0.37
            
            
            $
            0.35Diluted
                earnings per share
            
            $
            0.34
            
            
            $
            0.37
            
            
            $
            0.36
            
            
            $
            0.34Year
                ended December 31, 2005:Interest
                income
            
            $
            12,467
            
            
            $
            14,180
            
            
            $
            15,783
            
            
            $
            16,941Interest
                expense
            
            
            3,894
            
            
            
            4,581
            
            
            
            5,556
            
            
            
            6,367Net
                interest income
            
            
            8,573
            
            
            
            9,599
            
            
            
            10,227
            
            
            
            10,574Provision
                for loan losses
            
            
            460
            
            
            
            154
            
            
            
            275
            
            
            
            300Net
                interest income after provision for loan losses
            
            
            8,113
            
            
            
            9,445
            
            
            
            9,952
            
            
            
            10,274Other
                income
            
            
            1,347
            
            
            
            1,459
            
            
            
            1,570
            
            
            
            1,437Other
                expenses
            
            
            5,765
            
            
            
            6,228
            
            
            
            6,259
            
            
            
            6,526Income
                before income taxes
            
            
            3,695
            
            
            
            4,676
            
            
            
            5,263
            
            
            
            5,185Income
                tax
            
            
            1,216
            
            
            
            1,549
            
            
            
            1,745
            
            
            
            1,856Net
                income
            
            $
            2,479
            
            
            $
            3,127
            
            
            $
            3,518
            
            
            $
            3,329Basic
                earnings per share
            
            $
            0.26
            
            
            $
            0.33
            
            
            $
            0.37
            
            
            $
            0.35Diluted
                earnings per share
            
            $
            0.26
            
            
            $
            0.32
            
            
            $
            0.36
            
            
            $
            0.34




42
 *Table
          of Contents*











**MANAGEMENT’S
      REPORT ON**


**INTERNAL
      CONTROL OVER FINANCIAL REPORTING**











The
      management of PAB Bankshares, Inc. (the “Company”) is responsible for
      establishing and maintaining adequate internal control over financial
      reporting.  This internal control system has been designed to provide
      reasonable assurance to the Company’s management and board of directors
      regarding the preparation and fair presentation of the Company’s published
      financial statements.





All
      internal control systems, no matter how well designed, have inherent
      limitations, including the possibility of human error and the circumvention
      or
      overriding of controls.  Therefore, even those systems determined to
      be effective can provide only reasonable assurance with respect to financial
      statement preparation and presentation.  Further, because of changes
      in conditions, the effectiveness of internal control over financial reporting
      may vary over time.





The
      management of the Company has assessed the effectiveness of the Company’s
      internal control over financial reporting as of December 31, 2006.  To
      make this assessment, we used the criteria for effective internal control over
      financial reporting described in *“Internal Control – Integrated
      Framework”*, issued by the Committee of Sponsoring Organizations of the
      Treadway Commission.  Based on our assessment, we believe that, as of
      December 31, 2006, the Company’s internal control over financial reporting was
      effective.





Our
      independent auditors have issued an attestation report on our assessment of
      the
      Company’s internal control over financial reporting.  A copy of the
      auditor’s attestation report is included in this Annual Report on Form
      10-K.




PAB
                  BANKSHARES, INC.*/s/
                  M. Burke Welsh, Jr*
              */s/
                  Donald J. Torbert, Jr.*M.
                  Burke Welsh, Jr.
              Donald
                  J. Torbert, Jr.President
                  and
              Executive
                  Vice President andChief
                  Executive Officer
              Chief
                  Financial OfficerFebruary
                  27, 2007
              February
                  27, 2007Date
              Date


43
 *Table
          of Contents*









**Certified
      Public Accountants, LLC**








**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**








**To
      the Board of Directors**


**PAB
      Bankshares, Inc.**


**Valdosta,
      Georgia**








We
      have audited management's
      assessment, included in the accompanying management’s report on internal control
      over financial reporting, that PAB Bankshares, Inc. and subsidiaries maintained
      effective internal control over financial reporting as of December 31, 2006,
      based on criteria established in *Internal Control - Integrated
      Framework* issued by the Committee of Sponsoring Organizations of the
      Treadway Commission (COSO).  PAB Bankshares, Inc.'s management is
      responsible for maintaining effective internal control over financial reporting
      and for its assessment of the effectiveness of internal control over financial
      reporting.  Our responsibility is to express an opinion on
      management's assessment, and an opinion on the effectiveness of the Company's
      internal control over financial reporting based on our audit.





We
      conducted our audit in accordance
      with the standards of the Public Company Accounting Oversight Board (United
      States).  Those standards require that we plan and perform the audit
      to obtain reasonable assurance about whether effective internal control over
      financial reporting was maintained in all material respects.  Our
      audit included obtaining an understanding of internal control over financial
      reporting, evaluating management's assessment, testing and evaluating the design
      and operating effectiveness of internal control, and performing such other
      procedures as we considered necessary in the circumstances.  We
      believe that our audit provides a reasonable basis for our opinion.





A
      company's internal control over
      financial reporting is a process designed to provide reasonable assurance
      regarding the reliability of financial reporting and the preparation of
      financial statements for external purposes in accordance with generally accepted
      accounting principles.  A company's internal control over financial
      reporting includes those policies and procedures that (1) pertain to the
      maintenance of records that, in reasonable detail, accurately and fairly reflect
      the transactions and dispositions of the assets of the Company; (2) provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles and that receipts and expenditures of the Company are
      being made only in accordance with authorizations of management and directors
      of
      the Company and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use, or disposition of the Company's
      assets that could have a material effect on the financial
      statements.


44
 *Table
          of Contents*


Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements.  Also, projections of any evaluation
      of effectiveness to future periods are subject to the risk that controls may
      become inadequate because of changes in conditions, or that the degree of
      compliance with the policies or procedures may deteriorate.





In
      our opinion, management’s assessment
      that PAB Bankshares, Inc. and subsidiaries maintained effective internal control
      over financial reporting as of December 31, 2006, is fairly stated, in all
      material respects, based on criteria established in *Internal Control -
      Integrated Framework* issued by the Committee of Sponsoring Organizations of
      the Treadway Commission (COSO).  Also, in our opinion, PAB Bankshares,
      Inc. and subsidiaries maintained, in all material respects, effective internal
      control over financial reporting as of December 31, 2006, based on criteria
      established in *Internal Control - Integrated Framework* issued by the
      Committee of Sponsoring Organizations of the Treadway Commission
      (COSO).





We
      have also audited, in accordance
      with the standards of the Public Company Accounting Oversight Board (United
      States), the consolidated balance sheets of PAB Bankshares, Inc. and
      subsidiaries as of December 31, 2006 and 2005, and the related consolidated
      statements of income, comprehensive income, stockholders' equity, and cash
      flows
      for each of the three years in the period ended December 31, 2006, and our
      report dated, February 27, 2007, expressed an unqualified opinion.













Albany,
      Georgia


February
      27, 2007




45
 *Table
          of Contents*









**Certified
      Public Accountants, LLC**







**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




**To
      the Board of Directors**


**PAB
      Bankshares, Inc.**


**Valdosta,
      Georgia**








We
      have audited the accompanying
      balance sheets of PAB Bankshares, Inc. and subsidiaries as of December 31,
      2006
      and 2005, and the related consolidated statements of income, comprehensive
      income, stockholders' equity and cash flows for each of the three years in
      the
      period ended December 31, 2006.  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 the standards of the Public Company
      Accounting Oversight Board (United States).  Those standards require
      that we plan and perform the audits 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 financial position of PAB Bankshares, Inc. and subsidiaries as of December
      31, 2006 and 2005, and the results of its operations and its cash flows for
      each
      of the three years in the period ended December 31, 2006 in conformity with
      accounting principles generally accepted in the United States of
      America.




46
 *Table
          of Contents*





We
      also have audited, in accordance
      with the standards of the Public Company Accounting Oversight Board (United
      States), the effectiveness of PAB Bankshares and subsidiaries’ internal control
      over financial reporting as of December 31, 2006, based on**criteria
      established in*Internal Control
      - Integrated
      Framework issued by the Committee of Sponsoring Organizations of the Treadway
      Commission (COSO)*and
      our report dated February 27, 2007*,*expressed
      an unqualified opinion on
      management’s assessment of the effectiveness of PAB Bankshares’ internal control
      over financial reporting and an unqualified opinion on the effectiveness of
      PAB
      Bankshares’ internal control over financial reporting.










Albany,
      Georgia


February
      27, 2007


47
 *Table
          of Contents*




**PAB
                BANKSHARES, INC. AND SUBSIDIARIES****CONSOLIDATED
                BALANCE SHEETS****DECEMBER
                31, 2006 AND 2005****2006**
            
            
            **2005****ASSETS**Cash
                and balances due from banks
            
            $
            26,712,252
            
            
            $
            21,196,183Interest-bearing
                deposits in other banks
            
            
            550,307
            
            
            
            3,077,900Federal
                funds sold
            
            
            41,612,728
            
            
            
            42,578,849Investment
                securities
            
            
            184,092,858
            
            
            
            157,454,725Loans
            
            
            820,304,092
            
            
            
            752,938,145Allowance
                for loan losses
            
            
            (11,006,097
            )
            
            
            (11,079,193
            )Net
                loans
            
            
            809,297,995
            
            
            
            741,858,952Premises
                and equipment, net
            
            
            20,779,587
            
            
            
            18,511,163Goodwill
            
            
            5,984,604
            
            
            
            5,984,604Cash
                value of bank-owned life insurance policies
            
            
            11,474,964
            
            
            
            11,080,722Other
                assets
            
            
            20,298,491
            
            
            
            15,583,269Total
                assets
            
            $
            1,120,803,786
            
            
            $
            1,017,326,367**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Deposits:Noninterest-bearing
                demand
            
            $
            100,910,593
            
            
            $
            107,917,453Interest-bearing
                demand and savings
            
            
            328,828,309
            
            
            
            284,125,557Time
            
            
            478,744,090
            
            
            
            423,637,732Total
                deposits
            
            
            908,482,992
            
            
            
            815,680,742Federal
                funds purchased and securities sold under agreements to
                repurchase
            
            
            7,648,664
            
            
            
            6,317,135Advances
                from the Federal Home Loan Bank of Atlanta
            
            
            90,190,702
            
            
            
            90,043,598Guaranteed
                preferred beneficial interests in debentures (trust preferred
                securities)
            
            
            10,310,000
            
            
            
            10,310,000Other
                liabilities
            
            
            8,855,694
            
            
            
            7,974,109Total
                liabilities
            
            
            1,025,488,052
            
            
            
            930,325,584Commitments
                and contingencies**Stockholders'
                equity:**Preferred
                stock, no par value; 1,500,000 shares authorized; no shares
                issued
            
            
            -
            
            
            
            -Common
                stock, no par value; 98,500,000 shares
                authorized;   9,504,969 and 9,469,017 shares issued and
                outstanding
            
            
            1,217,065
            
            
            
            1,217,065Additional
                paid-in capital
            
            
            27,584,852
            
            
            
            28,126,032Retained
                earnings
            
            
            67,476,178
            
            
            
            58,872,179Accumulated
                other comprehensive loss
            
            
            (962,361
            )
            
            
            (1,214,493
            )Total
                stockholders' equity
            
            
            95,315,734
            
            
            
            87,000,783Total
                liabilities and stockholders' equity
            
            $
            1,120,803,786
            
            
            $
            1,017,326,367





See
      accompanying notes to consolidated financial statements.


48
 *Table
          of Contents*





**PAB
                BANKSHARES, INC. AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF INCOME****YEARS
                ENDED DECEMBER 31, 2006, 2005 AND 2004****2006**
            
            
            **2005**
            
            
            **2004****Interest
                income:**Interest
                and fees on loans
            
            $
            67,353,896
            
            
            $
            51,804,646
            
            
            $
            35,096,225Interest
                and dividends on investment securities:Taxable
            
            
            7,718,646
            
            
            
            5,580,856
            
            
            
            5,022,307Nontaxable
            
            
            922,097
            
            
            
            413,026
            
            
            
            339,398Other
                interest income
            
            
            1,571,446
            
            
            
            1,572,029
            
            
            
            139,180Total
                interest income
            
            
            77,566,085
            
            
            
            59,370,557
            
            
            
            40,597,110**Interest
                expense:**Interest
                on deposits
            
            
            28,455,480
            
            
            
            16,475,739
            
            
            
            8,185,878Interest
                on Federal Home Loan Bank advances
            
            
            3,847,529
            
            
            
            3,053,155
            
            
            
            1,534,732Interest
                on other borrowings
            
            
            1,252,427
            
            
            
            868,954
            
            
            
            903,467Total
                interest expense
            
            
            33,555,436
            
            
            
            20,397,848
            
            
            
            10,624,077Net
                interest income
            
            
            44,010,649
            
            
            
            38,972,709
            
            
            
            29,973,033**Provision
                for loan losses**
            
            
            -
            
            
            
            1,188,600
            
            
            
            600,000Net
                interest income after provision for loan losses
            
            
            44,010,649
            
            
            
            37,784,109
            
            
            
            29,373,033**Other
                income:**Service
                charges on deposit accounts
            
            
            3,874,908
            
            
            
            4,017,244
            
            
            
            4,417,464Other
                fee income
            
            
            1,315,441
            
            
            
            1,320,987
            
            
            
            1,286,544Securities
                transactions, net
            
            
            (542,253
            )
            
            
            (11,464
            )
            
            
            5,164Other
                noninterest income
            
            
            731,544
            
            
            
            485,783
            
            
            
            634,912Total
                other income
            
            
            5,379,640
            
            
            
            5,812,550
            
            
            
            6,344,084**Other
                expenses:**Salaries
                and employee benefits
            
            
            18,017,713
            
            
            
            15,110,181
            
            
            
            14,072,903Occupancy
                expense of premises
            
            
            2,004,599
            
            
            
            1,962,923
            
            
            
            1,878,234Furniture
                and equipment expense
            
            
            2,202,592
            
            
            
            2,081,575
            
            
            
            2,090,497Other
                noninterest expense
            
            
            5,942,224
            
            
            
            5,623,480
            
            
            
            5,013,119Total
                other expenses
            
            
            28,167,128
            
            
            
            24,778,159
            
            
            
            23,054,753Income
                before income tax expense
            
            
            21,223,161
            
            
            
            18,818,500
            
            
            
            12,662,364**Income
                tax expense**
            
            
            7,487,944
            
            
            
            6,365,777
            
            
            
            4,144,279Net
                income
            
            $
            13,735,217
            
            
            $
            12,452,723
            
            
            $
            8,518,085**Earnings
                per common share:**Basic
            
            $
            1.45
            
            
            $
            1.31
            
            
            $
            0.89Diluted
            
            $
            1.41
            
            
            $
            1.28
            
            
            $
            0.88





See
      accompanying notes to consolidated financial statements.


49
 *Table
          of Contents*





**PAB
                BANKSHARES, INC. AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF COMPREHENSIVE INCOME****YEARS
                ENDED DECEMBER 31, 2006, 2005 AND 2004****2006**
            
            
            **2005**
            
            
            **2004**Net
                income
            
            $
            13,735,217
            
            
            $
            12,452,723
            
            
            $
            8,518,085Other
                comprehensive income (loss):Unrealized
                gain on cash flow hedge during the period,  net of tax of
                $60,703; $0; and $0
            
            
            129,124
            
            
            
            -
            
            
            
            -Unrealized
                holding losses on securities available for sale  arising during
                the period, net of tax benefit of $123,554;  $504,222; and
                $89,608
            
            
            (229,456
            )
            
            
            (923,493
            )
            
            
            (173,945
            )Reclassification
                adjustment for losses (gains) on securities  available for sale
                included in net income, net of tax  (benefit) of ($189,789);
                ($4,012); and $1,756
            
            
            352,464
            
            
            
            7,452
            
            
            
            (3,408
            )252,132
            
            
            
            (916,041
            )
            
            
            (177,353
            )Comprehensive
                income
            
            $
            13,987,349
            
            
            $
            11,536,682
            
            
            $
            8,340,732





See
      accompanying notes to consolidated financial statements.


50
 *Table
          of Contents*





**PAB
                BANKSHARES, INC. AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF STOCKHOLDERS’ EQUITY****YEARS
                ENDED DECEMBER 31, 2006, 2005 AND 2004****Accumulated****Additional**
            
            
            
            
            
            **Other****Common
                Stock**
            
            
            **Paid-in**
            
            
            **Retained**
            
            
            **Comprehensive****Shares**
            
            
            **Stated
                Value**
            
            
            **Capital**
            
            
            **Earnings**
            
            
            **Income
                (Loss)**
            
            
            **Total****Balance,
                December 31, 2003**
            
            
            9,484,660
            
            
            $
            1,217,065
            
            
            $
            29,314,700
            
            
            $
            45,651,500
            
            
            $
            (121,099
            )
            
            $
            76,062,166Net
                income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            8,518,085
            
            
            
            -
            
            
            
            8,518,085Other
                comprehensive loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (177,353
            )
            
            
            (177,353
            )Cash
                dividends declared, $.34 per share
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (3,231,331
            )
            
            
            -
            
            
            
            (3,231,331
            )Stock
                acquired and cancelled under stock repurchase plan
            
            
            (46,300
            )
            
            
            -
            
            
            
            (576,198
            )
            
            
            -
            
            
            
            -
            
            
            
            (576,198
            )Stock
                options exercised
            
            
            56,960
            
            
            
            -
            
            
            
            404,515
            
            
            
            -
            
            
            
            -
            
            
            
            404,515**Balance,
                December 31, 2004**
            
            
            9,495,320
            
            
            
            1,217,065
            
            
            
            29,143,017
            
            
            
            50,938,254
            
            
            
            (298,452
            )
            
            
            80,999,884Net
                income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            12,452,723
            
            
            
            -
            
            
            
            12,452,723Other
                comprehensive loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (916,041
            )
            
            
            (916,041
            )Cash
                dividends declared,  $.475 per share
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (4,518,798
            )
            
            
            -
            
            
            
            (4,518,798
            )Stock
                acquired and cancelled under stock repurchase plan
            
            
            (87,483
            )
            
            
            -
            
            
            
            (1,468,714
            )
            
            
            -
            
            
            
            -
            
            
            
            (1,468,714
            )Stock
                options exercised
            
            
            61,180
            
            
            
            -
            
            
            
            451,729
            
            
            
            -
            
            
            
            -
            
            
            
            451,729**Balance,
                December 31, 2005**
            
            
            9,469,017
            
            
            
            1,217,065
            
            
            
            28,126,032
            
            
            
            58,872,179
            
            
            
            (1,214,493
            )
            
            
            87,000,783Net
                income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            13,735,217
            
            
            
            -
            
            
            
            13,735,217Other
                comprehensive income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            252,132
            
            
            
            252,132Cash
                dividends declared,  $.54 per share
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (5,131,218
            )
            
            
            -
            
            
            
            (5,131,218
            )Stock
                acquired and cancelled under stock repurchase plan
            
            
            (124,559
            )
            
            
            -
            
            
            
            (2,503,298
            )
            
            
            -
            
            
            
            -
            
            
            
            (2,503,298
            )Stock-based
                compensation
            
            
            -
            
            
            
            -
            
            
            
            290,245
            
            
            
            -
            
            
            
            -
            
            
            
            290,245Stock
                options exercised
            
            
            160,511
            
            
            
            -
            
            
            
            1,671,873
            
            
            
            -
            
            
            
            -
            
            
            
            1,671,873**Balance,
                December 31, 2006**
            
            
            9,504,969
            
            
            $
            1,217,065
            
            
            $
            27,584,852
            
            
            $
            67,476,178
            
            
            $
            (962,361
            )
            
            $
            95,315,734





See
      accompanying notes to consolidated financial statements.


51
 *Table
          of Contents*





**PAB
                BANKSHARES, INC. AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****YEARS
                ENDED DECEMBER 31, 2006, 2005 AND 2004****2006**
            
            
            **2005**
            
            
            **2004****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                income
            
            $
            13,735,217
            
            
            $
            12,452,723
            
            
            $
            8,518,085Adjustments
                to reconcile net income to net cash  provided by operating
                activities:Depreciation,
                amortization and accretion, net
            
            
            1,668,092
            
            
            
            2,190,391
            
            
            
            2,558,296Provision
                for loan losses
            
            
            -
            
            
            
            1,188,600
            
            
            
            600,000Provision
                for deferred taxes
            
            
            303,268
            
            
            
            (940,628
            )
            
            
            (17,353
            )Net
                realized (gain) loss on securities transactions
            
            
            542,253
            
            
            
            11,464
            
            
            
            (5,164
            )Net
                (gain) loss on disposal or write down of assets
            
            
            (26,048
            )
            
            
            79,309
            
            
            
            81,314Stock-based
                compensation expense
            
            
            290,245
            
            
            
            -
            
            
            
            -Increase
                in cash value of bank-owned life insurance
            
            
            (394,242
            )
            
            
            (343,518
            )
            
            
            (315,126
            )Increase
                (decrease) in deferred compensation accrual
            
            
            223,709
            
            
            
            (14,727
            )
            
            
            (3,157
            )Increase
                (decrease) in retirement and severance accruals
            
            
            (232,441
            )
            
            
            (357,508
            )
            
            
            225,274Increase
                in interest receivable
            
            
            (1,372,405
            )
            
            
            (1,762,178
            )
            
            
            (294,422
            )Increase
                in interest payable
            
            
            397,514
            
            
            
            460,375
            
            
            
            265,438Increase
                in taxes receivable
            
            
            (730,032
            )
            
            
            (1,149,243
            )
            
            
            (374,462
            )Net
                change in other assets and other liabilities
            
            
            254,635
            
            
            
            622,312
            
            
            
            (151,006
            )Net
                cash provided by operating activities
            
            
            14,659,765
            
            
            
            12,437,372
            
            
            
            11,087,717**CASH
                FLOWS FROM INVESTING ACTIVITIES**(Increase)
                decrease in interest-bearing deposits in other banks
            
            
            2,527,593
            
            
            
            (2,093,163
            )
            
            
            (479,328
            )(Increase)
                decrease in federal funds sold
            
            
            966,121
            
            
            
            (9,962,728
            )
            
            
            (32,285,934
            )Purchase
                of debt securities
            
            
            (69,673,261
            )
            
            
            (59,463,549
            )
            
            
            (34,315,807
            )Proceeds
                from sales and calls of debt securities
            
            
            22,802,388
            
            
            
            12,794,845
            
            
            
            17,638,840Proceeds
                from maturities and paydowns of debt securities
            
            
            20,456,192
            
            
            
            16,447,139
            
            
            
            17,569,214Purchase
                of equity securities
            
            
            (887,783
            )
            
            
            (802,300
            )
            
            
            (3,666,200
            )Redemption
                of equity securities
            
            
            338,600
            
            
            
            418,800
            
            
            
            600Net
                increase in loans
            
            
            (74,742,227
            )
            
            
            (106,135,736
            )
            
            
            (109,835,353
            )Purchase
                of premises and equipment
            
            
            (5,344,196
            )
            
            
            (1,490,608
            )
            
            
            (754,628
            )Proceeds
                from disposal of assets
            
            
            6,398,818
            
            
            
            164,059
            
            
            
            6,047,535Net
                cash used in investing activities
            
            
            (97,157,755
            )
            
            
            (150,123,241
            )
            
            
            (140,081,061
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Net
                increase in deposits
            
            
            92,802,250
            
            
            
            158,130,306
            
            
            
            100,633,900Net
                increase (decrease) in federal funds purchased and
                securities  sold under repurchase agreements
            
            
            1,331,529
            
            
            
            (7,850,963
            )
            
            
            (22,751,692
            )Advances
                from Federal Home Loan Bank
            
            
            45,000,000
            
            
            
            38,318,600
            
            
            
            54,688,400Payments
                on Federal Home Loan Bank advances
            
            
            (44,852,896
            )
            
            
            (47,276,127
            )
            
            
            (401,318
            )Dividends
                paid
            
            
            (4,984,149
            )
            
            
            (4,284,703
            )
            
            
            (2,945,557
            )Proceeds
                from the exercise of stock options
            
            
            1,671,873
            
            
            
            451,729
            
            
            
            404,515Proceeds
                from the issuance of trust preferred securities
            
            
            10,000,000
            
            
            
            -
            
            
            
            -Redemption
                of trust preferred securities
            
            
            (10,000,000
            )
            
            
            -
            
            
            
            -Purchase
                of cash flow hedge derivative instrument
            
            
            (451,250
            )
            
            
            -
            
            
            
            -Repurchase
                of preferred stock in REIT subsidiaries
            
            
            -
            
            
            
            (8,000
            )
            
            
            (2,000
            )Liquidating
                distribution of preferred stock in REIT subsidiaries
            
            
            -
            
            
            
            (107,000
            )
            
            
            -Acquisition
                of stock under stock repurchase plans
            
            
            (2,503,298
            )
            
            
            (1,468,714
            )
            
            
            (576,198
            )Net
                cash provided by financing activities
            
            
            88,014,059
            
            
            
            135,905,128
            
            
            
            129,050,050


52
 *Table
          of Contents*





**PAB
                BANKSHARES, INC. AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****YEARS
                ENDED DECEMBER 31, 2006, 2005 AND 2004****2006**
            
            
            **2005**
            
            
            **2004**Net
                increase (decrease) in cash and balances due from banks
            
            $
            5,516,069
            
            
            $
            (1,780,741
            )
            
            $
            56,706Cash
                and balances due from banks at beginning of period
            
            
            21,196,183
            
            
            
            22,976,924
            
            
            
            22,920,218Cash
                and balances due from banks at end of period
            
            $
            26,712,252
            
            
            $
            21,196,183
            
            
            $
            22,976,924**SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION**Cash
                paid during the period for:Interest
            
            $
            33,157,922
            
            
            $
            19,937,473
            
            
            $
            10,358,639Taxes
            
            $
            7,532,047
            
            
            $
            8,455,648
            
            
            $
            4,536,094**NONCASH
                INVESTING AND FINANCING TRANSACTIONS**(Increase)
                decrease in unrealized losses on securities available for
                sale
            
            $
            189,243
            
            
            $
            (1,416,251
            )
            
            $
            (268,717
            )Increase
                in unrealized gain on cash flow hedge
            
            $
            189,827
            
            
            $
            -
            
            
            $
            -Transfer
                of loans to foreclosed assets
            
            $
            7,303,184
            
            
            $
            170,958
            
            
            $
            657,307





See
      accompanying notes to consolidated financial statements.


53
 *Table
          of Contents*


**PAB
      BANKSHARES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                1.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING
                POLICIES**





**Nature
      of Business**





PAB
      Bankshares, Inc. (the “Company”) is a bank holding company whose business is
      conducted primarily by its wholly-owned commercial bank subsidiary, The Park
      Avenue Bank (the “Bank”).  The Bank is a state-chartered member bank
      of the Federal Reserve System that was founded in 1956 in Valdosta, Lowndes
      County, Georgia.  Through the Bank, the Company offers a broad range
      of commercial and consumer banking products and services to customers located
      primarily in the local market areas listed below.  The Company and the
      Bank are subject to the regulations of certain federal and state agencies and
      are periodically examined by those regulatory agencies.  The following
      is a listing of the Bank’s offices as of December 31, 2006:





**Banking
                Locations**
            
            **Number
                of Offices****South
                Georgia Market:**Valdosta,
                Lowndes County, Georgia
            
            3
                (including the main office)Lake
                Park, Lowndes County, Georgia
            
            1Adel,
                Cook County, Georgia
            
            1Bainbridge,
                Decatur County, Georgia
            
            3Cairo,
                Grady County, Georgia
            
            1Statesboro,
                Bulloch County, Georgia
            
            2Baxley,
                Appling County, Georgia
            
            1Hazlehurst,
                Jeff Davis County, Georgia
            
            1**North
                Georgia Market:**McDonough,
                Henry County, Georgia
            
            1Stockbridge,
                Henry County, Georgia
            
            1Oakwood,
                Hall County, Georgia
            
            1Athens,
                Oconee County, Georgia
            
            1Atlanta,
                Cobb County, Georgia
            
            1
                (loan production office)Snellville,
                Gwinnett County, Georgia
            
            1
                (loan production office)**Florida
                Market:**Ocala,
                Marion County, Florida
            
            1St.
                Augustine, St. Johns County, Florida
            
            1
                (loan production office)Jacksonville,
                Duval County, Florida
            
            1





The
      Company also owns PAB Bankshares Capital Trust II, a Delaware statutory business
      trust.  This non-operating subsidiary was created in 2006 for the sole
      purpose of issuing trust preferred securities and investing the proceeds in
      subordinated debt issued by the Company, all of which are described more fully
      in Note 9.  The Company previously owned PAB Bankshares Capital Trust
      I, a Delaware statutory business trust, which was created in 2001 for the same
      purpose, and was dissolved in December 2006.  During the first quarter
      of 2004, the Company adopted Financial Accounting Standards Board (“FASB”)
      Interpretation No. 46R (Revised December 2003), *Consolidation of Variable
      Interest Entities*.  This interpretation addresses consolidation
      by business entities of variable interest entities and when such entities are
      subject to consolidation under the provisions of this
      interpretation.  The Company has determined that the revised
      interpretation requires deconsolidation of both PAB Bankshares Capital Trust
      I
      and II.  The adoption of the revised interpretation did not have a
      material effect on the Company’s financial condition or results of
      operations.





In
      1998,
      the Company formed two real estate investment trusts (each a “REIT”) and two
      intermediate REIT holding companies as subsidiaries of the Bank.  To
      comply with federal tax law, a minority interest in the nonvoting, cumulative
      preferred stock of the REITs was issued to certain directors, officers and
      employees of the Company.  The $500 par value preferred stock paid an
      8% annual dividend.  In order to simplify the organizational and tax
      structure of the Company, both the REITs and the REIT holding companies were
      liquidated and dissolved as of December 31, 2005.




54
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                1.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (Continued)**





**Basis
      of Presentation and Accounting Estimates**





The
      consolidated financial statements include the accounts of the Company and its
      subsidiaries.  Significant intercompany transactions and balances are
      eliminated in consolidation.





In
      preparing the consolidated financial statements in accordance with accounting
      principles generally accepted in the United States of America, management is
      required to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and the disclosure of contingent assets and liabilities
      as of the balance sheet date and the reported amounts of revenues and expenses
      during the reporting period.  Actual results could differ from those
      estimates.  Material estimates that are particularly susceptible to
      significant change relate to the determination of the allowance for loan losses,
      the valuation of goodwill, the valuation of foreclosed assets and deferred
      taxes.





**Cash
      and Balances Due from Banks and Cash Flows**





For
      purposes of reporting cash flows, cash and balances due from banks include
      cash
      on hand, cash items in process of collection and amounts due from
      banks.  Cash flows from loans, federal funds sold, interest bearing
      deposits in other banks, federal funds purchased and securities sold under
      repurchase agreements and deposits are reported net.





**Interest
      Bearing Deposits in Other Banks**





Interest-bearing
      deposits in other
      banks are primarily overnight funds or funds which mature within one year and
      are carried at cost.





**Investment
      Securities**





All
      debt
      securities are classified as available for sale and recorded at fair value
      with
      unrealized gains and losses excluded from earnings and reported in accumulated
      other comprehensive income (loss), net of the related deferred tax
      effect.  Equity securities are comprised of marketable equity
      securities recorded at fair value, restricted equity securities, which are
      the
      Bank’s required investments in the Federal Reserve Bank of Atlanta and the
      Federal Home Loan Bank of Atlanta, recorded at cost, and other equity
      securities, which consists of an investment in the common stock of a
      non-publicly traded correspondent bank.  The restricted and other
      equity securities without readily determinable fair values are periodically
      evaluated for impairment.  At December 31, 2006, there were no known
      events that have occurred to require an impairment evaluation for these
      investments.





The
      amortization of purchase premiums and accretion of discounts are recognized
      in
      interest income using the interest method over the lives of the
      securities.  Realized gains and losses on securities transactions,
      determined using the specific identification method, are included in earnings
      on
      the settlement date.  Declines in the fair value of securities below
      their cost that are deemed to be other-than-temporary are reflected in earnings
      as realized losses.  In determining other-than-temporary impairment
      losses, management considers (1) the length of time and the extent to which
      the
      fair value has been less than cost, (2) the financial condition and near-term
      prospects of the issuer, and (3) the intent and ability of the Company to retain
      its investment in the issuer for a period of time sufficient to allow for any
      anticipated recovery in fair value.





**Loans**





Loans
      are
      reported at their outstanding principal balances less unearned income, net
      deferred fees and costs on originated loans, and the allowance for loan
      losses.  Interest income is accrued on the outstanding principal
      balance.  Loan origination fees, net of certain direct loan
      origination costs, are deferred and recognized as an adjustment to the related
      loan yield over the life of the loan using the interest method except for loans
      which provide no scheduled payment terms or revolving lines of credit, which
      are
      recognized on the straight-line method.


55
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                1.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (Continued)**





**Loans,
      continued**





The
      accrual of interest on loans is discontinued when, in management's opinion,
      the
      borrower may be unable to meet payments as they become due, unless the loan
      is
      well-secured.  Past due status is based on contractual terms of the
      loan.  In all cases, loans are placed on nonaccrual or charged off at
      an earlier date if collection of principal or interest is considered
      doubtful.  All interest accrued but not collected for loans that are
      placed on nonaccrual status or charged off is reversed against interest income,
      unless management believes that the accrued interest is recoverable through
      the
      liquidation of collateral.  Interest income on nonaccrual loans is
      subsequently recognized only to the extent cash payments are received until
      the
      loan is returned to accrual status.  Loans are returned to accrual
      status when all the principal and interest amounts contractually due are brought
      current and future payments are reasonably assured.





A
      loan is
      considered impaired when it is probable the Company will be unable to collect
      all principal and interest payments due in accordance with the contractual
      terms
      of the loan agreement.  Impaired loans are measured by either the
      present value of expected future cash flows discounted at the loan’s effective
      interest rate, the loan’s obtainable market price, or the fair value of the
      collateral if the loan is collateral dependent.  The amount of
      impairment, if any, and any subsequent changes are included in the allowance
      for
      loan losses.  Interest on accruing impaired loans is recognized as
      long as such loans do not meet the criteria for nonaccrual status.





**Allowance
      for Loan Losses**





The
      allowance for loan losses is established through a provision for loan losses
      charged to expense.  Loan losses are charged against the allowance
      when management believes the collectibility of the principal is
      unlikely.  Subsequent recoveries, if any, are credited to the
      allowance.





The
      allowance is an amount that management believes will be adequate to absorb
      estimated losses in the loan portfolio.  The allowance for loan losses
      is evaluated on a regular basis by management and is based upon management’s
      periodic review of the collectibility of the loans in light of historical
      experience, the nature and volume of the loan portfolio, adverse situations
      that
      may affect the borrower’s ability to repay, estimated value of any underlying
      collateral, various internal and external environmental factors, and prevailing
      economic conditions.  This evaluation is inherently subjective as it
      requires estimates that are susceptible to significant revision as more
      information becomes available.  While management uses the best
      information available to make the evaluation, future adjustments to the
      allowance may be necessary if there are significant changes in economic
      conditions or other risk factors.  In addition, regulatory agencies,
      as an integral part of their examination process, periodically review the
      Company’s allowance for loan losses, and may require the Company to make
      additions to the allowance based on their judgment about information available
      to them at the time of their examinations.





**Premises
      and Equipment**





Land
      is
      carried at cost.  Buildings and equipment are stated at cost less
      accumulated depreciation computed principally by the straight-line method over
      the estimated useful lives of the assets, ranging from 10-39 years for buildings
      and improvements, and 3-10 years for furniture, fixtures and
      equipment.  Generally, furniture, fixtures and equipment with a cost
      per unit of less than $1,000 are expensed as incurred and are not
      capitalized.





**Goodwill**





Goodwill
      represents the excess of cost over the fair value of the net assets purchased
      in
      business combinations.  Goodwill is required to be tested annually for
      impairment, or whenever events occur that may indicate that the recoverability
      of the carrying amount is not probable.  In the event of impairment,
      the amount by which the carrying amount exceeds the fair value would be charged
      to earnings.  The Company performed its annual test of impairment in
      the fourth quarter and determined that there was no impairment of the carrying
      value as of November 30, 2006.





There
      were no changes in the carrying amount of goodwill during the years ended
      December 31, 2006, 2005 and 2004.


56
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                1.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (Continued)**





**Foreclosed
      Assets**





Foreclosed
      assets represent other real estate owned and other repossessions acquired
      through, or in lieu of, loan foreclosure or other
      proceedings.  Foreclosed assets are held for sale and are carried at
      the lower of cost or fair value less estimated disposal costs.  Any
      write-down to fair value at the time of transfer to foreclosed assets is charged
      to the allowance for loan losses.  Revenue and expenses from
      operations and changes in the valuation allowance are included in net expenses
      from foreclosed assets.  The amount of foreclosed assets at December
      31, 2006 and 2005 was approximately $988,000 and $42,000,
      respectively.





**Income
      Taxes**





Deferred
      income tax assets and liabilities are determined using the balance sheet
      method.  Under this method, the net deferred tax asset or liability is
      determined based on the tax effects of the temporary differences between the
      book and tax bases of the various balance sheet assets and liabilities and
      gives
      current recognition to changes in tax rates and laws.




**Stock
        Based Compensation Plans**





At
      December 31, 2006, the Company had options outstanding under two stock-based
      employee compensation plans, which are described in more detail in Note
      17.  Prior to January 1, 2006, the Company accounted for its stock
      option plans under the recognition and measurement provision of Accounting
      Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to
      Employees, and related Interpretations, as permitted by FASB No. 123, Accounting
      for Stock-Based Compensation.  Effective January 1, 2006, the
      Company adopted FASB No. 123R, Share-Based Payment, utilizing the “modified
      prospective” method as described in FASB No. 123R.  In the
“modified prospective” method, compensation cost is recognized for all
      stock-based payments granted after the effective date and for all unvested
      awards granted prior to the effective date.  In accordance with FASB
      No. 123R, prior period amounts were not restated.





The
      following table illustrates the effect on net income and earnings per share
      for
      the years ended December 31, 2005 and 2004 if the Company had applied the fair
      value recognition provisions of FASB Statement No. 123, *Accounting for
      Stock-Based Compensation*, to stock-based employee
      compensation.





**2005**
            
            
            **2004**Net
                income, as reported
            
            $
            12,452,723
            
            
            $
            8,518,085Deduct:Total
                stock-based employee compensation expense determined under fair value
                based method for all  awards, net of related tax
                effects
            
            
            (265,594
            )
            
            
            (216,551
            )Pro
                forma net income
            
            $
            12,187,129
            
            
            $
            8,301,534Earnings
                per share:Basic
                – as reported
            
            $
            1.31
            
            
            $
            0.89Basic
                – pro forma
            
            $
            1.29
            
            
            $
            0.87Diluted
                – as reported
            
            $
            1.28
            
            
            $
            0.88Diluted
                – pro forma
            
            $
            1.26
            
            
            $
            0.86





**Earnings
      Per Share**





Basic
      earnings per share are computed by dividing net income by the weighted-average
      number of shares of common stock outstanding during the year.  Diluted
      earnings per share are computed by dividing net income by the sum of the
      weighted-average number of shares of common stock outstanding and dilutive
      potential common shares.  Potential common shares consist only of
      stock options.


57
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                1.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (Continued)**





**Comprehensive
        Income (Loss)**





Accounting
      principles generally require that recognized revenue, expenses, gains and losses
      be included in net income.  Although certain changes in assets and
      liabilities, such as unrealized gains and losses on available for sale
      securities and cash flow hedge derivative instruments, are reported as a
      separate component of the equity section of the balance sheet, such items,
      along
      with net income, are components of comprehensive income.





**Recent
        Accounting Standards**





In
      July
      2006, the FASB issued Interpretation No. 48, *Accounting for Uncertainty in
      Income Taxes – An Interpretation of FASB Statement No. 109.*This
      interpretation addresses the accounting for uncertainty in income taxes
      recognized in a Company’s financial statements in accordance with FASB Statement
      No. 109, *Accounting for Income Taxes*.  It prescribes a
      comprehensive model for recognizing, measuring, presenting and disclosing in
      the
      financial statements tax positions taken or expected to be taken in a tax
      return.  It requires that only benefits from tax positions that are
      more-likely-than-not of being sustained upon examination should be recognized
      in
      the financial statements.  These benefits would be recorded at amounts
      considered to be the maximum amounts more-likely-than-not of being
      sustained.  At the time these positions become more-likely-than-not to
      be disallowed, their recognition would be reversed.  This
      interpretation is effective for fiscal years beginning after December 15, 2006
      and is not expected to have a material impact on the Company’s financial
      condition or results of operations.





In
      September 2006, the FASB issued SFAS 157, *Fair Value
      Measurements.*The standard provides guidance for using fair
      value to measure assets and liabilities.  It defines fair value,
      establishes a framework for measuring fair value under generally accepted
      accounting principles and expands disclosures about fair value
      measurement.  Under the standard, fair value refers to the price that
      would be received to sell an asset or paid to transfer a liability in an orderly
      transaction between market participants in the market in which the reporting
      entity transacts.  It clarifies the principle that fair value should
      be based on the assumptions market participants would use when pricing the
      asset
      or liability.  In support of this principle, the standard establishes
      a fair value hierarchy that prioritizes the information used to develop those
      assumptions.  Under the standard, fair value measurements would be
      separately disclosed by level within the fair value
      hierarchy.  Statement 157 is effective for financial statements issued
      for fiscal years beginning after November 15, 2007.  The Company is
      currently evaluating the impact the adoption of this statement could have on
      its
      financial condition, results of operations and cash flows.


58
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                2.**
            **RESTRICTIONS
                ON CASH AND BALANCES DUE FROM
                BANKS**





The
      Bank
      is required to maintain reserve balances in cash or on deposit with
      correspondent banks and the Federal Reserve Bank of Atlanta, based on a
      percentage of deposits.  The total of those reserve balances was
      approximately $7,533,000 and $5,893,000 at December 31, 2006 and 2005,
      respectively.








**NOTE
                3.**
            **INVESTMENT
                SECURITIES**





The
      amortized cost and approximate fair value of investment securities, with gross
      unrealized gains and losses, are summarized as follows.





**Amortized Cost**
            
            
            **Gross Unrealized Gains**
            
            
            **Gross Unrealized Losses**
            
            
            **Fair Value****December
                31, 2006**U.S.
                Government sponsored agencies
            
            $
            83,494,688
            
            
            $
            34,135
            
            
            $
            (1,235,002
            )
            
            $
            82,293,821State
                and municipal securities
            
            
            28,939,069
            
            
            
            255,044
            
            
            
            (302,374
            )
            
            
            28,891,739Mortgage-backed
                securities
            
            
            59,806,549
            
            
            
            46,967
            
            
            
            (978,046
            )
            
            
            58,875,470Corporate
                debt securities
            
            
            4,566,769
            
            
            
            -
            
            
            
            (38,519
            )
            
            
            4,528,250Equity
                securities
            
            
            8,964,991
            
            
            
            542,755
            
            
            
            (4,168
            )
            
            
            9,503,578$
            185,772,066
            
            
            $
            878,901
            
            
            $
            (2,558,109
            )
            
            $
            184,092,858**December
                31, 2005**U.S.
                Government sponsored agencies
            
            $
            71,825,255
            
            
            $
            5,162
            
            
            $
            (1,195,390
            )
            
            $
            70,635,027State
                and municipal securities
            
            
            14,244,616
            
            
            
            112,500
            
            
            
            (293,805
            )
            
            
            14,063,311Mortgage-backed
                securities
            
            
            61,167,446
            
            
            
            43,333
            
            
            
            (1,352,944
            )
            
            
            59,857,835Corporate
                debt securities
            
            
            3,590,060
            
            
            
            -
            
            
            
            (9,862
            )
            
            
            3,580,198Equity
                securities
            
            
            8,495,799
            
            
            
            822,555
            
            
            
            -
            
            
            
            9,318,354$
            159,323,176
            
            
            $
            983,550
            
            
            $
            (2,852,001
            )
            
            $
            157,454,725





The
      amortized cost and fair value of investment securities as of December 31, 2006,
      by contractual maturity, are shown below.  Maturities may differ from
      contractual maturities in mortgage-backed securities because the mortgages
      underlying the securities may be called or repaid without any
      penalties.  Equity securities have a perpetual life and no stated
      maturity; therefore, these securities and the mortgage-backed securities are
      shown separately from the other debt securities in the following maturity
      summary.





**Amortized
                Cost**
            
            
            **Fair Value**Due
                in one year or less
            
            $
            1,981,429
            
            
            $
            1,981,063Due
                from one year to five years
            
            
            31,243,951
            
            
            
            30,622,888Due
                from five to ten years
            
            
            35,423,932
            
            
            
            35,297,861Due
                after ten years
            
            
            48,351,214
            
            
            
            47,811,999Mortgage-backed
                securities
            
            
            59,806,549
            
            
            
            58,875,470Equity
                securities
            
            
            8,964,991
            
            
            
            9,503,577$
            185,772,066
            
            
            $
            184,092,858





Securities
      with a carrying value of $116,802,664 and $95,145,727 at December 31, 2006
      and
      2005, respectively, were pledged to secure public deposits, certain borrowing
      arrangements and for other purposes.


59
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                3.**
            **INVESTMENT
                SECURITIES (Continued)**





Gains
      and
      losses on sales and calls of investment securities for the years ended December
      31, 2006, 2005 and 2004 consist of the following:





**2006**
            
            
            **2005**
            
            
            **2004**Gross
                gains on securities transactions
            
            $
            167,187
            
            
            $
            14,834
            
            
            $
            7,132Gross
                losses on securities transactions
            
            
            (709,440
            )
            
            
            (26,298
            )
            
            
            (1,968
            )Net
                realized gain (loss) on securities transactions
            
            $
            (542,253
            )
            
            $
            (11,464
            )
            
            $
            5,164








The
      following table shows the gross unrealized losses and fair value of securities,
      aggregated by category, at December 31, 2006 and 2005.  At December
      31, 2006 there are eighteen U.S. Government sponsored agency debt issues,
      seventeen mortgage-backed securities issued by U.S. Government sponsored
      agencies, sixteen Municipal securities and one corporate debt security in the
      investment portfolio that have been in a continuous unrealized loss position
      for
      twelve months or longer.  As management has the intent and ability to
      hold the securities until maturity, or the foreseeable future, and due to the
      fact that the unrealized losses relate primarily to changes in interest rates
      and do not affect the expected cash flows of the underlying collateral or
      issuer, no declines are deemed to be other than temporary.





**Less
                than Twelve Months**
            
            
            **Twelve
                Months or Longer****December
                31, 2006**
            
            **Fair Value**
            
            
            **Unrealized Losses**
            
            
            **Fair Value**
            
            
            **Unrealized Losses**U.S.
                Government sponsored agencies
            
            $
            22,734,105
            
            
            $
            127,554
            
            
            $
            42,693,288
            
            
            $
            1,107,448State
                and municipal securities
            
            
            6,184,828
            
            
            
            52,529
            
            
            
            6,863,926
            
            
            
            249,845Mortgage-backed
                securities
            
            
            13,860,017
            
            
            
            106,937
            
            
            
            34,803,122
            
            
            
            871,109Corporate
                debt securities
            
            
            2,996,700
            
            
            
            23,101
            
            
            
            531,550
            
            
            
            15,418Equity
                securities
            
            
            517,773
            
            
            
            4,168
            
            
            
            -
            
            
            
            -Total
                temporarily impaired securities
            
            $
            46,293,423
            
            
            $
            314,289
            
            
            $
            84,891,886
            
            
            $
            2,243,820**December
                31, 2005**U.S.
                Government sponsored agencies
            
            $
            34,646,772
            
            
            $
            434,908
            
            
            $
            18,719,250
            
            
            $
            760,482State
                and municipal securities
            
            
            5,992,718
            
            
            
            248,924
            
            
            
            1,450,473
            
            
            
            44,881Mortgage-backed
                securities
            
            
            35,865,416
            
            
            
            642,374
            
            
            
            19,629,621
            
            
            
            710,570Corporate
                debt securities
            
            
            547,150
            
            
            
            9,862
            
            
            
            -
            
            
            
            -Total
                temporarily impaired securities
            
            $
            77,052,056
            
            
            $
            1,336,068
            
            
            $
            39,799,344
            
            
            $
            1,515,933




60
 *Table
          of Contents*





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                4.**
            **LOANS
                AND ALLOWANCE FOR LOAN
                LOSSES**





The
      composition of the loan portfolio as of December 31, 2006 and 2005
      follows.





**2006**
            
            
            **2005**Commercial
                and financial
            
            $
            66,376,066
            
            
            $
            50,860,445Agricultural
            
            
            43,302,385
            
            
            
            55,829,963Real
                estate – construction
            
            
            295,245,619
            
            
            
            268,628,852Real
                estate – commercial
            
            
            255,461,494
            
            
            
            231,600,720Real
                estate – residential
            
            
            142,501,330
            
            
            
            127,326,239Installment
                loans to individuals and others
            
            
            18,290,234
            
            
            
            20,178,657Overdrafts
            
            
            124,073
            
            
            
            201,113821,301,201
            
            
            
            754,625,989Deferred
                loan fees and unearned interest, net
            
            
            (997,109
            )
            
            
            (1,687,844
            )820,304,092
            
            
            
            752,938,145Allowance
                for loan losses
            
            
            (11,006,097
            )
            
            
            (11,079,193
            )$
            809,297,995
            
            
            $
            741,858,952





Changes
      in the allowance for loan losses for the years ended December 31, 2006, 2005
      and
      2004 follows.





**2006**
            
            
            **2005**
            
            
            **2004**Balance,
                beginning of year
            
            $
            11,079,193
            
            
            $
            9,066,566
            
            
            $
            10,139,114Provision
                charged to operations
            
            
            -
            
            
            
            1,188,600
            
            
            
            600,000Loans
                charged-off
            
            
            (821,214
            )
            
            
            (281,331
            )
            
            
            (2,572,845
            )Recoveries
            
            
            748,118
            
            
            
            1,105,358
            
            
            
            900,297Balance,
                end of year
            
            $
            11,006,097
            
            
            $
            11,079,193
            
            
            $
            9,066,566





A
      summary
      of information pertaining to impaired loans as of December 31, 2006 and 2005
      follows.





**2006**
            
            
            **2005**Loans
                accounted for on a nonaccrual basis
            
            $
            4,013,477
            
            
            $
            7,856,454Loans
                past due 90 days or more and still accruing
            
            
            33,688
            
            
            
            2,101Total
                nonperforming loans
            
            $
            4,047,165
            
            
            $
            7,858,555Valuation
                allowance related to impaired loans
            
            $
            601,564
            
            
            $
            1,234,616





Additional
      information on impaired loans for the years ended December 31, 2006, 2005,
      and
      2004 follows.





**2006**
            
            
            **2005**
            
            
            **2004**Average
                recorded investment in impaired loans
            
            $
            4,081,837
            
            
            $
            5,864,878
            
            
            $
            6,505,508Approximate
                amount of interest income that would have been recorded if the impaired
                loans had remained current and on an accrual status
            
            $
            261,598
            
            
            $
            412,208
            
            
            $
            357,385Interest
                income recognized on a cash basis on impaired loans
            
            $
            52,377
            
            
            $
            12,992
            
            
            $
            314,585


61
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                4.**
            **LOANS
                AND ALLOWANCE FOR LOAN LOSSES
                (Continued)**





In
      the
      ordinary course of business, the Company has granted loans to certain related
      parties, including executive officers, directors and their
      affiliates.  The interest rates on these loans were substantially the
      same as rates prevailing at the time of the transaction and repayment terms
      are
      customary for the type of loan.  Changes in related party loans for
      the year ended December 31, 2006 follows.





Balance,
                beginning of year
            
            $
            14,145,660Advances
            
            
            17,773,649Repayments
            
            
            (18,683,098
            )Balance,
                end of year
            
            $
            13,236,211








**NOTE
                5.**
            **PREMISES
                AND EQUIPMENT**





Premises
      and equipment as of December 31, 2006 and 2005 follows.





**2006**
            
            
            **2005**Land
            
            $
            6,227,080
            
            
            $
            4,604,748Buildings
                and improvements
            
            
            17,861,267
            
            
            
            16,798,789Furniture,
                fixtures and equipment
            
            
            9,942,429
            
            
            
            9,860,183Construction
                in progress; estimated cost to complete, $443,000
            
            
            210,112
            
            
            
            52,09234,240,888
            
            
            
            31,315,812Less
                accumulated depreciation
            
            
            (13,461,301
            )
            
            
            (12,804,649
            )$
            20,779,587
            
            
            $
            18,511,163





Depreciation
      expense amounted to $1,615,825, $1,715,036 and $1,838,412, for the years ended
      December 31, 2006, 2005 and 2004, respectively.





The
      Company leases office space at eight locations.  One location is
      leased on a month-to-month basis.  The other locations are under
      agreements with minimum contractual obligations as of December 31, 2006 as
      follows:





**Year**
            
            **Amount**2007
            
            $
            370,9712008
            
            
            362,2702009
            
            
            257,5452010
            
            
            238,9172011
            
            
            223,095Later
            
            
            505,827$
            1,958,625





The
      Company also has commitments on various short-term operating leases for
      equipment.  Total lease expense amounted to $401,090, $304,781 and
      $284,326 for the years ended December 31, 2006, 2005 and 2004,
      respectively.


62
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                6.**
            **DEPOSITS**





A
      summary
      of interest-bearing deposits as of December 31, 2006 and 2005
      follows.





**2006**
            
            
            **2005**Interest-bearing
                demand
            
            $
            291,693,803
            
            
            $
            244,359,693Savings
            
            
            37,134,506
            
            
            
            39,765,864Time,
                $100,000 and over
            
            
            198,807,994
            
            
            
            173,387,423Other
                time
            
            
            279,936,096
            
            
            
            250,250,309$
            807,572,399
            
            
            $
            707,763,289





The
      Company had $37,754,000 and $42,109,000 in brokered deposits included in time
      deposits $100,000 and over as of December 31, 2006 and 2005,
      respectively.





Interest
      expense on deposits for the years ended December 31, 2006, 2005 and 2004
      follows.





**2006**
            
            
            **2005**
            
            
            **2004**Interest-bearing
                demand
            
            $
            8,221,174
            
            
            $
            3,363,143
            
            
            $
            1,199,639Savings
            
            
            525,973
            
            
            
            313,214
            
            
            
            234,512Time,
                $100,000 and over
            
            
            8,111,150
            
            
            
            5,491,811
            
            
            
            2,373,902Other
                time
            
            
            11,597,183
            
            
            
            7,307,571
            
            
            
            4,377,825$
            28,455,480
            
            
            $
            16,475,739
            
            
            $
            8,185,878





The
      scheduled maturities of time deposits at December 31, 2006 follows.





**Year**
            
            **Amount**2007
            
            $
            324,847,3542008
            
            
            83,422,1362009
            
            
            32,468,9392010
            
            
            30,081,7812011
            
            
            7,893,692Later
            
            
            30,188$
            478,744,090








**NOTE
                7.**
            **SECURITIES
                SOLD UNDER REPURCHASE
                AGREEMENTS**





Securities
      sold under repurchase agreements, which are secured borrowings, generally mature
      within one day to 90 days from the transaction date.  Securities sold
      under repurchase agreements are reflected at the amount of cash received in
      connection with the transactions.  The Company may be required to
      provide additional collateral based on the fair value of the underlying
      securities.  The Company monitors the fair value of the underlying
      securities on a weekly basis.  Securities sold under repurchase
      agreements at December 31, 2006 and 2005 were $7,648,664 and $6,317,135,
      respectively.


63
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                8.**
            **ADVANCES
                FROM THE FEDERAL HOME LOAN
                BANK**





Listed
      below is a summary of the advances from the Federal Home Loan Bank of Atlanta
      (the “FHLB”) as of December 31, 2006 and 2005.





**2006**
            
            
            **2005**Adjustable
                rate advances due at various dates through May 7, 2013 with a
                weighted-average rate of 5.36% at December 31, 2006
            
            $
            35,941,580
            
            
            $
            15,441,580Fixed
                rate advances due at various dates through  February 26, 2024
                with a weighted-average rate of 4.58% at December 31, 2006
            
            
            15,249,122
            
            
            
            16,602,018Convertible
                advances due at various dates through March 25, 2019 with a
                weighted-average rate of 4.10% at December 31, 2006
            
            
            39,000,000
            
            
            
            58,000,000$
            90,190,702
            
            
            $
            90,043,598








The
      Bank
      has pledged $143,070,382 in qualifying residential and commercial real estate
      mortgage loans and $24,677,959 in investment securities as collateral on the
      advances from the FHLB.





Contractual
      maturities of the advances from the FHLB at December 31, 2006
      follow.





**Year**
            
            **Amount**2007
            
            
            603,0502008
            
            
            7,608,9872009
            
            
            4,839,1642010
            
            
            657,4562011
            
            
            10,263,803Later
            
            
            66,218,242$
            90,190,702




64
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                9.**
            **GUARANTEED
                PREFERRED BENEFICIAL INTERESTS IN
                DEBENTURES**





On
                October 5, 2006, PAB Bankshares Capital Trust II (“PAB Trust II”) issued
                $10 million of Floating Rate Capital Securities (“trust preferred
                securities”).  The Company formed PAB Trust II, a statutory
                business trust created under the laws of the State of Delaware, for
                the
                sole purpose of issuing the trust preferred securities and investing
                the
                proceeds in Floating Rate Junior Subordinated Debentures (the
                “Debentures”) issued by the Company.  The interest rates on both
                the trust preferred securities and the Debentures are reset quarterly
                at
                three-month LIBOR plus 1.63% (initially 7.00%).  The Company
                entered into agreements which, taken collectively, fully, irrevocably
                and
                unconditionally guarantee, on a subordinated basis, all of PAB Trust
                II’s
                obligations under the trust preferred securities.  PAB Trust
                II’s sole asset is the Debentures issued by the Company.  The
                Debentures will mature on December 31, 2036, but are callable at
                par by
                the Company in whole or in part anytime after December 31,
                2011.  The proceeds from the issuance of these trust preferred
                securities qualify as Tier 1 capital under the risk-based capital
                guidelines established by the Federal
                Reserve.





On
                November 28, 2001, PAB Bankshares Capital Trust I (“PAB Trust I”) issued
                $10 million of Floating Rate Capital Securities (“trust preferred
                securities”).  The Company formed PAB Trust I, a statutory
                business trust created under the laws of the State of Delaware, for
                the
                sole purpose of issuing the trust preferred securities and investing
                the
                proceeds in Floating Rate Junior Subordinated Debentures (the
                “Debentures”) issued by the Company.  The interest rates on both
                the trust preferred securities and the Debentures were reset semi-annually
                at LIBOR plus 3.75% with a rate cap of 11.0% through December 8,
                2006.  The Company entered into agreements which, taken
                collectively, fully, irrevocably and unconditionally guaranteed,
                on a
                subordinated basis, all of PAB Trust I’s obligations under the trust
                preferred securities.  PAB Trust I’s sole asset was the
                Debentures issued by the Company.  The Debentures were scheduled
                to mature on December 8, 2031, but were callable at par by the Company
                in
                whole or in part anytime after December 8, 2006.  The Company
                exercised its call option on the Debentures and redeemed the Debentures
                and the trust preferred securities on December 8,
                2006.





As
                discussed in Note 1, the Company adopted FASB Interpretation No.
                46R
                (Revised December 2003), *Consolidation of Variable Interest
                Entities,* during the first quarter of 2004.  This
                interpretation addresses consolidation by business entities of variable
                interest entities and when such entities are subject to consolidation
                under the provisions of this interpretation.  The Company
                determined that the revised provisions required deconsolidation of
                PAB
                Trust I and II.  The Company recorded $310,000 in other assets
                in the consolidated balance sheet at December 31, 2006 and 2005,
                respectively, for common capital securities issued by the issuer
                trusts.


65
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                10.**
            **INCOME
                TAXES**





The
      components of income tax expense for the years ended December 31, 2006, 2005
      and
      2004 follow.





**2006**
            
            
            **2005**
            
            
            **2004**Current
            
            $
            7,184,676
            
            
            $
            7,306,405
            
            
            $
            4,161,632Deferred
            
            
            303,268
            
            
            
            (940,628
            )
            
            
            (17,353
            )$
            7,487,944
            
            
            $
            6,365,777
            
            
            $
            4,144,279





The
      Company's income tax expense differs from the amounts computed by applying
      the
      federal income tax
      statutory rates to income before income taxes.  A reconciliation of
      the differences for the years ended December
      31, 2006, 2005 and 2004 follows.





**2006**
            
            
            **2005**
            
            
            **2004**Tax
                at statutory rate
            
            $
            7,428,106
            
            
            $
            6,586,475
            
            
            $
            4,326,730Increase
                (decrease) resulting from:State
                income tax, net offederal
                tax benefit
            
            
            352,316
            
            
            
            57,109
            
            
            
            30,471Investment
                tax credits
            
            
            167,422
            
            
            
            66,781
            
            
            
            -Tax
                exempt interest anddividend
                exclusion
            
            
            (345,461
            )
            
            
            (169,116
            )
            
            
            (152,661
            )Increase
                in cash value of bank-owned
                life insurance policies
            
            
            (137,985
            )
            
            
            (120,231
            )
            
            
            (107,679
            )Deferred
                tax adjustment
            
            
            (3
            )
            
            
            11
            
            
            
            111Stock
                based compensation
            
            
            (47,686
            )
            
            
            -
            
            
            
            -Other
                items, net
            
            
            71,235
            
            
            
            (55,252
            )
            
            
            47,307Income
                tax expense
            
            $
            7,487,944
            
            
            $
            6,365,777
            
            
            $
            4,144,279





The
      components of deferred income taxes at December 31, 2006 and 2005
      follow.





**2006**
            
            
            **2005**Deferred
                tax assets and (liabilities):Accrued
                severance payable
            
            $
            55,930
            
            
            $
            137,284Allowance
                for loan losses
            
            
            3,852,134
            
            
            
            3,877,718Deferred
                compensation
            
            
            789,867
            
            
            
            711,569Deferred
                loan origination cost
            
            
            (444,455
            )
            
            
            (403,454
            )Deferred
                loan origination fees
            
            
            778,234
            
            
            
            931,965Other
                assets
            
            
            104,492
            
            
            
            331,202Premises
                and equipment
            
            
            (638,872
            )
            
            
            (750,792
            )Nonqualified
                stock options
            
            
            34,894
            
            
            
            -Unrealized
                gain on cash flowhedge
                derivative instrument
            
            
            (60,703
            )
            
            
            -Unrealized
                loss on securitiesavailable
                for sale
            
            
            587,724
            
            
            
            635,273Net
                deferred tax assets
            
            $
            5,059,245
            
            
            $
            5,470,765




66
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                11.**
            **EMPLOYEE
                BENEFIT PLANS**





The
      Company provides an employee 401(k) plan for qualified employees.  The
      401(k) plan allows participants to defer a portion of their compensation and
      provides that the Company may match a portion of the participants’ deferred
      compensation.  The plan also provides for non-elective and
      discretionary profit sharing contributions to be made by the Company at the
      sole
      discretion of the Board of Directors.  Approximately 3.5% of the
      participants’ eligible compensation was accrued as the discretionary profit
      sharing contributions for 2006 and 2004, and 4.5% of the participants’ eligible
      compensation was accrued as the discretionary profit sharing contributions
      for
      2005.  The employer contributions are on a five-year vesting
      schedule.  All full-time and part-time employees are eligible to
      participate in the plan provided they have met the eligibility requirements.
      Generally, a participant must have completed one month of employment to become
      eligible, with employer contributions beginning after six months of
      employment.  Aggregate expense under the plan charged to operations
      during 2006, 2005 and 2004 amounted to $705,675, $756,288 and $705,747,
      respectively.








**NOTE
                12.**
            **DEFERRED
                COMPENSATION AND RETIREMENT
                PLANS**





Under
      separate deferred compensation agreements executed in prior years with certain
      officers, deferred compensation is to be payable over a fifteen-year period
      beginning at the earlier of age 65, death, or disability of each
      officer.  Annual accruals were made based on actuarial assumptions for
      the present value of the future obligations.  In 2001, the Board of
      Directors elected to terminate these plans.  At that time, the Company
      recorded an expense and an accrual of approximately $898,000 for the net present
      value of the liability covering two executive officers that were retiring at
      the
      end of 2001.  The total accrued liability for these deferred
      compensation plans was $2,256,763 and $2,033,054 at December 31, 2006 and 2005,
      respectively.  Aggregate expense under the deferred compensation plans
      charged to salaries and employee benefits expense were $388,796, $150,360,
      and
      $85,085 during 2006, 2005 and 2004, respectively.





In
      August
      2004, the Company entered into a severance agreement with a retiring executive
      officer that effectively terminated his then existing employment agreement
      and
      committed to pay a three-year severance package beginning in September
      2004.  The Company accrued $685,645 representing the net present value
      of the severance payments with the expense included in salaries and employee
      benefits for the year ended December 31, 2004.  The remaining
      liability in the severance plan payable as of December 31, 2006 and 2005 was
      $159,799 and $392,240, respectively.




67
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                13.**
            **OTHER
                INCOME AND EXPENSES**





Other
      fee
      income for the years ended December 31, 2006, 2005 and 2004
      follows.





**2006**
            
            
            **2005**
            
            
            **2004**Mortgage
                origination fees
            
            $
            498,727
            
            
            $
            600,615
            
            
            $
            521,511Brokerage
                commissions and fees
            
            
            9,831
            
            
            
            13,467
            
            
            
            121,017ATM
                and debit card fee income
            
            
            560,906
            
            
            
            470,421
            
            
            
            419,082Insurance
                premiums
            
            
            38,793
            
            
            
            47,379
            
            
            
            25,458Other
                fee income
            
            
            207,184
            
            
            
            189,105
            
            
            
            199,476Total
                other fee income
            
            $
            1,315,441
            
            
            $
            1,320,987
            
            
            $
            1,286,544





Other
      noninterest income for the years ended December 31, 2006, 2005 and 2004
      follows.





**2006**
            
            
            **2005**
            
            
            **2004**Earnings
                on bank-owned life insurance
            
            $
            394,242
            
            
            $
            343,518
            
            
            $
            315,126Gain
                (loss) on disposal and write-down of assets
            
            
            22,616
            
            
            
            (79,310
            )
            
            
            118,686Check
                order revenue
            
            
            230,606
            
            
            
            142,587
            
            
            
            141,157Other
                noninterest income
            
            
            84,080
            
            
            
            78,988
            
            
            
            59,943Total
                other noninterest income
            
            $
            731,544
            
            
            $
            485,783
            
            
            $
            634,912





Other
      noninterest expense for the years ended December 31, 2006, 2005 and 2004
      follows.





**2006**
            
            
            **2005**
            
            
            **2004**Advertising
                and business development
            
            $
            573,368
            
            
            $
            541,075
            
            
            $
            495,954Supplies
                and printing
            
            
            495,840
            
            
            
            527,389
            
            
            
            423,724Telephone
                and internet charges
            
            
            471,124
            
            
            
            366,995
            
            
            
            342,084Postage
                and courier
            
            
            569,309
            
            
            
            607,987
            
            
            
            546,286Legal
                and accounting fees
            
            
            446,842
            
            
            
            416,006
            
            
            
            303,506Director
                fees and expenses
            
            
            434,797
            
            
            
            412,762
            
            
            
            279,256Service
                charges and fees
            
            
            504,045
            
            
            
            504,137
            
            
            
            433,471Other
                noninterest expenses
            
            
            2,446,899
            
            
            
            2,247,129
            
            
            
            2,188,838Total
                other noninterest expense
            
            $
            5,942,224
            
            
            $
            5,623,480
            
            
            $
            5,013,119


68
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                14.**
            **EARNINGS
                PER COMMON SHARE**





The
      components used to calculate basic and diluted earnings per share for the years
      ended December 31, 2006, 2005 and 2004 follows.





**2006**
            
            
            **2005**
            
            
            **2004**Basic
                earnings per share:Net
                income
            
            $
            13,735,217
            
            
            $
            12,452,723
            
            
            $
            8,518,085Weighted
                average common shares outstanding
            
            
            9,499,434
            
            
            
            9,514,775
            
            
            
            9,499,709Earnings
                per common share
            
            $
            1.45
            
            
            $
            1.31
            
            
            $
            0.89Diluted
                earnings per share:Net
                income
            
            $
            13,735,217
            
            
            $
            12,452,723
            
            
            $
            8,518,085Weighted
                average common shares outstanding
            
            
            9,499,434
            
            
            
            9,514,775
            
            
            
            9,499,709Effect
                of dilutive stock options
            
            
            207,555
            
            
            
            172,119
            
            
            
            142,356Weighted
                average diluted common shares outstanding
            
            
            9,706,989
            
            
            
            9,686,894
            
            
            
            9,642,065Earnings
                per common share
            
            $
            1.41
            
            
            $
            1.28
            
            
            $
            0.88








For
      the
      years ended December 31, 2006, 2005 and 2004, options to purchase 59,896,
      101,983 and 175,639, respectively, were outstanding but not included in the
      computation of earnings per share because they were anti-dilutive.





**NOTE
                15.**
            **EMPLOYEE
                AND DIRECTOR STOCK PURCHASE
                PROGRAM**





On
      July
      1, 2002, the Board of Directors established an Employee and Director Stock
      Purchase Program to enable the Company and its participating subsidiaries to
      provide to their respective employees and directors a convenient means of
      purchasing for long term investment, and not for short term speculative gain,
      common stock of the Company and thereby promote interest in the Company’s
      continuing success, growth and development.  The program allows for an
      employee or director to purchase up to a maximum of $2,000 a year of the
      Company’s stock with the Company matching 50% of the participant’s
      purchase.  In order to be eligible, an employee must be full-time and
      have worked a full month.   During the years ended December 31,
      2006, 2005 and 2004, the Company recorded $138,458, $114,354 and $105,077,
      respectively, of expense associated with this program.  The number of
      shares in the program at December 31, 2006 and 2005 was 84,838 and 73,414,
      respectively.








**NOTE
                16.**
            **DIVIDEND
                REINVESTMENT AND COMMON STOCK PURCHASE
                PLAN**





In
      1993,
      the Board of Directors approved a dividend reinvestment and common stock
      purchase plan.  The plan is designed to provide stockholders with a
      simple and convenient means to reinvest cash dividends and make additional
      cash
      purchases of the Company’s common stock.  The Company acquires shares
      in the open market as needed to fill orders for dividend reinvestment and stock
      purchases under the plan rather than issuing additional shares of common
      stock.


69
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                17.**
            **STOCK
                PLANS AND STOCK-BASED
                COMPENSATION**





The
      Company has two fixed stock option plans under which it has granted options
      to
      its employees and directors to purchase common stock at the fair market price
      on
      the date of grant.  Both plans provide for “incentive stock options”
and “non-qualified stock options”.  The incentive stock options are
      intended to qualify under Section 422 of the Internal Revenue Code for favorable
      tax treatment.  It is the Company’s policy to issue new shares for
      stock option exercises.





Under
      the
      1994 Employee Stock Option Plan, the Board of Directors could grant up to
      400,000 stock options to employees of the Company as part of an incentive plan
      to attract and retain key personnel in the Company.  The 1994 Employee
      Stock Option Plan expired in 2004.





Under
      the
      1999 Stock Option Plan, the Board of Directors can grant up to 600,000 stock
      options to directors, employees, consultants and advisors of the
      Company.  On February 28, 2006, the Company’s Board of Directors
      adopted an amendment to the 1999 Stock Option Plan to increase the maximum
      aggregate number of shares of common stock for which options may be granted
      from
      600,000 shares to 1,400,000 shares and to extend the term of the Plan for ten
      years from the date of the adoption of these amendments.  This
      amendment was subsequently approved at the Company’s annual meeting of
      shareholders on May 23, 2006.  On December 31, 2006, there were
      722,766 stock options available for grant under the 1999 Stock Option
      Plan.





Prior
      to
      January 1, 2006, the Company accounted for its stock option plans under the
      recognition and measurement provision of Accounting Principles Board (“APB”)
      Opinion No. 25, *Accounting for Stock Issued to Employees*, and related
      Interpretations, as permitted by FASB No. 123, *Accounting for Stock-Based
      Compensation*.  Effective January 1, 2006, the Company
      adopted FASB No. 123R, *Share-Based Payment*, utilizing the
“modified prospective” method as described in FASB No. 123R.  In
      the “modified prospective” method, compensation cost is recognized for all
      stock-based payments granted after the effective date and for all unvested
      awards granted prior to the effective date.  In accordance with FASB
      No. 123R, prior period amounts were not restated. FASB No. 123R also
      requires the tax benefits associated with these stock-based payments to be
      classified as financing activities in the Consolidated Statements of Cash Flows,
      rather than as operating cash flows as required under previous
      regulations.





As
      a
      result of adopting FASB No. 123R on January 1, 2006, the Company’s income before
      income taxes and net income for the year ended December 31, 2006 decreased
      by
      $290,200 and $254,300, respectively, compared to accounting for stock-based
      compensation under APB Opinion No. 25.  Basic and diluted earnings per
      share for the year ended December 31, 2006 would have been $1.47 and $1.44,
      respectively, if the Company had not adopted FASB No. 123R, compared to reported
      basic and diluted earnings per share of $1.45 and $1.41,
      respectively.





At
      December 31, 2006, there was approximately $929,000 of unrecognized compensation
      cost related to stock-based payments, which is expected to be recognized over
      a
      weighted-average period of 3.65 years.


70
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
                  17.**
              **STOCK
                  PLANS AND STOCK-BASED EMPLOYEE COMPENSATION
                  (Continued)**




A
      summary
      of the status of the two fixed plans at December 31, 2006, 2005 and 2004 and
      changes during the years ended on those dates follows.





**2006**
            
            
            **2005**
            
            
            **2004****Number**
            
            
            **Weighted-
                Average Exercise Price**
            
            
            **Number**
            
            
            **Weighted-
                Average Exercise Price**
            
            
            **Number**
            
            
            **Weighted-
                Average Exercise Price**Under
                option, beginning of year
            
            
            703,597
            
            
            $
            11.91
            
            
            
            651,777
            
            
            $
            11.03
            
            
            
            695,367
            
            
            $
            10.60Granted
            
            
            121,500
            
            
            
            20.55
            
            
            
            122,500
            
            
            
            14.57
            
            
            
            23,000
            
            
            
            14.94Exercised
            
            
            (160,511
            )
            
            
            10.42
            
            
            
            (61,180
            )
            
            
            7.38
            
            
            
            (56,960
            )
            
            
            7.10Forfeited
            
            
            (5,300
            )
            
            
            13.58
            
            
            
            (9,500
            )
            
            
            13.16
            
            
            
            (9,630
            )
            
            
            13.01Under
                option, end of year
            
            
            659,286
            
            
            $
            13.85
            
            
            
            703,597
            
            
            $
            11.91
            
            
            
            651,777
            
            
            $
            11.03Exercisable
                at end of year
            
            
            403,486
            
            
            $
            12.08
            
            
            
            477,295
            
            
            $
            11.73
            
            
            
            461,013
            
            
            $
            11.45Weighted-average
                fair value per option of options granted during year
            
            
            
            
            
            $
            6.19
            
            
            
            
            
            
            $
            4.41
            
            
            
            
            
            
            $
            5.41Total
                grant-date fair value of options vested during the
                year
            
            
            
            
            
            $
            321,000
            
            
            
            
            
            
            $
            294,000
            
            
            
            
            
            
            $
            422,000Total
                intrinsic value of options exercised during the
                year
            
            
            
            
            
            $
            1,520,000
            
            
            
            
            
            
            $
            439,000
            
            
            
            
            
            
            $
            411,000




The
      following table presents information on stock options outstanding for the
      periods shown, less estimated forfeitures:





**Year
                ended**
              **December
                31, 2006**
            
            
            **Year
                ended**
              **December
                31, 2005**Stock
                options vested and expected to vest:Number
            
            
            612,723
            
            
            
            703,597Weighted
                average exercise price
            
            
            13.55
            
            
            
            11.91Aggregate
                intrinsic value
            
            
            4,763,000
            
            
            
            4,463,000Weighted
                average contractual term of options
            
            
            5.62
                years
            
            
            
            5.29
                yearsStock
                options vested and currently exercisable:Number
            
            
            403,486
            
            
            
            477,295Weighted
                average exercise price
            
            
            12.08
            
            
            
            11.73Aggregate
                intrinsic value
            
            
            3,729,000
            
            
            
            3,113,000Weighted
                average contractual term of options
            
            
            4.17
                years
            
            
            
            4.12
                years




71
 *Table
          of Contents*





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                17.**
            **STOCK
                PLANS AND STOCK-BASED EMPLOYEE COMPENSATION
                (Continued)**





A
      further
      summary of the options outstanding at December 31, 2006 follows.





**Options
                Outstanding**
            
            
            **Options
                Exercisable****Range
                of Exercise Prices**
            
            
            **Number**
            
            
            **Weighted-
                Average Contractual Life in Years**
            
            
            **Weighted-
                Average Exercise Price**
            
            
            **Number**
            
            
            **Weighted-
                Average Exercise Price**$
            7.70
                – 8.10
            
            
            
            80,850
            
            
            
            5.69
            
            
            $
            7.80
            
            
            
            55,450
            
            
            $
            7.798.19
                – 10.01
            
            
            
            71,000
            
            
            
            4.52
            
            
            
            9.46
            
            
            
            64,400
            
            
            
            9.4510.06
                – 10.20
            
            
            
            10,783
            
            
            
            .84
            
            
            
            10.09
            
            
            
            10,783
            
            
            
            10.0910.60
                – 10.60
            
            
            
            76,973
            
            
            
            4.74
            
            
            
            10.60
            
            
            
            76,973
            
            
            
            10.6010.71
                – 13.31
            
            
            
            88,000
            
            
            
            4.22
            
            
            
            12.60
            
            
            
            70,500
            
            
            
            12.4813.75
                – 14.13
            
            
            
            72,330
            
            
            
            7.71
            
            
            
            14.00
            
            
            
            19,530
            
            
            
            13.9314.32
                – 15.54
            
            
            
            20,000
            
            
            
            7.11
            
            
            
            15.42
            
            
            
            7,600
            
            
            
            15.4816.25
                – 16.25
            
            
            
            72,000
            
            
            
            2.80
            
            
            
            16.25
            
            
            
            72,000
            
            
            
            16.2516.99
                – 18.50
            
            
            
            75,850
            
            
            
            7.06
            
            
            
            17.97
            
            
            
            25,250
            
            
            
            17.7419.50
                – 21.63
            
            
            
            91,500
            
            
            
            9.85
            
            
            
            21.25
            
            
            
            1,000
            
            
            
            21.63659,286
            
            
            
            5.86
            
            
            
            13.85
            
            
            
            403,486
            
            
            
            12.08





The
      fair
      value of each option grant is estimated on the date of grant using the
      Black-Scholes option-pricing model with the assumptions listed in the table
      below.  Expected volatilities are based on historical volatility of
      the Company’s stock.  Expected dividends are based on dividend trends
      and the market price of the Company’s stock price at
      grant.  Historical data is used to estimate option exercises and
      employee terminations within the valuation model.  The risk-free rate
      for periods within the contractual life of the option is based on the U.S.
      Treasury yield curve in effect at the time of grant.





**2006**
            
            **2005**
            
            **2004**Risk-free
                interest rate
            4.39%
                - 4.86%
            
            3.95%
                - 4.27%
            
            3.67%
                - 4.25%Expected
                life of the options
            7
                -
                10 years
            
            7
                -
                10 years
            
            7
                -
                10 yearsExpected
                dividends (as a percent of the fair value of the
                stock)
            2.73%
                - 2.82%
            
            3.05%
                - 3.08%
            
            2.18%
                - 3.08%Weighted
                average expected dividends (as a percent of the fair value of the
                stock)
            2.80%
            
            3.06%
            
            2.38%Expected
                volatility
            30.73%
                - 32.19%
            
            32.68%
                - 35.29%
            
            33.98%
                - 35.23%Weighted-average
                expected volatility
            31.00%
            
            34.02%
            
            34.25%





**NOTE
                18.**
            **STOCK
                REPURCHASE PLAN**





In
      May
      2006, the Company’s Board of Directors renewed its annual plan to repurchase up
      to 300,000 shares of the Company’s common stock over the next twelve-month
      period.  During 2006 and 2005, the Company acquired and canceled
      124,559 and 87,483 shares of common stock, for an annual cost of $2,503,298
      and
      $1,468,713, respectively.  A balance of 234,617 shares remained
      available under the plan for repurchase at December 31, 2006.




72
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                19.**
            **DERIVATIVE
                FINANCIAL INSTRUMENTS**





The
      Company’s asset-liability management policy allows the use of certain derivative
      and financial instruments for hedging purposes in managing the Company’s
      interest rate risk.  The Company does not enter into derivatives or
      other financial instruments for trading or speculative purposes.  A
      derivative is a financial instrument that derives its cash flows, and therefore
      its value, by reference to an underlying instrument, index or referenced
      interest rate.  The most common derivative instruments include
      interest rate swaps, caps, floors and collars.  The Company accounts
      for its derivative financial instruments under FASB No. 133, Accounting for
      Derivative Instruments and Hedging Activities, and as such, the fair value
      of
      the floor is included in other assets in the Consolidated Statement of
      Condition.





In
      June
      2006, the Company entered into a $50 million notional amount, 3-year, 8.25%
      Prime rate floor contract to hedge against interest rate risk in a declining
      rate environment.  The premium paid for this contract was
      $451,250.  The contract is classified as a hedge of an exposure to
      changes in the cash flows of a recognized asset (“cash flow
      hedge”).  As a cash flow hedge, the portion of a change in the fair
      value of the derivative that has been deemed highly effective is recognized
      in
      other comprehensive income until the related cash flows from the hedged item
      are
      recognized in earnings.  The initial fair value of the premium paid is
      allocated and recognized in the same future period that the hedged forecasted
      transaction impacts earnings.  At December 31, 2006, the Company
      reported a $129,000 gain, net of a $61,000 tax effect, in other comprehensive
      income related to cash flow hedges.  The Company documents, both at
      inception and periodically over the life of the hedge, its analysis of actual
      and expected hedge effectiveness.  To the extent that the hedge of
      future cash flows is deemed ineffective, changes in the fair value of the
      derivative are recognized in earnings as a component of other non-interest
      expense.  For the three and twelve month periods ended December 31,
      2006, there was no ineffectiveness recognized in other non-interest expense
      attributable to cash flow hedges.  A summary of the Company’s
      derivative financial instruments at December 31, 2006 is shown in the following
      table:





**Notional
                amount**
            
            
            **Floor
                rate**
            
            
            **Maturity
                in months**
            
            
            **Estimated
                fair value at December 31, 2006**
            
            
            **Net
                unrealized gains (losses)****Derivatives
                Designated as Cash**
              **Flow
                Hedges:**Hedging
                cash flows on prime-based
                floating rate loans
            
            $
            50,000,000
            
            
            
            8.25
            %
            
            
            30
            
            
            $
            625,000
            
            
            $
            190,000**Total
                Derivative Instruments**
            
            $
            50,000,000
            
            
            
            8.25
            %
            
            
            30
            
            
            $
            625,000
            
            
            $
            190,000








**NOTE
                20.**
            **COMMITMENTS
                AND CONTINGENT LIABILITIES**





The
      Bank
      is a party to financial instruments with off-balance-sheet risk in the normal
      course of business to meet the financing needs of its
      customers.  These financial instruments include commitments to extend
      credit and standby letters of credit.  Such commitments involve, to
      varying degrees, elements of credit risk and interest rate risk in excess of
      the
      amount recognized in the balance sheets.  The majority of all
      commitments to extend credit and standby letters of credit are variable rate
      instruments.





The
      Bank's exposure to credit loss in the event of nonperformance by the other
      party
      to the financial instrument for commitments to extend credit and standby letters
      of credit is represented by the contractual amount of those instruments. The Bank uses the
      same credit
      policies in making commitments as it does for on-balance-sheet
      instruments.  A summary of the Bank's commitments as of
      December 31, 2006 and 2005 follows.





**2006**
            
            
            **2005**Commitments
                to extend credit
            
            $
            154,450,000
            
            
            $
            144,717,000Standby
                letters of credit
            
            $
            7,316,000
            
            
            $
            9,787,000





Commitments
      to extend credit
      are agreements to lend to a customer as long as there is no violation of any
      condition established in the contract.  Since many of the commitments
      are expected to expire without being drawn upon, the total commitment amounts
      do
      not necessarily represent future cash requirements.  The amount of
      collateral obtained, if deemed necessary by the Bank upon extension of credit,
      is based on management's credit evaluation of the
      customer.


73
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                20.**
            **COMMITMENTS
                AND CONTINGENT LIABILITIES
                (Continued)**





Standby
      letters of credit are conditional commitments issued by the Bank to guarantee
      the performance of a customer to a third party.  Those guarantees are
      primarily issued to support public and private borrowing
      arrangements.  The credit risk involved in issuing letters of credit
      is essentially the same as that involved in extending loans to
      customers.  Collateral is required in instances which the Bank deems
      necessary.





In
      the
      normal course of business, the Company is involved in various legal
      proceedings.  In the opinion of management, any liability resulting
      from such proceedings would not have a material adverse effect on the Company's
      financial statements.








**NOTE
                21.**
            **CONCENTRATIONS
                OF CREDIT**





The
      Bank
      originates commercial, agricultural, residential and consumer loans to customers
      primarily in markets served by the Bank.  The ability of the majority
      of the Bank's customers to honor their contractual obligations is dependent
      on
      the local economies in the geographical areas served by the Bank.





As
      of
      December 31, 2006, approximately 89% of the Bank's loan portfolio is
      concentrated in loans secured by real estate.  A substantial portion
      of these loans are in the Bank's primary market areas.  In addition,
      the other real estate owned is located in those same
      markets.  Accordingly, the ultimate collectibility of the Bank's loan
      portfolio and the recovery of the carrying amount of other real estate owned
      are
      susceptible to changes in market conditions in the Bank's market
      areas.  The other significant concentrations of credit by type of loan
      are set forth in Note 4.








**NOTE
                22.**
            **REGULATORY
                MATTERS**





The
      Bank
      is subject to certain restrictions on the amount of dividends that may be
      declared without prior regulatory approval.  At December 31, 2006,
      approximately $7,445,000 of the Bank’s retained earnings were available for
      dividend declaration without regulatory approval.





The
      Company and the Bank are subject to various regulatory capital requirements
      administered by the 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 financial statements.  Under capital adequacy
      guidelines and the regulatory framework for prompt corrective action, the
      Company and the Bank must meet specific capital guidelines that involve
      quantitative measures of the assets, liabilities, and certain off-balance-sheet
      items as calculated under regulatory accounting practices.  Capital
      amounts and classification are also subject to qualitative judgments by the
      regulators about components, risk weightings and other
      factors.  Prompt corrective action provisions are not applicable to
      bank holding companies.





Quantitative
      measures established by regulation to ensure capital adequacy require the
      Company and the Bank to maintain minimum amounts and ratios of total and Tier
      I
      capital to risk-weighted assets, as defined, and of Tier I capital to average
      assets, as defined.  Management believes, as of December 31, 2006 and
      2005, the Company and the Bank met all capital adequacy requirements to which
      they are subject.





As
      of
      December 31, 2006, the most recent notification from the regulatory authorities
      categorized the Bank as “Well Capitalized” under the regulatory framework for
      prompt corrective action.  To be categorized as “Well Capitalized”,
      the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier
      1
      leverage ratios as set forth in the following table.  There are no
      conditions or events since that notification that management believes have
      changed the Bank’s category.


74
 *Table
          of Contents*





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                22.**
            **REGULATORY
                MATTERS (Continued)**




The
      Company and the Bank’s actual capital amounts and ratios are presented in the
      following table.  All dollar amounts have been rounded to the nearest
      thousand.





**Actual**
            
            
            **For
                Capital Adequacy Purposes**
            
            
            **To
                Be Well Capitalized Under Prompt Corrective Action
                Provisions**As
                of December 31, 2006:Total
                Capital to Risk  Weighted Assets:Consolidated
            
            $
            111,579,000
            
            
            
            12.3
            %
            
            $
            72,432,000
            
            
            
            8.0
            %
            
            -
                N/A -Bank
            
            $
            111,339,000
            
            
            
            12.3
            %
            
            $
            72,322,000
            
            
            
            8.0
            %
            
            $
            90,402,000
            
            
            
            10.0
            %Tier
                1 Capital to Risk Weighted Assets:Consolidated
            
            $
            100,330,000
            
            
            
            11.1
            %
            
            $
            36,216,000
            
            
            
            4.0
            %
            
            
            -
                N/A -Bank
            
            $
            100,333,000
            
            
            
            11.1
            %
            
            $
            36,161,000
            
            
            
            4.0
            %
            
            $
            54,241,000
            
            
            
            6.0
            %Tier
                1 Capital to Average Assets:Consolidated
            
            $
            100,330,000
            
            
            
            9.1
            %
            
            $
            44,291,000
            
            
            
            4.0
            %
            
            
            -
                N/A -Bank
            
            $
            100,333,000
            
            
            
            9.2
            %
            
            $
            43,661,000
            
            
            
            4.0
            %
            
            $
            54,576,000
            
            
            
            5.0
            %As
                of December 31, 2005:Total
                Capital to Risk Weighted Assets:Consolidated
            
            $
            103,004,000
            
            
            
            12.4
            %
            
            $
            66,290,000
            
            
            
            8.0
            %
            
            
            -
                N/A -Bank
            
            $
            102,436,000
            
            
            
            12.4
            %
            
            $
            66,177,000
            
            
            
            8.0
            %
            
            $
            82,721,000
            
            
            
            10.0
            %Tier
                1 Capital to Risk Weighted Assets:Consolidated
            
            $
            92,267,000
            
            
            
            11.1
            %
            
            $
            33,145,000
            
            
            
            4.0
            %
            
            
            -
                N/A -Bank
            
            $
            92,087,000
            
            
            
            11.1
            %
            
            $
            33,088,000
            
            
            
            4.0
            %
            
            $
            49,633,000
            
            
            
            6.0
            %Tier
                1 Capital to Average Assets:Consolidated
            
            $
            92,267,000
            
            
            
            9.2
            %
            
            $
            40,059,000
            
            
            
            4.0
            %
            
            
            -
                N/A -Bank
            
            $
            92,087,000
            
            
            
            9.2
            %
            
            $
            39,968,000
            
            
            
            4.0
            %
            
            $
            49,960,000
            
            
            
            5.0
            %





**NOTE
                23.**
            **FAIR
                VALUE OF FINANCIAL
                INSTRUMENTS**





The
      fair value of a financial
      instrument is the current amount that would be exchanged between willing
      parties, other than in a forced liquidation.  Fair value is best
      determined based upon quoted market prices.  However, in many
      instances, there are no quoted market prices for the Company’s various financial
      instruments.  In cases where quoted market prices are not available,
      fair value is based on discounted cash flows or other valuation
      techniques.  These techniques are significantly affected by the
      assumptions used, including the discount rate and estimates of future cash
      flows.  Accordingly, the fair value estimates may not be realized in
      an immediate settlement of the instrument.  FASB Statement No. 107,*Disclosures
      about Fair Value of Financial Instruments,*excludes
      certain financial
      instruments and all non-financial instruments from its disclosure
      requirements.  Accordingly, the aggregate fair value amounts presented
      may not necessarily represent the underlying fair value of the
      Company.


75
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                23.**
            **FAIR
                VALUE OF FINANCIAL
                INSTRUMENTS**





The
      following methods and assumptions were used by the Company in estimating the
      fair value of its financial instruments:





**Cash
      and Balances Due From Banks, Interest-Bearing Deposits at Other Financial
      Institutions and Federal Funds Sold:**The carrying amount of
      cash and balances due from banks, interest-bearing deposits at other financial
      institutions and federal funds sold approximates fair value.





**Investment
      Securities:**The fair value of debt and marketable equity
      securities is based on available quoted market prices.  The carrying
      amount of equity securities with no readily determinable fair value approximates
      fair value.





**Loans:**The
      carrying amount of variable-rate loans that reprice frequently and have no
      significant change in credit risk approximates fair value.  The fair
      value of fixed-rate loans is estimated based on discounted contractual cash
      flows, using interest rates currently being offered for loans with similar
      terms
      to borrowers with similar credit quality.  The fair value of impaired
      loans is estimated based on discounted contractual cash flows or underlying
      collateral values, where applicable.





**Deposits:**The
      carrying amount of demand
      deposits and savings deposits approximates
      fair
      value.  The fair value of time deposits is estimated based on
      discounted contractual cash flows using interest rates currently being offered
      for time deposits of similar maturities.





**Federal
      Funds Purchased, Repurchase Agreements and Other
      Borrowings:**The carrying amount of variable rate borrowings,
      federal funds purchased and securities sold under repurchase agreements
      approximate fair value.****The fair value of fixed rate other
      borrowings are estimated based on discounted contractual cash flows using the
      current incremental borrowing rates for similar type borrowing
      arrangements.  The fair value of borrowings with convertible features
      is based on available quoted market values.





**Beneficial
      Interests in Debentures:**  The carrying amount of beneficial
      interests in debentures approximates fair value because these are variable
      rate
      instruments.





**Off-Balance-Sheet****Instruments:**The carrying amount of commitments to extend
      credit and standby letters of credit approximates fair value.  The
      carrying amount of these off-balance-sheet
      financial instruments is based on fees charged to enter into such
      agreements.  The carrying amount and fair value of cash flow hedge
      derivative instruments is based on available quoted market prices.





The
      carrying amounts and estimated fair value of the Company's financial instruments
      as of December 31, 2006 and 2005 are summarized below.  All dollar
      amounts have been rounded to the nearest thousand.





**2006**
            
            
            **2005****Carrying**
              **Amount**
            
            
            **Fair**
              **Value**
            
            
            **Carrying**
              **Amount**
            
            
            **Fair**
              **Value**Cash
                and balances due from banks, interest-bearing deposits with
                other banks and federal funds sold
            
            $
            68,875,000
            
            
            $
            68,875,000
            
            
            $
            66,853,000
            
            
            $
            66,853,000Investment
                securities
            
            
            184,093,000
            
            
            
            184,093,000
            
            
            
            157,455,000
            
            
            
            157,455,000Loans,
                net
            
            
            809,298,000
            
            
            
            808,642,000
            
            
            
            741,859,000
            
            
            
            739,794,000Cash
                flow hedge derivative instrument
            
            
            625,000
            
            
            
            625,000
            
            
            
            -
            
            
            
            -Deposits
            
            
            908,483,000
            
            
            
            909,374,000
            
            
            
            815,681,000
            
            
            
            816,150,000Federal
                funds purchased and securities sold under agreements to
                repurchase
            
            
            7,649,000
            
            
            
            7,649,000
            
            
            
            6,317,000
            
            
            
            6,317,000Advances
                from the FHLB
            
            
            90,191,000
            
            
            
            90,550,000
            
            
            
            90,044,000
            
            
            
            90,666,000Beneficial
                interest in debentures
            
            
            10,310,000
            
            
            
            10,310,000
            
            
            
            10,310,000
            
            
            
            10,310,000




76
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                24.**
            **CONDENSED
                FINANCIAL INFORMATION OF PAB BANKSHARES, INC.  (PARENT COMPANY
                ONLY)**





The
      following information presents the condensed financial statements for PAB
      Bankshares, Inc.





**PAB
                BANKSHARES, INC.****CONDENSED
                BALANCE SHEETS****DECEMBER
                31, 2006 AND 2005****2006**
            
            
            **2005****ASSETS**Cash
                on deposit with subsidiary bank
            
            $
            2,545,609
            
            
            $
            2,428,643Investment
                securities
            
            
            812,700
            
            
            
            1,172,500Investment
                in subsidiary
            
            
            105,280,203
            
            
            
            96,596,495Other
                assets
            
            
            653,573
            
            
            
            583,848Total
                assets
            
            $
            109,292,085
            
            
            $
            100,781,486**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Guaranteed
                preferred beneficial interests in debentures (trust preferred
                securities)
            
            $
            10,310,000
            
            
            $
            10,310,000Dividends
                payable
            
            
            1,330,696
            
            
            
            1,183,627Other
                liabilities
            
            
            2,335,655
            
            
            
            2,287,076Total
                liabilities
            
            
            13,976,351
            
            
            
            13,780,703**Stockholders'
                equity**
            
            
            95,315,734
            
            
            
            87,000,783Total
                liabilities and stockholders' equity
            
            $
            109,292,085
            
            
            $
            100,781,486




77
 *Table
          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                24.**
            **CONDENSED
                FINANCIAL INFORMATION OF PAB BANKSHARES, INC.****(PARENT
                COMPANY ONLY) (Continued)**


**PAB
                  BANKSHARES, INC.****CONDENSED
                  STATEMENTS OF INCOME****DECEMBER
                  31, 2006, 2005 AND 2004****2006**
              
              
              **2005**
              
              
              **2004****Income**Dividends
                  from subsidiaries
              
              $
              6,640,000
              
              
              $
              4,500,000
              
              
              $
              3,000,000Interest
                  and dividends on investment securities
              
              
              118,500
              
              
              
              22,226
              
              
              
              54,813Securities
                  transactions, net
              
              
              166,954
              
              
              
              -
              
              
              
              -Other
                  income
              
              
              -
              
              
              
              6
              
              
              
              120Total
                  income
              
              
              6,925,454
              
              
              
              4,522,232
              
              
              
              3,054,933**Expenses**
              
              
              2,134,953
              
              
              
              1,342,311
              
              
              
              1,047,898Income
                  before income tax benefit and equity in undistributed earnings
                  of
                  subsidiaries
              
              
              4,790,501
              
              
              
              3,179,921
              
              
              
              2,007,035**Income
                  tax benefit**
              
              
              695,010
              
              
              
              484,711
              
              
              
              326,567Income
                  (loss) before equity in undistributed earnings of
                  subsidiaries
              
              
              5,485,511
              
              
              
              3,664,632
              
              
              
              2,333,602Equity
                  in undistributed earnings of  subsidiaries
              
              
              8,249,706
              
              
              
              8,788,091
              
              
              
              6,184,483**Net
                  income**
              
              $
              13,735,217
              
              
              $
              12,452,723
              
              
              $
              8,518,085




78
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          of Contents*


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**NOTE
                24.**
            **CONDENSED
                FINANCIAL INFORMATION OF PAB BANKSHARES, INC.  (PARENT COMPANY
                ONLY) (Continued)**





**PAB
                BANKSHARES, INC.****CONDENSED
                STATEMENTS OF CASH FLOW****YEARS
                ENDED DECEMBER 31, 2006, 2005 AND 2004****2006**
            
            
            **2005**
            
            
            **2004****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                Income
            
            $
            13,735,217
            
            
            $
            12,452,723
            
            
            $
            8,518,085Adjustments
                to reconcile net income to net cash provided by (used in) operating
                activities:Depreciation
                and amortization
            
            
            (24,650
            )
            
            
            68,900
            
            
            
            68,899Deferred
                tax provision
            
            
            (30,815
            )
            
            
            9,936
            
            
            
            83,668Net
                realized gain on securities transactions
            
            
            (166,954
            )
            
            
            -
            
            
            
            -Undistributed
                earnings of subsidiaries
            
            
            (8,249,705
            )
            
            
            (8,788,091
            )
            
            
            (6,184,483
            )Increase
                (decrease) in deferred compensation accrual
            
            
            223,708
            
            
            
            (14,727
            )
            
            
            85,085Decrease
                in retirement accrual
            
            
            -
            
            
            
            (135,891
            )
            
            
            (388,583
            )Compensation
                expense related to stock options
            
            
            290,245
            
            
            
            -
            
            
            
            -Net
                change in other assets and liabilities
            
            
            (179,269
            )
            
            
            (70,080
            )
            
            
            (66,952
            )Net
                cash provided by operating activities
            
            
            5,597,777
            
            
            
            3,522,770
            
            
            
            2,115,719**CASH
                FLOWS FROM INVESTING ACTIVITIES**Purchase
                of debt securities
            
            
            (9,999,191
            )
            
            
            -
            
            
            
            -Redemption
                of equity securities
            
            
            246,954
            
            
            
            -
            
            
            
            -Proceeds
                from maturities of debt securities
            
            
            10,087,000
            
            
            
            -
            
            
            
            -Proceeds
                from call of equity securities
            
            
            -
            
            
            
            -
            
            
            
            1,000,000Net
                cash provided by investing activities
            
            
            334,763
            
            
            
            -
            
            
            
            1,000,000**CASH
                FLOWS USED IN FINANCING ACTIVITIES**Dividends
                paid
            
            
            (4,984,149
            )
            
            
            (4,284,703
            )
            
            
            (2,945,557
            )Proceeds
                from the issuance of trust preferred securities
            
            
            10,000,000
            
            
            
            -
            
            
            
            -Redemption
                of trust preferred securities
            
            
            (10,000,000
            )
            
            
            -
            
            
            
            -Proceeds
                from the exercise of stock options
            
            
            1,671,873
            
            
            
            451,729
            
            
            
            404,515Acquisition
                of stock under stock repurchase plans
            
            
            (2,503,298
            )
            
            
            (1,468,714
            )
            
            
            (576,198
            )Net
                cash used in financing activities
            
            
            (5,815,574
            )
            
            
            (5,301,688
            )
            
            
            (3,117,240
            )Net
                increase (decrease) in cash
            
            
            116,966
            
            
            
            (1,778,918
            )
            
            
            (1,521
            )Cash
                at beginning of period
            
            
            2,428,643
            
            
            
            4,207,561
            
            
            
            4,209,082Cash
                at end of period
            
            $
            2,545,609
            
            
            $
            2,428,643
            
            
            $
            4,207,561




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          of Contents*


**ITEM
                9.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                ACCOUNTING AND FINANCIAL
                DISCLOSURES**





There
      have been no changes in or disagreements with our accountants on accounting
      and
      financial disclosure matters in the past two fiscal years.








**ITEM
                9A.**
            **CONTROLS
                AND
                PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**





The
      term
      "disclosure controls and procedures" (defined in SEC Rule 13a-15(e)) refers
      to
      the controls and other procedures of a company that are designed to ensure
      that
      information required to be disclosed by a company in reports filed under the
      Securities Exchange Act of 1934 is recorded, processed, summarized, and reported
      within required time periods.   A review and evaluation was
      performed by the Company's management, including the Chief Executive Officer
      (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the
      Company's disclosure controls and procedures as of the end of the period covered
      by this Annual Report.  Based on that evaluation, the CEO and CFO have
      concluded that the Company's disclosure controls and procedures, as designed
      and
      implemented, were effective as of the end of the period covered by this Annual
      Report.





**Management's
      Report on Internal Control over Financial Reporting**





Management's
      Report on Internal Control Over Financial Reporting appears on page 43. 
The Report of Independent Registered Accounting Firm appears on page 44. 
These reports are incorporated by reference into this Item 9A.





**Changes
      in Internal Control over Financial Reporting**





The
      term
      "internal control over financial reporting" (defined in SEC Rule 13a-15(f))
      refers to the process of a company that is designed to provide reasonable
      assurance regarding the reliability of financial reporting and the preparation
      of financial statements for external purposes in accordance with generally
      accepted accounting principles.  The Company's management, with the
      participation of the Chief Executive Officer and Chief Financial Officer, have
      evaluated any changes in the Company's internal control over financial reporting
      that occurred during the period covered by this report, and have concluded
      that
      there was no change to the Company's internal control over financial reporting
      that has materially affected, or is reasonably likely to materially affect
      the
      Company's internal control over financial reporting.








**ITEM
                9B.**
            **OTHER
                INFORMATION**





There
      was
      no information required to be disclosed in a report on Form 8-K during the
      fourth quarter of 2006 that has not been reported.




**PART
      III**








**ITEM
                10.**
            **DIRECTORS
                AND EXECUTIVE OFFICERS AND CORPORATE
                GOVERNANCE**





Information
      regarding our directors and executive officers, board committees, codes of
      ethics, and compliance with Section 16 of the Exchange Act will be included
      in
      our definitive Proxy Statement (the “2007 Proxy Statement”) relating to the
      annual meeting of shareholders of PAB and is incorporated herein by
      reference.








**ITEM
                11.**
            **EXECUTIVE
                COMPENSATION**





Information
      regarding executive compensation will be included in the 2007 Proxy Statement
      and is incorporated herein by reference.


80
 *Table
          of Contents*


**ITEM
                12.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                AND RELATED STOCKHOLDER
                MATTERS**





Information
      regarding beneficial ownership of our common stock will be included in the
      2007
      Proxy Statement and is incorporated herein by reference.





*Equity
      Compensation Plan Information*


The
      following table summarizes the Company’s equity compensation plans as of
      December 31, 2006.





Plan
                Category
            Number
                of Securities to be Issued Upon Exercise of Outstanding Options,
                Warrants
                and Rights
            Weighted-Average
                Exercise Price of Outstanding Options, Warrants and Rights
            Number
                of Securities Remaining Available for Future Issuance Under Equity
                Compensation Plans*Equity
                Compensation PlansApproved
                by Security Holders
            659,286
            $13.85
            722,766Equity
                Compensation Plans NotApproved
                by Security Holders
            n/a
            n/a
            n/a





*excluding
      securities reflected in the first column





In
      addition to the equity compensation plans approved by our stockholders, we
      have
      the Employee and Director Stock Purchase Program (the “SPP”).  The
      Bank, serving as the SPP custodian, uses funds contributed from employees and
      directors up to an amount specified in the SPP, matched by the Company at a
      rate
      of 50%, to purchase shares of our common stock.  A participant may
      request a distribution of his or her entire account at any time.  A
      participant’s participation in the SPP terminates immediately upon termination
      of employment or director status.  The SPP is administered by a
      committee appointed by the Board of Directors.  We may amend or
      terminate the SPP or suspend the employer matching contributions at any
      time.  For more information about the SPP, see Note 15 in the
      accompanying Notes to the Consolidated Financial Statements in Item 8 of this
      Report.








**ITEM
                13.**
            **CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS, AND
                DIRECTORINDEPENDENCE**





Information
      regarding certain relationships and related transactions will be included in
      the
      2007 Proxy Statement and is incorporated herein by reference.








**ITEM
                14.**
            **PRINCIPAL
                ACCOUNTANT FEES AND
                SERVICES**





Information
      regarding principal accountant fees and services will be included in the 2007
      Proxy Statement and is incorporated herein by reference.




81
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          of Contents*


**PART
      IV**





**ITEM
                15.**
            **EXHIBITS
                AND FINANCIAL STATEMENT
                SCHEDULES**





**1.**
            **Financial
                Statements.**





The
      consolidated financial statements, notes thereto and auditor's report thereon,
      filed as part hereof, are listed in the Index to Item 8 of this
      Report.





**2.**
            **Financial
                Statement Schedules.**





All
      schedules are omitted as the required information is inapplicable or the
      information is presented in the financial statements or related
      notes.





**3.**
            **Exhibits.**








Exhibit
                No.
            
            Description3.1
            
            Amended
                and Restated Articles of Incorporation (incorporated by reference
                to
                Exhibit 3(a) to the Registrant's Registration Statement on Form S-4
                (No.
                333-83907) filed with the Commission on October 14,
                1999).3.2
            
            Amended
                and Restated Bylaws (incorporated by reference to Exhibit 3.2 to
                the
                Registrant’s Current Report on Form 8-K dated February 22,
                2005).4.1
            
            Amended
                and Restated Trust Agreement among PAB Bankshares, Inc., as Depositor,
                Wilmington Trust Company, as Property Trustee and Delaware Trustee,
                and
                the Administrative Trustees named therein dated as of October 5,
                2006
                (incorporated by reference to Exhibit 4.1 to the Registrant’s Current
                Report on Form 8-K dated October 6, 2006).4.2
            
            Junior
                Subordinated Indenture between PAB Bankshares, Inc. and Wilmington
                Trust
                Company, as Trustee dated as of October 5, 2006 (incorporated by
                reference
                to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated
                October 6, 2006).4.3
            
            Guarantee
                Agreement between PAB Bankshares, Inc., as Guarantor, and Wilmington
                Trust
                Company, as Guarantee Trustee dated as of October 5, 2006 (incorporated
                by
                reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K
                dated October 6, 2006).10.1
            
            PAB
                Bankshares, Inc. Third Amended and Restated Dividend Reinvestment
                and
                Common Stock Purchase Plan (incorporated by reference to Exhibit
                28.1 to
                the Registrant's Registration Statement on Form S-3 (No. 33-74080)
                filed
                with the Commission on September 1, 1998).10.2
            
            PAB
                Bankshares, Inc. 1994 Employee Stock Option Plan, as amended (incorporated
                by reference to Exhibit 10.3 to the Registrant's Annual Report on
                Form
                10-K for the fiscal year ended December 31, 1998).10.3
            
            Form
                of Executive Salary Continuation Agreement, with attached Schedule
                of
                Terms (incorporated by reference to Exhibit 10.5 to the Registrant's
                Annual Report on Form 10-K for the fiscal year ended December 31,
                1998).10.4
            
            PAB
                Bankshares, Inc. 1999 Stock Option Plan, as amended and restated
                (incorporated by reference to Exhibit 10.1 to the Registrant's
                Registration Statement on Form S-8 (No. 333-137316) filed with the
                Commission on September 14, 2006).10.5
            
            Employee
                Contract Termination Agreement, dated September 1, 2001, by and between
                C.
                Larry Wilkinson and the Registrant (incorporated by reference to
                Exhibit
                10.7 to the Registrant’s Annual Report on Form 10-K for the fiscal year
                ended December 31, 2001).




82
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          of Contents*




10.6
            
            Rescission
                Agreement, dated December 31, 2001, by and between R. Bradford Burnette
                and the Registrant (incorporated by reference to Exhibit 10.10 to
                the
                Registrant’s Annual Report on Form 10-K for the fiscal year ended December
                31, 2001).10.7
            
            PAB
                Bankshares, Inc. Employee and Director Stock Purchase Program, dated
                July
                1, 2002 and amended March 25, 2003 (incorporated by reference to
                Exhibit
                10.9 to the Registrant’s Annual Report on Form 10-K for the fiscal year
                ended December 31, 2002).10.8
            
            Employment
                Agreement, dated January 1, 2003, by and between Michael E. Ricketson,
                the
                Registrant, and the Bank (incorporated by reference to Exhibit 10.10
                to
                the Registrant’s Annual Report on Form 10-K for the fiscal year ended
                December 31, 2002).10.8.1
            
            First
                Amendment to Employment Agreement, dated August 25, 2003, by and
                between
                Michael E. Ricketson, the Registrant, and the Bank (incorporated
                by
                reference to Exhibit 10.14 to the Registrant’s Quarterly Report on Form
                10-Q for the fiscal quarter ended September 30, 2003).10.9
            
            Employment
                Agreement, dated January 1, 2003, by and between Milton Burke Welsh
                and
                the Bank (incorporated by reference to Exhibit 10.11 to the Registrant’s
                Annual Report on Form 10-K for the fiscal year ended December 31,
                2002).10.10
            
            Employment
                Agreement, dated January 1, 2003, by and between R. Wesley Fuller
                and the
                Bank (incorporated by reference to Exhibit 10.12 to the Registrant’s
                Annual Report on Form 10-K for the fiscal year ended December 31,
                2002).10.11
            
            Employment
                Agreement, dated January 1, 2003, by and between Donald J. Torbert,
                Jr.
                and the Bank (incorporated by reference to Exhibit 10.13 to the
                Registrant’s Annual Report on Form 10-K for the fiscal year ended December
                31, 2002).10.11.1
            
            First
                Amendment to Employment Agreement, dated August 26, 2003, by and
                between
                Donald J. Torbert, Jr. and the Bank (incorporated by reference to
                Exhibit
                10.15 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal
                quarter ended September 30, 2003).10.12
            
            Employment
                Contract Termination Agreement, dated August 9, 2004, by and between
                Michael E. Ricketson, the Registrant, and the Bank (incorporated
                by
                reference to Exhibit 10.12 to the Registrant’s Quarterly Report on Form
                10-Q for the fiscal quarter ended September 30, 2004).21.1
            
            Subsidiaries
                of the Registrant.23.1
            
            Consent
                of Mauldin & Jenkins, LLC.31.1
            
            Rule
                13a-14(a) Certification of Chief Executive Officer31.2
            
            Rule
                13a-14(a) Certification of Chief Financial Officer32.1
            
            Section
                1350 Certification of Chief Executive Officer32.2
            
            Section
                1350 Certification of Chief Financial
                Officer




83
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          of Contents*


**SIGNATURES**


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





**PAB
                BANKSHARES, INC.**Date:
                *March 16, 2007*By:
            */s/
                M. Burke Welsh, Jr.*M.
                Burke Welsh, Jr.President
                and Chief Executive Officer





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated.





Signature
            
            Title
            
            Date*/s/
                R. Bradford Burnette*
            
            Director
            
            *March
                16, 2007*R.
                Bradford Burnette*/s/
                Walter W. Carroll II*
            
            Director
            
            *March
                16, 2007*Walter
                W. Carroll II*/s/
                James L. Dewar, Jr.*
            
            Director,
                Chairman
            
            *March
                16, 2007*James
                L. Dewar, Jr.*/s/
                Michael H. Godwin*
            
            Director
            
            *March
                16, 2007*Michael
                H. Godwin*/s/
                Bill J. Jones*
            
            Director
            
            *March
                16, 2007*Bill
                J. Jones*/s/
                James B. Lanier, Jr.*
            
            Director
            
            *March
                16, 2007*James
                B. Lanier, Jr.*/s/
                John E. Mansfield, Jr.*
            
            Director
            
            *March
                16, 2007*John
                E. Mansfield, Jr.*/s/
                Kennith D. McLeod*
            
            Director
            
            *March
                16, 2007*Kennith
                D. McLeod, CPA*/s/
                Douglas W. McNeill*
            
            Director
            
            *March
                16, 2007*Douglas
                W. McNeill*/s/
                Paul E. Parker*
            
            Director
            
            *March
                16, 2007*Paul
                E. Parker*/s/
                F. Ferrell Scruggs, Sr.*
            
            Director
            
            *March
                16, 2007*F.
                Ferrell Scruggs, Sr.*/s/
                John M. Simmons*
            
            Director
            
            *March
                16, 2007*John
                M. Simmons*/s/
                Joe P. Singletary, Jr.*
            
            Director
            
            *March
                16, 2007*Joe
                P. Singletary, Jr.*/s/
                Donald J. Torbert, Jr.*
            
            Executive
                Vice President and
            
            *March
                16, 2007*Donald
                J. Torbert, Jr., CPA
            
            Chief
                Financial Officer (PrincipalFinancial
                and Accounting Officer)*/s/
                M. Burke Welsh, Jr.*
            
            Director,
                President and
            
            *March
                16, 2007*M.
                Burke Welsh, Jr.
            
            Chief
                Executive Officer(Principal
                Executive Officer)






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