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, 2007





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 xNo  ̈





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, a non-accelerated filer. Or a smaller reporting
company.  See definition of “accelerated filer,” “large accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.


Large
accelerated filer  ̈Accelerated filer xNon-accelerated
filer  ̈Smaller reporting company  ̈





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 29,
2007 was approximately $139.0 million (based on shares held by non-affiliates at
$19.00 per share, the closing stock price on the NASDAQ Stock Market on
June 29, 2007).





As of
February 29, 2008 (the latest practicable date), the registrant had 9,162,392
shares of common stock outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE





Portions
of the registrant’s Proxy Statement for the 2008 Annual Meeting of Shareholders
to be held on May 20, 2008 are incorporated by reference in answer to Part III
of this Form 10-K.













TABLEOF CONTENTS





Item
            
            
            
            PageCautionary Notice Regarding Forward-Looking
      Statements
            
            3PART
      I1.
            
            BUSINESSGeneral
            
            3Supervision and Regulation
            
            81A.
            
            RISK FACTORS
            
            131B.
            
            UNRESOLVED STAFF COMMENTS
            
            172.
            
            PROPERTIES
            
            173.
            
            LEGAL PROCEEDINGS
            
            184.
            
            SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
            
            18PART
      II5.
            
            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
            
            24Liquidity and Capital Resources
            
            34Results of Operations
            
            377A.
            
            QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
            
            418.
            
            FINANCIAL STATEMENTS AND SUPPLEMENTARY
    DATAQuarterly Financial Summary for 2007 and
      2006
            
            43Management’s Report On Internal Control Over Financial
      Reporting
            
            44Auditor’s Attestation Report
            
            45Reports of Independent Registered Public Accounting
      Firm
            
            47Consolidated Balance Sheets at December 31, 2007 and
      2006
            
            48Consolidated Statements of Income for the Three Years
      Ended December 31, 2007
            
            49Consolidated
      Statements of Comprehensive Income for the Three Years EndedDecember 31, 2007
            
            50Consolidated Statements of Stockholders’ Equity for the
      Three Years Ended December
      31, 2007
            
            51Consolidated Statements of Cash Flows for the Three Years
      Ended December 31, 2007
            
            52Notes to Consolidated Financial
    Statements
            
            549.
            
            CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND FINANCIAL DISCLOSURE
            
            819A.
            
            CONTROLS AND PROCEDURES
            
            819B.
            
            OTHER INFORMATION
            
            81PART
      III10.
            
            DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE
      GOVERNANCE
            
            8111.
            
            EXECUTIVE COMPENSATION
            
            8112.
            
            SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT AND RELATED STOCKHOLDER MATTERS
            
            8213.
            
            CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
      DIRECTOR INDEPENDENCE
            
            8214.
            
            PRINCIPAL ACCOUNTANT FEES AND SERVICES
            
            82PART
      IV15.
            
            EXHIBITS AND FINANCIAL STATEMENT
    SCHEDULES
            
            83SIGNATURES
            
            85





2





CAUTIONARYNOTICE 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 Operations” 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) the general decline in the real
estate and lending market, particularly the market areas surrounding
metropolitan Atlanta; (5) legislative or regulatory changes, including changes
in accounting standards and compliance requirements, may adversely affect the
businesses in which we are engaged; (6) competitors may have greater financial
resources and develop products that enable such competitors to compete more
successfully than we can; (7) our ability to attract and retain key personnel
can be affected by the increased competition for experienced employees in the
banking industry; (8) adverse changes may occur in the bond and equity markets;
(9) war or terrorist activities may cause further deterioration in the economy
or cause instability in credit markets; (10) restrictions or conditions imposed
by our regulators on our operations may make it more difficult for us to achieve
our goals; (11) economic, governmental or other factors may prevent the
projected population and commercial growth in the markets in which we operate;
and (12) 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





ITEM1.
            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 two loan production offices
located in five 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”.





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.





3





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,
internet banks, retail brokerage firms, mortgage companies, insurance 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.





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 the sixth largest market share1 with 2.57% 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 Adelare 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 69
employees, five branches, and seven ATM’s serving our customers in these
communities.  The Company’s administrative and operational facilities
and 107 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
contributors 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 36
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.




__________________________
 1
              Based
      on the FDIC/OTS Summary of Deposits report as of June 30,
      2007.
 2
              Regions
      9-12 (58 counties) as defined by the Georgia Department of Community
      Affairs.




4





Statesboro, 161 miles
northeast of Valdosta, sits at the intersection of U.S. Highway 80 and U.S.
Highway 301, near Interstate 16, in Southeast Georgia.  Statesboro is
also 53 miles west of the Savannah MSA.  We have 25 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.





Baxleyand 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 17 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) on the south side of the Atlanta MSA in October
2000.  In October 2001, we opened an office in Oakwood
(Hall County), north of Atlanta in the Gainesville MSA.  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), east of
Atlanta.  In October 2006, the Athens loan production office was
converted into our full service branch in Oconee County in the Athens
MSA.  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) on the east
side of the Atlanta MSA.  In February 2007, we opened a branch in
Snellville and a loan production office in Cumming (Forsyth County) on the
north side of the Atlanta MSA.  In March 2007, we closed the loan
production office in Cobb County and shifted the remaining resources to our
Henry County market.  Our offices in Henry, Hall, Oconee,
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.





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 25 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.  According to the U.S. Census Bureau, Henry County was the
seventh fastest growing county in the U.S. from 2000 to 2006 with a 49.2%
increase in population.  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 ten 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 neighboring
Oconee County.  We now have nine employees and one ATM serving
our customers in this community through this branch.





5





Snellvilleis 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 this community 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 eight employees, two offices and one
ATM serving our customers in this community.





Cummingis located 40 miles
northeast of Downtown Atlanta along Georgia Highway 400 in
Forsyth County.  According to the U.S. Census Bureau,
Forsyth County was the fifth fastest growing county in the U.S. from 2000
to 2006 with a 53.4% increase in population.  We opened a loan
production office in February 2007 and now have four employees focusing on
commercial lending in this community.





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 six employees, one branch and
one ATM serving our customers in this community.  With over $24.6
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.





6





The table
below provides basic information and summary demographic data on each of our
markets.  Further discussion regarding local real estate market
conditions is provided in Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” of this Annual Report
on Form 10-K.





Market/
            
            #
      of
            
            
            Total
            
            
            Total
            
            
            Market
            
            
            
            
            
            Population
            
            
            Employment
            
            
            UnemploymentCounty
            
            Offices
            
            
            Loans4
            
            
            Deposits4
            
            
            Share
      (%)5
            
            
            Population6
            
            
            Growth
      (%)7
            
            
            Growth
      (%)8
            
            
            Rate
      (%)9South
      GeorgiaLowndes
            
            
            4
            
            
            $
            224,413
            
            
            $
            269,567
            
            
            
            18.4
            
            
            
            97,844
            
            
            
            6.2
            
            
            
            2.6
            
            
            
            4.1Cook
            
            
            1
            
            
            
            11,181
            
            
            
            47,416
            
            
            
            24.8
            
            
            
            16,333
            
            
            
            3.6
            
            
            
            2.1
            
            
            
            5.8Decatur
            
            
            3
            
            
            
            46,510
            
            
            
            119,084
            
            
            
            31.6
            
            
            
            28,665
            
            
            
            1.5
            
            
            
            0.0
            
            
            
            6.0Grady
            
            
            1
            
            
            
            12,501
            
            
            
            22,447
            
            
            
            7.6
            
            
            
            25,082
            
            
            
            6.0
            
            
            
            0.5
            
            
            
            4.3Appling
            
            
            1
            
            
            
            19,609
            
            
            
            37,708
            
            
            
            15.2
            
            
            
            17,860
            
            
            
            2.6
            
            
            
            (0.7
            )
            
            
            6.2Jeff
      Davis
            
            
            1
            
            
            
            10,185
            
            
            
            49,209
            
            
            
            28.8
            
            
            
            13,278
            
            
            
            4.7
            
            
            
            (1.6
            )
            
            
            7.4Bulloch
            
            
            2
            
            
            
            44,711
            
            
            
            59,639
            
            
            
            5.5
            
            
            
            63,207
            
            
            
            12.9
            
            
            
            2.1
            
            
            
            4.813
            
            
            $
            369,110
            
            
            $
            605,070North
      GeorgiaHenry
            
            
            2
            
            
            $
            254,298
            
            
            $
            96,013
            
            
            
            4.3
            
            
            
            178,033
            
            
            
            49.2
            
            
            
            3.1
            
            
            
            4.4Hall
            
            
            1
            
            
            
            84,284
            
            
            
            29,520
            
            
            
            1.1
            
            
            
            173,256
            
            
            
            24.4
            
            
            
            4.0
            
            
            
            3.7Oconee
            
            
            1
            
            
            
            56,200
            
            
            
            12,933
            
            
            
            1.3
            
            
            
            30,858
            
            
            
            17.7
            
            
            
            3.3
            
            
            
            3.1Gwinnett
            
            
            2
            
            
            
            16,887
            
            
            
            19,730
            
            
            
            0.2
            
            
            
            757,104
            
            
            
            28.7
            
            
            
            3.1
            
            
            
            4.0Forsyth
            
            
            1
            
            
            
            27,098
            
            
            
            1,527
            
            
            
            -
            
            
            
            150,968
            
            
            
            53.4
            
            
            
            3.1
            
            
            
            3.47
            
            
            $
            438,767
            
            
            $
            159,723State
      of Georgia
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            14.4
            
            
            
            2.7
            
            
            
            4.7FloridaMarion
            
            
            1
            
            
            $
            28,776
            
            
            $
            159,603
            
            
            
            3.0
            
            
            
            316,183
            
            
            
            22.1
            
            
            
            2.9
            
            
            
            4.8Duval
            
            
            1
            
            
            
            18,231
            
            
            
            13,540
            
            
            
            0.5
            
            
            
            837,964
            
            
            
            7.6
            
            
            
            2.8
            
            
            
            4.3St.
      Johns
            
            
            1
            
            
            
            50,610
            
            
            
            344
            
            
            
            -
            
            
            
            169,224
            
            
            
            37.4
            
            
            
            2.8
            
            
            
            3.53
            
            
            $
            97,617
            
            
            $
            173,487State
      of Florida
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            13.2
            
            
            
            2.5
            
            
            
            4.3National
      Total
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            6.4
            
            
            
            1.3
            
            
            
            4.7





Employees


On
December 31, 2007, we had a total of 316 full-time and 21 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.







3
              Based
      on the FDIC/OTS Summary of Deposits report as of June 30,
      2007.
 4
              Dollar
      amounts are presented in thousands as of December 31,
      2007.  Amounts exclude $15.9 million in loans and $41.9 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,
      2007.
 6
              Estimated
      July 1, 2006 population provided by the U.S. Census
  Bureau.
 7
              Estimated
      percentage population change from 2000 to 2006 provided by the U.S. Census
      Bureau.
 8
              Total
      employment growth (not seasonally adjusted) for the Third Quarter 2007
      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 2007 provided by the
      Bureau of Labor Statistics.




7





Supervisionand 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





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
financial 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
2007, PAB paid a total of $.58 per share in dividends to its
stockholders.  At January 1, 2008, the Bank could declare
approximately $5.80 million in dividends to PAB without 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





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, 2007, our consolidated Total Capital
Ratio and our Tier 1 Capital Ratio were 11.27% and 10.02%,
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, 2007 was
8.49%.  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





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, 2007, 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 2007, Financing Corporation payments for
Savings Association Insurance Fund members approximated 1.18 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





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





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.








ITEM1A.
            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.”





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.





13





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.  For the year ended December 31, 2007, we recorded $2.4
million as a provision for loan losses, while we did not incur a provision for
loan looses expense in 2006.  The increase is due to a growing loan
portfolio, as well as a significant increase in the level of nonperforming
loans.





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.





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, 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.





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, 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.





14





Deteriorating
credit quality, particularly with respect to our loans which are secured by real
estate in our Atlanta MSA market, has adversely impacted us and may continue to
adversely impact us, leading to higher loan charge-offs or an increase in our
provision for loan losses.


The
second half of 2007 was highlighted by volatility in the financial markets
associated with subprime mortgages, including adverse impacts on credit quality
and liquidity within the financial markets. The volatility has been exacerbated
by a general decline in the real estate and housing market along with
significant mortgage loan related losses reported by many other financial
institutions.  We have a significant presence in residential
construction and development lending on the south side of the Atlanta
MSA.  Approximately 70% of our residential construction and
development loans and 17% of our residential mortgages are in our North Georgia
markets.  The majority of our residential builders
construct houses in the $150,000 - $250,000 selling price range
and carry inventories of lots for new construction.  During
the second half of 2007, the supply of vacant, developed lots increased
dramatically as the number of new building permits and housing starts
decreased.  It may take three to four years for the market to
fully absorb the existing lot inventories in some areas on the south side of the
Atlanta MSA.





Loan
defaults result in a decrease in interest income and may require the
establishment of or an increase in loan loss reserves. Furthermore, the decrease
in interest income resulting from a loan default or defaults may be for a
prolonged period of time as we seek to recover, primarily through legal
proceedings, the outstanding principal balance and interest due on
defaulted loans plus the legal costs incurred in pursuing our legal
remedies. These conditions may result in our need to increase loan
loss reserves or charge-off a higher percentage of loans, thereby reducing net
income. Furthermore, because we rely more heavily on loans secured by real
estate, a continued decrease in real estate values, particularly in our North
Georgia market, could cause higher loan losses and require higher loan loss
provisions.  As of December 31, 2007, approximately 88% 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.





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.





15





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 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.




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.





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, 2007. 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





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, or 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.





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.




ITEM1B.
            UNRESOLVED
      STAFF COMMENTS





None








ITEM2.
            PROPERTIES





We
currently operate 20 bank branches, three 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 two
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.





17





We also
currently own four parcels of land that we are holding for potential future
expansion.  These vacant lots are located in Locust Grove, Henry
County, Georgia; St. Johns County, Florida; and two lots in Valdosta, Lowndes
County, Georgia.  The two lots in Valdosta include land behind our
main office building and a lot near the initial Park Avenue Bank
location.





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.





ITEM3.
            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.





ITEM4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS





No
matters were submitted to a vote of our stockholders during the fourth quarter
of 2007.








PART
II





ITEM5.
            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 29, 2008, there were 2,081 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 has been our intent to pay out
35-50% 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
            
            
            Earnings2006First
      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
            
            
            
            0.342007First
      Quarter
            
            $
            22.48
            
            
            $
            17.75
            
            
            $
            0.145
            
            
            $
            0.32Second
      Quarter
            
            
            20.44
            
            
            
            17.65
            
            
            
            0.145
            
            
            
            0.33Third
      Quarter
            
            
            19.00
            
            
            
            15.60
            
            
            
            0.145
            
            
            
            0.30Fourth
      Quarter
            
            
            17.40
            
            
            
            12.44
            
            
            
            0.145
            
            
            
            0.18





18





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, 2002 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
      EndingIndex
            
            12/31/02
            
            
            12/31/03
            
            
            12/31/04
            
            
            12/31/05
            
            
            12/31/06
            
            
            12/31/07PAB
      Bankshares, Inc.
            
            
            100.00
            
            
            
            194.51
            
            
            
            168.52
            
            
            
            241.72
            
            
            
            290.20
            
            
            
            175.49NASDAQ
      Composite Index
            
            
            100.00
            
            
            
            150.01
            
            
            
            162.89
            
            
            
            165.13
            
            
            
            180.85
            
            
            
            198.60SNL
      Southeast Bank Index
            
            
            100.00
            
            
            
            125.58
            
            
            
            148.92
            
            
            
            152.44
            
            
            
            178.75
            
            
            
            134.65





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, 2007 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
            
            
            24,700
            
            
            $
            16.92
            
            
            
            24,700
            
            
            
            65,650November
            
            
            42,500
            
            
            
            15.67
            
            
            
            42,500
            
            
            
            23,150December
            
            
            10,900
            
            
            
            14.28
            
            
            
            10,900
            
            
            
            212,250Total
            
            
            78,100
            
            
            $
            15.87
            
            
            
            78,100
            
            
            
            212,250





1
            On
      May 22, 2007, the Board of Directors renewed its annual plan to repurchase
      up to 300,000 shares of the Company’s common stock over a 12 month
      period.  The plan will expire May 22, 2008.  On
      December 18, 2007 the Board of Directors authorized an additional stock
      repurchase program to repurchase up to 200,000 shares of the Company’s
      common stock over a 12 month period.  The plan will expire
      December 18, 2008.





19





ITEM6.
            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)
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003Summary
      of Operations:Interest
      income
            
            $
            84,676
            
            
            $
            77,566
            
            
            $
            59,371
            
            
            $
            40,597
            
            
            $
            40,040Interest
      expense
            
            
            42,210
            
            
            
            33,555
            
            
            
            20,398
            
            
            
            10,624
            
            
            
            12,467Net
      interest income
            
            
            42,466
            
            
            
            44,011
            
            
            
            38,973
            
            
            
            29,973
            
            
            
            27,573Provision
      for loan losses
            
            
            2,400
            
            
            
            -
            
            
            
            1,189
            
            
            
            600
            
            
            
            -Other
      income
            
            
            5,991
            
            
            
            5,380
            
            
            
            5,813
            
            
            
            6,344
            
            
            
            8,616Other
      expense
            
            
            29,590
            
            
            
            28,167
            
            
            
            24,778
            
            
            
            23,055
            
            
            
            25,702Income
      before income tax expense
            
            
            16,467
            
            
            
            21,224
            
            
            
            18,819
            
            
            
            12,662
            
            
            
            10,487Income
      tax expense
            
            
            5,681
            
            
            
            7,488
            
            
            
            6,366
            
            
            
            4,144
            
            
            
            3,361Net
      income
            
            $
            10,786
            
            
            $
            13,736
            
            
            $
            12,453
            
            
            $
            8,518
            
            
            $
            7,126Net
      interest income on a taxable-equivalent basis
            
            $
            43,120
            
            
            $
            44,507
            
            
            $
            39,195
            
            
            $
            30,148
            
            
            $
            27,759Selected
      Average Balances:Total
      assets
            
            $
            1,165,307
            
            
            $
            1,067,362
            
            
            $
            948,457
            
            
            $
            765,016
            
            
            $
            736,367Earning
      assets
            
            
            1,096,918
            
            
            
            1,004,981
            
            
            
            890,337
            
            
            
            704,345
            
            
            
            675,718Loans
            
            
            883,334
            
            
            
            792,278
            
            
            
            706,052
            
            
            
            569,858
            
            
            
            540,787Deposits
            
            
            948,613
            
            
            
            859,216
            
            
            
            741,409
            
            
            
            575,767
            
            
            
            576,871Stockholders’
      equity
            
            
            98,055
            
            
            
            91,611
            
            
            
            85,431
            
            
            
            79,499
            
            
            
            74,229Selected
      Year End Balances:Total
      assets
            
            $
            1,198,671
            
            
            $
            1,120,804
            
            
            $
            1,017,326
            
            
            $
            868,975
            
            
            $
            730,741Earning
      assets
            
            
            1,116,776
            
            
            
            1,048,239
            
            
            
            957,918
            
            
            
            808,886
            
            
            
            666,488Loans
            
            
            921,349
            
            
            
            820,304
            
            
            
            752,938
            
            
            
            646,149
            
            
            
            538,644Allowance
      for loan losses
            
            
            12,906
            
            
            
            11,006
            
            
            
            11,079
            
            
            
            9,066
            
            
            
            10,139Deposits
            
            
            980,149
            
            
            
            908,483
            
            
            
            815,681
            
            
            
            657,550
            
            
            
            556,917Stockholders’
      equity
            
            
            97,676
            
            
            
            95,316
            
            
            
            87,001
            
            
            
            81,000
            
            
            
            76,062Common
      Share Data:Outstanding
      at year end
            
            
            9,223,217
            
            
            
            9,504,969
            
            
            
            9,469,017
            
            
            
            9,495,320
            
            
            
            9,484,660Weighted
      average outstanding
            
            
            9,418,796
            
            
            
            9,499,434
            
            
            
            9,514,775
            
            
            
            9,499,709
            
            
            
            9,476,158Diluted
      weighted average outstanding
            
            
            9,560,324
            
            
            
            9,706,989
            
            
            
            9,686,894
            
            
            
            9,642,065
            
            
            
            9,686,617Per
      Share Ratios:Net
      income - basic
            
            $
            1.14
            
            
            $
            1.45
            
            
            $
            1.31
            
            
            $
            0.89
            
            
            $
            0.75Net
      income - diluted
            
            
            1.13
            
            
            
            1.41
            
            
            
            1.28
            
            
            
            0.88
            
            
            
            0.74Dividends
      declared
            
            
            0.58
            
            
            
            0.54
            
            
            
            0.475
            
            
            
            0.34
            
            
            
            0.18Book
      value
            
            
            10.59
            
            
            
            10.03
            
            
            
            9.19
            
            
            
            8.53
            
            
            
            8.02Tangible
      book value
            
            
            9.94
            
            
            
            9.40
            
            
            
            8.56
            
            
            
            7.90
            
            
            
            7.39Profitability
      Ratios:Return
      on average assets
            
            
            0.93
            %
            
            
            1.29
            %
            
            
            1.31
            %
            
            
            1.11
            %
            
            
            0.97
            %Return
      on average equity
            
            
            11.00
            %
            
            
            14.99
            %
            
            
            14.58
            %
            
            
            10.71
            %
            
            
            9.60
            %Net
      interest margin
            
            
            3.93
            %
            
            
            4.43
            %
            
            
            4.40
            %
            
            
            4.28
            %
            
            
            4.11
            %Efficiency
      ratio
            
            
            60.74
            %
            
            
            55.88
            %
            
            
            54.94
            %
            
            
            63.18
            %
            
            
            68.90
            %Liquidity
      Ratios:Total
      loans to total deposits
            
            
            94.00
            %
            
            
            90.29
            %
            
            
            92.31
            %
            
            
            98.27
            %
            
            
            96.72
            %Average
      loans to average earning assets
            
            
            80.53
            %
            
            
            78.84
            %
            
            
            79.30
            %
            
            
            80.91
            %
            
            
            80.03
            %Noninterest-bearing
      deposits to total deposits
            
            
            9.12
            %
            
            
            11.11
            %
            
            
            13.23
            %
            
            
            15.15
            %
            
            
            17.04
            %Capital
      Adequacy Ratios:Average
      equity to average assets
            
            
            8.41
            %
            
            
            8.58
            %
            
            
            9.01
            %
            
            
            10.39
            %
            
            
            10.08
            %Dividend
      payout ratio
            
            
            50.43
            %
            
            
            37.36
            %
            
            
            36.29
            %
            
            
            37.93
            %
            
            
            23.89
            %Asset
      Quality Ratios:Net
      charge-offs to average loans
            
            
            0.06
            %
            
            
            0.01
            %
            
            
            -0.12
            %
            
            
            0.29
            %
            
            
            0.36
            %Nonperforming
      loans to total loans
            
            
            1.24
            %
            
            
            0.49
            %
            
            
            1.04
            %
            
            
            0.54
            %
            
            
            1.53
            %Nonperforming
      assets to total assets
            
            
            1.49
            %
            
            
            0.45
            %
            
            
            0.78
            %
            
            
            0.40
            %
            
            
            1.75
            %Allowance
      for loan losses to total loans
            
            
            1.40
            %
            
            
            1.34
            %
            
            
            1.47
            %
            
            
            1.40
            %
            
            
            1.88
            %Allowance
      for loan losses to nonperforming loans
            
            
            112.79
            %
            
            
            271.95
            %
            
            
            140.98
            %
            
            
            261.04
            %
            
            
            123.41
            %




20





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
per share” 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.





These
disclosures should not be viewed as a substitute for results determined in
accordance with GAAP, and are not necessarily comparable to non-GAAP performance
measures which may be presented by other companies.  The following
reconciliation table provides a more detailed analysis of these non-GAAP
performance measures.





2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003Book
      value per common share
            
            $
            10.59
            
            
            $
            10.03
            
            
            $
            9.19
            
            
            $
            8.53
            
            
            $
            8.02Effect
      of intangible assets per share
            
            
            0.65
            
            
            
            0.63
            
            
            
            0.63
            
            
            
            0.63
            
            
            
            0.63Tangible
      book value per common share
            
            $
            9.94
            
            
            $
            9.40
            
            
            $
            8.56
            
            
            $
            7.90
            
            
            $
            7.39








ITEM7.
            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.








OVERVIEWOF KEY FINANCIAL, STRATEGIC AND PERFORMANCE
FACTORS





Our
operating subsidiary, The Park Avenue Bank, is a $1.20 billion community bank
with 20 branches and three 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 funds 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 focus on sales and service.





Earnings


Our net
income decreased 21.5% from $13.74 million in 2006 to $10.79 million in
2007.  Our diluted earnings per share (“EPS”) decreased 20.3% from
$1.41 in 2006 to $1.13 in 2007.  Our total revenues (which is net
interest income plus noninterest income) decreased 0.1% from $49.39 million in
2006 to $48.46 million in 2007.  Our return on average assets (“ROA”)
decreased from 1.29% in 2006 to 0.93% and our return on average equity (“ROE”)
declined from 14.99% in 2006 to 11.00% in 2007.





21





The three
primary reasons for this decline in earnings are an increase in provision for
loan loss expense, a slight decrease in net interest income and an increase in
noninterest expenses.  We recorded a $2.4 million provision for loan
loss expense in 2007, while we did not incur a provision for loan loss expense
in 2006.  During 2007, our net interest income decreased $1.5 million,
from $44.0 million in 2006 to $42.5 million in 2007, and our net interest margin
declined 50 basis points from 4.43% in 2006 to 3.93% in 2007.  Our
noninterest expenses increased 5.05%, from $28.2 million in 2006 to $29.6
million in 2007.  This increase in noninterest expenses is partially
attributable to our de novo branch expansion efforts in the Snellville and
Cumming, Georgia markets and the Jacksonville, Florida
market.  Additional discussion regarding our earnings for 2007 and our
outlook for 2008 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.





Year
            
            Net
      Income
            
            
            EPS
            
            
            ROA
            
            
            ROE(In
      Thousands)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
            %2007
            
            
            10,786
            
            
            
            1.13
            
            
            
            0.93
            %
            
            
            11.00
            %





Loan
and Deposit Growth


Total
assets increased $77.9 million, or 7.0%, from $1.12 billion at the end of 2006
to $1.20 billion at the end of 2007.  Total loans increased $101.0
million, or 12.3%, and total deposits increased $71.7 million, or 7.9%, during
2007.  In our South Georgia market, loans increased 7.3% in 2007 due
primarily to an increase in residential mortgages while deposits only increased
2.3%.  In our North Georgia market, loans increased 9.5% due primarily
to an increase in construction and development loans and commercial lending, and
deposits increased 21.1% due to successful money market program and CD marketing
campaigns.  In our Florida market, loans increased 46.5% due to an
increase in residential mortgages and deposits increased 24.6% due to CD
marketing campaigns.





A
breakdown of loans and deposits for each region as of December 31, 2007 and 2006
and the percentage of net growth (or contraction) during 2007 is provided in the
table below.





Market/
            
            #
      of
            
            
            Total
      Loans
            
            
            
            
            
            Total
      DepositsCounty
            
            Offices
            
            
            2007
            
            
            2006
            
            
            %
      Chg
            
            
            2007
            
            
            2006
            
            
            %
      Chg(Dollars
      in Thousands)South
      Georgia
            
            
            13
            
            
            $
            369,110
            
            
            $
            343,844
            
            
            
            7.3
            
            
            $
            605,070
            
            
            $
            591,682
            
            
            
            2.3%
      of Total
            
            
            
            
            
            
            40.1
            
            
            
            41.9
            
            
            
            
            
            
            
            61.7
            
            
            
            65.1North
      Georgia
            
            
            7
            
            
            $
            438,767
            
            
            $
            400,616
            
            
            
            9.5
            
            
            $
            159,723
            
            
            $
            131,907
            
            
            
            21.1%
      of Total
            
            
            
            
            
            
            47.6
            
            
            
            48.9
            
            
            
            
            
            
            
            16.3
            
            
            
            14.5Florida
            
            
            3
            
            
            $
            97,617
            
            
            $
            66,644
            
            
            
            46.5
            
            
            $
            173,487
            
            
            $
            139,195
            
            
            
            24.6%
      of Total
            
            
            
            
            
            
            10.6
            
            
            
            8.1
            
            
            
            
            
            
            
            17.7
            
            
            
            15.3Treasury
            
            
            -
            
            
            $
            15,855
            
            
            $
            9,200
            
            
            
            72.3
            
            
            $
            41,869
            
            
            $
            45,699
            
            
            
            (8.4)%
      of Total
            
            
            
            
            
            
            1.7
            
            
            
            1.1
            
            
            
            
            
            
            
            4.3
            
            
            
            5.1Total
            
            
            
            
            
            $
            921,349
            
            
            $
            820,304
            
            
            
            12.3
            
            
            $
            980,149
            
            
            $
            908,483
            
            
            
            7.9





In
addition to the geographic concentrations noted in the tables above, we had
approximately $80.4 million in loans secured by real estate in Florida to
customers of our South Georgia, North Georgia and Treasury offices.





22





In the
fourth quarter of 2006, we opened full service branches in the Athens (Georgia)
MSA and the Jacksonville (Florida) MSA.  In the first quarter of 2007,
we opened a full service branch at a second location in Gwinnett County and a
loan production office in Forsyth County, both located in the Atlanta (Georgia)
MSA.  We had intended to open 2-3 offices a year as part of our
strategic plan to expand our presence in the higher growth markets in and around
the Atlanta MSA and in north and central Florida.  However, we have
decided to wait until economic conditions improve before opening another
office.





A
breakdown of loans and deposits by type as of December 31, 2007 and 2006 and the
percentage of net growth (or contraction) during 2007 is provided in the table
below.





2007
            
            
            2006
            
            
            %
      Change(Dollars
      in Thousands)LoansCommercial
      and financial
            
            $
            78,730
            
            
            $
            66,376
            
            
            
            18.6Agricultural
      (including loans secured by farmland)
            
            
            41,861
            
            
            
            43,302
            
            
            
            (3.3
            )Real
      estate - construction
            
            
            352,732
            
            
            
            295,246
            
            
            
            19.5Real
      estate - commercial
            
            
            248,272
            
            
            
            255,462
            
            
            
            (2.8
            )Real
      estate - residential
            
            
            174,157
            
            
            
            142,501
            
            
            
            22.2Installment
      loans to individuals and others
            
            
            26,011
            
            
            
            18,414
            
            
            
            41.3921,763
            
            
            
            821,301
            
            
            
            12.2Deferred
      loan fees and unearned interest, net
            
            
            (414
            )
            
            
            (997
            )
            
            
            (58.5
            )Total
      loans
            
            
            921,349
            
            
            
            820,304
            
            
            
            12.3Allowance
      for loan losses
            
            
            (12,906
            )
            
            
            (11,006
            )
            
            
            17.3Net
      loans
            
            $
            908,443
            
            
            $
            809,298
            
            
            
            12.3DepositsNoninterest-bearing
      demand
            
            $
            89,423
            
            
            $
            100,911
            
            
            
            (11.4
            )Interest-bearing
      demand and savings
            
            
            354,743
            
            
            
            328,828
            
            
            
            7.9Time
      less than $100,000
            
            
            312,722
            
            
            
            279,936
            
            
            
            11.7Time
      greater than or equal to $100,000
            
            
            187,662
            
            
            
            161,054
            
            
            
            16.5Brokered
            
            
            35,599
            
            
            
            37,754
            
            
            
            (5.7
            )Total
      deposits
            
            $
            980,149
            
            
            $
            908,483
            
            
            
            7.9





Overall,
our construction and development loans increased $57.5 million, or 19.5%, and
our residential mortgages increased $31.7 million, or 22.2%, during 2007 as
compared to 2006.  However, beginning in the fourth quarter of 2006,
we began to see a slowdown in the demand for new construction and development
financing opportunities.  This slowdown became more severe in certain
sections of the Atlanta and Jacksonville markets in the third and fourth
quarters of 2007.  We expect this slowdown will hinder our loan growth
opportunities over the next year.  Our construction and development
loans increased $24.4 million, or 14.7% annualized, in the second half of 2007
primarily because the adverse market conditions forced many projects to get
extended or stalled and loan payoffs did not occur as anticipated.





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 $12.4 million,
or 18.6%, during 2007 as compared to 2006.  As a percentage of total
loans, this segment of our portfolio increased from 8.1% at the end of 2006 to
8.6% at the end of 2007.





Real
Estate Market Conditions on the south side of the Atlanta MSA


With
approximately 22% of our loan portfolio concentrated in residential construction
and development loans and an additional 19% of our loan portfolio in residential
mortgages, we carefully monitor and evaluate trends in our residential real
estate markets.  Our residential construction and development lending
on the south side of the Atlanta MSA is significant to the Bank.  The
majority of our residential builders construct houses in the
$150,000 - $250,000 selling price range and carry inventories of
lots for new construction projects one to two years out.  The
decrease by mortgage companies of the extension of credit to buyers of new homes
in the last half of 2007 further weakened a market already pressured by
higher interest rates and an imbalance of housing supply relative to its
demand.





23





During
the second half of 2007, finished housing inventories increased but we
believe within manageable levels given the growth projections for the
market.  However, the supply of vacant, developed lots increased
dramatically during the second half of 2007 as the number of new building
permits and housing starts decreased.  We believe it may take
three to four years for the market to fully absorb the lot inventories in some
areas on the south side of the Atlanta MSA.





The table
below summarizes, from data available to the Company, the inventory supply
trends for housing and vacant developed lots for select counties on the south
side of the Atlanta MSA where we have a significant presence in residential real
estate construction and development loans and other real estate
owned.





For
      the Quarter Ended
            
            Dec-07
            
            
            Dec-06
            
            
            Dec-05
            
            
            Dec-04(Number
      of Months Supply)Housing
      Inventory:Henry
      County
            
            
            11.5
            
            
            
            9.1
            
            
            
            8.3
            
            
            
            8.3Clayton
      County
            
            
            9.5
            
            
            
            12.2
            
            
            
            7.1
            
            
            
            6.1Newton
      County
            
            
            11.1
            
            
            
            7.4
            
            
            
            8.3
            
            
            
            8.5South
      Fulton County
            
            
            8.0
            
            
            
            7.8
            
            
            
            7.9
            
            
            
            9.7Vacant Developed Lots
      Inventory:Henry
      County
            
            
            86.0
            
            
            
            27.0
            
            
            
            25.0
            
            
            
            25.0Clayton
      County
            
            
            53.0
            
            
            
            26.0
            
            
            
            23.0
            
            
            
            14.0Newton
      County
            
            
            64.0
            
            
            
            24.0
            
            
            
            24.0
            
            
            
            23.0South
      Fulton County
            
            
            57.0
            
            
            
            23.0
            
            
            
            22.0
            
            
            
            21.0





The table
below sets forth, based on data from the U.S. Census Bureau, the number of
single family housing permits issued in  select counties on the south
side of the Atlanta MSA over the past four years.





For
      the Year Ended
            
            Dec-07
            
            
            Dec-06
            
            
            Dec-05
            
            
            Dec-04(Number
      of Single Family Housing Permits Issued)Housing
      Permits:Henry
      County
            
            
            1,650
            
            
            
            2,992
            
            
            
            3,697
            
            
            
            3,552Clayton
      County
            
            
            1,238
            
            
            
            2,226
            
            
            
            2,103
            
            
            
            2,047Newton
      County
            
            
            952
            
            
            
            1,678
            
            
            
            2,115
            
            
            
            2,398








STATISTICALDISCLOSURES





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%.  The FOMC held the
federal funds rate steady at 5.25% from June 2006 to September
2007.  From September 2007 to January 2008, the FOMC reduced the
federal funds rate 5 times, in various increments, from 5.25% to
3.00%.  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 expect
our earnings to decrease 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.





24




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,
            
            2007
      vs. 2006
            
            
            2006
      vs. 2005Increase
            
            
            Changes
      Due To
            
            
            Increase
            
            
            Changes
      Due To(Decrease)
            
            
            Rate
            
            
            Volume
            
            
            (Decrease)
            
            
            Rate
            
            
            Volume(Dollars
      In Thousands)Increase
      (decrease) in income from earning assets:Loans
            
            $
            6,706
            
            
            $
            (1,035
            )
            
            $
            7,741
            
            
            $
            15,549
            
            
            $
            9,222
            
            
            $
            6,327Taxable
      securities
            
            
            492
            
            
            
            321
            
            
            
            171
            
            
            
            2,138
            
            
            
            779
            
            
            
            1,359Nontaxable
      securities
            
            
            450
            
            
            
            44
            
            
            
            406
            
            
            
            783
            
            
            
            -
            
            
            
            783Other
      short-term investments
            
            
            (381
            )
            
            
            76
            
            
            
            (457
            )
            
            
            -
            
            
            
            506
            
            
            
            (506
            )Total
      interest income
            
            
            7,267
            
            
            
            (594
            )
            
            
            7,861
            
            
            
            18,470
            
            
            
            10,507
            
            
            
            7,963Increase
      (decrease) in expense from interest-bearing liabilities:Demand
      deposits
            
            
            2,828
            
            
            
            1,511
            
            
            
            1,317
            
            
            
            4,858
            
            
            
            3,881
            
            
            
            977Savings
      deposits
            
            
            38
            
            
            
            67
            
            
            
            (29
            )
            
            
            213
            
            
            
            234
            
            
            
            (21
            )Time
      deposits
            
            
            5,566
            
            
            
            3,353
            
            
            
            2,213
            
            
            
            6,909
            
            
            
            4,693
            
            
            
            2,216FHLB
      advances
            
            
            221
            
            
            
            287
            
            
            
            (66
            )
            
            
            794
            
            
            
            995
            
            
            
            (201
            )Notes
      payable
            
            
            (294
            )
            
            
            (142
            )
            
            
            (152
            )
            
            
            282
            
            
            
            152
            
            
            
            130Other
      short-term borrowings
            
            
            295
            
            
            
            107
            
            
            
            188
            
            
            
            102
            
            
            
            119
            
            
            
            (17
            )Total
      interest expense
            
            
            8,654
            
            
            
            5,183
            
            
            
            3,471
            
            
            
            13,158
            
            
            
            10,074
            
            
            
            3,084Net
      interest income
            
            $
            (1,387
            )
            
            $
            (5,777
            )
            
            $
            4,390
            
            
            $
            5,312
            
            
            $
            433
            
            
            $
            4,879





During
2007, we had an average investment in impaired loans of $4.9
million.  If these impaired loans had remained current and on accrual
status during 2007, we would have recorded an additional $753,000 of interest
income.  This is compared to $262,000 of lost interest income on an
average investment of $4.1 million of impaired loans during 2006.





25





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.  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,
            
            2007
            
            
            2006
            
            
            2005Average
              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
            
            $
            883,334
            
            
            $
            74,060
            
            
            
            8.38
            %
            
            $
            792,278
            
            
            $
            67,354
            
            
            
            8.50
            %
            
            $
            706,052
            
            
            $
            51,805
            
            
            
            7.34
            %Investment
      securities:Taxable
            
            
            159,510
            
            
            
            8,211
            
            
            
            5.15
            %
            
            
            156,059
            
            
            
            7,719
            
            
            
            4.95
            %
            
            
            125,491
            
            
            
            5,581
            
            
            
            4.45
            %Nontaxable
            
            
            30,998
            
            
            
            1,868
            
            
            
            6.03
            %
            
            
            24,104
            
            
            
            1,419
            
            
            
            5.89
            %
            
            
            10,802
            
            
            
            635
            
            
            
            5.88
            %Other
      short-term investments
            
            
            23,076
            
            
            
            1,191
            
            
            
            5.16
            %
            
            
            32,540
            
            
            
            1,571
            
            
            
            4.83
            %
            
            
            47,992
            
            
            
            1,572
            
            
            
            3.28
            %Total
      interest- earning assets
            
            
            1,096,918
            
            
            
            85,330
            
            
            
            7.78
            %
            
            
            1,004,981
            
            
            
            78,063
            
            
            
            7.77
            %
            
            
            890,337
            
            
            
            59,593
            
            
            
            6.69
            %Noninterest-earning
      assets:Cash
            
            
            20,534
            
            
            
            
            
            
            
            
            
            
            
            20,927
            
            
            
            
            
            
            
            
            
            
            
            21,688Allowance
      for loan losses
            
            
            (11,264
            )
            
            
            
            
            
            
            
            
            
            
            (10,966
            )
            
            
            
            
            
            
            
            
            
            
            (10,283
            )Unrealized
      gain (loss) on securities available for sale
            
            
            (1,993
            )
            
            
            
            
            
            
            
            
            
            
            (2,818
            )
            
            
            
            
            
            
            
            
            
            
            (930
            )Other
      assets
            
            
            61,112
            
            
            
            
            
            
            
            
            
            
            
            55,238
            
            
            
            
            
            
            
            
            
            
            
            47,645Total
      assets
            
            $
            1,165,307
            
            
            
            
            
            
            
            
            
            
            $
            1,067,362
            
            
            
            
            
            
            
            
            
            
            $
            948,457LIABILITIES
      AND STOCKHOLDERS' EQUITYInterest-bearing
      liabilities:Demand
      deposits
            
            $
            309,037
            
            
            $
            11,049
            
            
            
            3.58
            %
            
            $
            266,374
            
            
            $
            8,221
            
            
            
            3.09
            %
            
            $
            206,418
            
            
            $
            3,363
            
            
            
            1.63
            %Savings
      deposits
            
            
            37,231
            
            
            
            564
            
            
            
            1.51
            %
            
            
            39,366
            
            
            
            526
            
            
            
            1.34
            %
            
            
            42,154
            
            
            
            313
            
            
            
            0.74
            %Time
      deposits
            
            
            503,870
            
            
            
            25,275
            
            
            
            5.02
            %
            
            
            453,004
            
            
            
            19,708
            
            
            
            4.35
            %
            
            
            386,137
            
            
            
            12,800
            
            
            
            3.31
            %FHLB
      advances
            
            
            88,569
            
            
            
            4,069
            
            
            
            4.59
            %
            
            
            90,115
            
            
            
            3,848
            
            
            
            4.27
            %
            
            
            96,467
            
            
            
            3,053
            
            
            
            3.16
            %Notes
      payable
            
            
            10,310
            
            
            
            727
            
            
            
            7.05
            %
            
            
            12,118
            
            
            
            1,021
            
            
            
            8.42
            %
            
            
            10,310
            
            
            
            739
            
            
            
            7.17
            %Other
      short-term borrowings
            
            
            12,392
            
            
            
            526
            
            
            
            4.25
            %
            
            
            6,843
            
            
            
            232
            
            
            
            3.39
            %
            
            
            7,868
            
            
            
            130
            
            
            
            1.65
            %Total
      interest- bearing liabilities
            
            
            961,409
            
            
            
            42,210
            
            
            
            4.39
            %
            
            
            867,820
            
            
            
            33,556
            
            
            
            3.87
            %
            
            
            749,354
            
            
            
            20,398
            
            
            
            2.72
            %Noninterest-bearing
      liabilities and stockholders' equity:Demand
      deposits
            
            
            98,475
            
            
            
            
            
            
            
            
            
            
            
            100,472
            
            
            
            
            
            
            
            
            
            
            
            106,700Other
      liabilities
            
            
            7,368
            
            
            
            
            
            
            
            
            
            
            
            7,459
            
            
            
            
            
            
            
            
            
            
            
            6,972Stockholders'
      equity
            
            
            98,055
            
            
            
            
            
            
            
            
            
            
            
            91,611
            
            
            
            
            
            
            
            
            
            
            
            85,431Total
      liabilities and stockholders’ equity
            
            $
            1,165,307
            
            
            
            
            
            
            
            
            
            
            $
            1,067,362
            
            
            
            
            
            
            
            
            
            
            $
            948,457Interest
      rate spread
            
            
            
            
            
            
            
            
            
            
            3.39
            %
            
            
            
            
            
            
            
            
            
            
            3.90
            %
            
            
            
            
            
            
            
            
            
            
            3.97
            %Net
      interest income
            
            
            
            
            
            $
            43,120
            
            
            
            
            
            
            
            
            
            
            $
            44,507
            
            
            
            
            
            
            
            
            
            
            $
            39,195Net
      interest margin
            
            
            
            
            
            
            
            
            
            
            3.93
            %
            
            
            
            
            
            
            
            
            
            
            4.43
            %
            
            
            
            
            
            
            
            
            
            
            4.40
            %





26





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,
            
            2007
            
            
            2006
            
            
            2005$
      Amount
            
            
            %
      to Total
            
            
            $
      Amount
            
            
            %
      to Total
            
            
            $
      Amount
            
            
            %
      to Total(Dollars
      in Thousands)U.
      S. Government agency securities
            
            $
            70,235
            
            
            
            36.1
            %
            
            $
            82,294
            
            
            
            44.7
            %
            
            $
            70,635
            
            
            
            44.9
            %State
      and municipal securities
            
            
            32,332
            
            
            
            16.6
            %
            
            
            28,892
            
            
            
            15.7
            %
            
            
            14,063
            
            
            
            8.9
            %Mortgage-backed
      securities
            
            
            77,201
            
            
            
            39.6
            %
            
            
            58,875
            
            
            
            32.0
            %
            
            
            59,858
            
            
            
            38.0
            %Corporate
      debt securities
            
            
            6,507
            
            
            
            3.3
            %
            
            
            4,528
            
            
            
            2.5
            %
            
            
            3,580
            
            
            
            2.3
            %Equity
      securities
            
            
            8,519
            
            
            
            4.4
            %
            
            
            9,504
            
            
            
            5.1
            %
            
            
            9,319
            
            
            
            5.9
            %Total
      investments
            
            $
            194,794
            
            
            
            100.0
            %
            
            $
            184,093
            
            
            
            100.0
            %
            
            $
            157,455
            
            
            
            100.0
            %Total
      investments as a percentage of total assets
            
            
            16.3
            %
            
            
            
            
            
            
            16.4
            %
            
            
            
            
            
            
            15.5
            %





At
December 31, 2007, the estimated fair market value of our investment portfolio
was approximately $320,000, or 0.2%, above 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
issuer.  We do not carry  any "sub-prime" mortgages,
structured investment vehicles, or collateralized debt obligations in our
portfolio.  We also monitor the insurers of our state and municipal
securities, and the distribution of such securities among the
insurers.  At December 31, 2007, nine different carriers, with no one
carrier insuring more than 22% of the total, insured our state and municipal
securities.  The table below shows the distribution by insurer of our
state and municipal securities as of December 31, 2007.





As
      of December 31, 2007
            
            $
      Amount
            
            
            %
      to Total(Dollars
      in Thousands)Ambac
      Assurance Corp (AMBAC)
            
            $
            7,070
            
            
            
            21.9
            %Financial
      Security Assurance Inc. (FSA)
            
            
            6,077
            
            
            
            18.8
            %XL
      Capital Assurance Inc. (XLCA)
            
            
            5,021
            
            
            
            15.5
            %MBIA
      Corporation (MBIA)
            
            
            3,209
            
            
            
            9.9
            %CDC
      IXIS Financial Guaranty (CIFG)
            
            
            2,150
            
            
            
            6.6
            %Financial
      Guaranty Insurance Company (FGIC)
            
            
            2,031
            
            
            
            6.3
            %Other
            
            
            2,765
            
            
            
            8.6
            %Uninsured
            
            
            4,009
            
            
            
            12.4
            %Total
      state and municipal securities
            
            $
            32,332
            
            
            
            100.00
            %





The
following table shows the maturities of non-equity investment securities at
December 31, 2007 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 $40.7 million, or 60%, are potentially
callable at par value within one year.





U.S.
      Government
            
            
            State
      and Municipal
            
            
            Mortgage-Backed
            
            
            Corporate
      DebtAgency
      Securities
            
            
            Securities
            
            
            Securities
            
            
            SecuritiesAs
      of December 31, 2007
            
            Amount
            
            
            Yield
            
            
            Amount
            
            
            Yield
            
            
            Amount
            
            
            Yield
            
            
            Amount
            
            
            Yield(Dollars
      in Thousands)Due
      in one year or less
            
            $
            2,987
            
            
            
            4.07
            %
            
            $
            1,670
            
            
            
            5.04
            %
            
            $
            94
            
            
            
            4.85
            %
            
            $
            3,041
            
            
            
            7.70
            %Due
      after one year through five years
            
            
            26,818
            
            
            
            4.64
            %
            
            
            6,069
            
            
            
            5.08
            %
            
            
            63,311
            
            
            
            5.06
            %
            
            
            1,527
            
            
            
            6.00
            %Due
      after five years through ten years
            
            
            11,926
            
            
            
            5.36
            %
            
            
            9,176
            
            
            
            5.72
            %
            
            
            11,060
            
            
            
            5.27
            %
            
            
            1,939
            
            
            
            5.52
            %Due
      after ten years
            
            
            28,504
            
            
            
            5.61
            %
            
            
            15,417
            
            
            
            5.86
            %
            
            
            2,736
            
            
            
            5.34
            %
            
            
            -
            
            
            
            -Total
            
            $
            70,235
            
            
            
            5.13
            %
            
            $
            32,332
            
            
            
            5.63
            %
            
            $
            77,201
            
            
            
            5.10
            %
            
            $
            6,507
            
            
            
            6.65
            %





27





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.





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,
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(Dollars
      in Thousands)Commercial
      and financial
            
            $
            78,730
            
            
            $
            66,376
            
            
            $
            50,860
            
            
            $
            59,703
            
            
            $
            53,849Agricultural
      (including loans secured by farmland)
            
            
            41,861
            
            
            
            43,302
            
            
            
            55,830
            
            
            
            26,704
            
            
            
            24,071Real
      estate - construction
            
            
            352,732
            
            
            
            295,246
            
            
            
            268,629
            
            
            
            166,854
            
            
            
            100,150Real
      estate – commercial
            
            
            248,272
            
            
            
            255,462
            
            
            
            231,601
            
            
            
            239,032
            
            
            
            203,465Real
      estate - residential
            
            
            174,157
            
            
            
            142,501
            
            
            
            127,326
            
            
            
            136,190
            
            
            
            128,539Installment
      loans to individuals and other
            
            
            26,011
            
            
            
            18,414
            
            
            
            20,380
            
            
            
            19,552
            
            
            
            29,366921,763
            
            
            
            821,301
            
            
            
            754,626
            
            
            
            648,035
            
            
            
            539,440Deferred
      loan fees and unearned interest, net
            
            
            (414
            )
            
            
            (997
            )
            
            
            (1,688
            )
            
            
            (1,886
            )
            
            
            (796
            )921,349
            
            
            
            820,304
            
            
            
            752,938
            
            
            
            646,149
            
            
            
            538,644Allowance
      for loans losses
            
            
            (12,906
            )
            
            
            (11,006
            )
            
            
            (11,079
            )
            
            
            (9,066
            )
            
            
            (10,139
            )Loans,
      net
            
            $
            908,443
            
            
            $
            809,298
            
            
            $
            741,859
            
            
            $
            637,083
            
            
            $
            528,505








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





As
      of December 31,
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003Commercial
      and financial
            
            
            8.55
            %
            
            
            8.09
            %
            
            
            6.75
            %
            
            
            9.24
            %
            
            
            10.00
            %Agricultural
      (including loans secured by farmland)
            
            
            4.54
            %
            
            
            5.28
            %
            
            
            7.41
            %
            
            
            4.13
            %
            
            
            4.47
            %Real
      estate – construction
            
            
            38.28
            %
            
            
            35.99
            %
            
            
            35.68
            %
            
            
            25.82
            %
            
            
            18.59
            %Real
      estate - commercial
            
            
            26.95
            %
            
            
            31.14
            %
            
            
            30.76
            %
            
            
            36.99
            %
            
            
            37.78
            %Real
      estate - residential
            
            
            18.90
            %
            
            
            17.37
            %
            
            
            16.91
            %
            
            
            21.08
            %
            
            
            23.86
            %Installment
      loans to individuals and other
            
            
            2.82
            %
            
            
            2.24
            %
            
            
            2.71
            %
            
            
            3.03
            %
            
            
            5.45
            %100.04
            %
            
            
            100.12
            %
            
            
            100.22
            %
            
            
            100.29
            %
            
            
            100.15
            %Deferred
      loan fees and unearned interest, net
            
            
            -0.04
            %
            
            
            -0.12
            %
            
            
            -0.22
            %
            
            
            -0.29
            %
            
            
            -0.15
            %100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %Allowance
      for loans losses
            
            
            -1.40
            %
            
            
            -1.34
            %
            
            
            -1.47
            %
            
            
            -1.40
            %
            
            
            -1.88
            %Loans,
      net
            
            
            98.60
            %
            
            
            98.66
            %
            
            
            98.53
            %
            
            
            98.60
            %
            
            
            98.12
            %








Overall,
the loan portfolio increased $101.0 million, or 12.3%, from $820.3 million at
the beginning of the year to $921.3 million at year end.  In 2007, the
composition of the loan portfolio continued to shift slightly as loans secured
by real estate represented 88.3% of the total portfolio at the end of 2007, as
compared to 83.0% at the end of 2003.  At the end of 2003, installment
loans to individuals represented 5.5% of our loan portfolio, while it only
represented 2.8% at the end of 2007.  Residential real estate
mortgages decreased from 23.9% of our portfolio in 2003 to 18.9%  in 2007,
and commercial and financial loans decreased from 10.0% of our portfolio to 8.6%
of our portfolio during that same time.  However, since 2005, we have
increased our positions in both residential real estate mortgages and commercial
and financial loans.





Our
construction and land development loans increased from 18.6% of our portfolio in
2003 to 38.3%  in 2007.  Growth in all of our markets contributed
to the $57.5 million increase in construction loans; however, the majority of
our construction and development loans are in our North Georgia
market.  Of the $352.7 million in construction and development loans
outstanding at the end of 2007, $218.5 million, or 61.9%, originated in our
North Georgia offices.





28





With a
total of 65.2% of our loan portfolio concentrated in construction and
development and commercial real estate loans, we monitor and evaluate
trends in our residential real estate markets and periodically adjust our
strategies and underwriting requirements in an attempt to manage the risks
associated with these types of loans.





Below is
a table showing the collateral distribution of our construction and development
and commercial real estate loan portfolios as of December 31, 2007, 2006 and
2005.





2007
            
            
            2006
            
            
            2005$
      Amount
            
            
            %
      to Total
            
            
            $
      Amount
            
            
            %
      to Total
            
            
            $
      Amount
            
            
            %
      to Total(Dollars
      in Thousands)Construction and
      development:Acquisition
      and development:1-4
      family residential
            
            $
            130,097
            
            
            
            36.9
            %
            
            $
            134,559
            
            
            
            45.6
            %
            
            $
            116,799
            
            
            
            43.5
            %Commercial
      and multi-family
            
            
            105,718
            
            
            
            30.0
            %
            
            
            78,611
            
            
            
            26.6
            %
            
            
            73,748
            
            
            
            27.5
            %Construction1-4
      family residential spec
            
            
            40,392
            
            
            
            11.4
            %
            
            
            34,347
            
            
            
            11.6
            %
            
            
            26,135
            
            
            
            9.7
            %1-4
      family residential pre-sold
            
            
            1,604
            
            
            
            0.4
            %
            
            
            1,930
            
            
            
            0.6
            %
            
            
            7,086
            
            
            
            2.6
            %1-4
      family residential other
            
            
            26,694
            
            
            
            7.6
            %
            
            
            7,273
            
            
            
            2.5
            %
            
            
            9,850
            
            
            
            3.7
            %Commercial
      owner-occupied
            
            
            5,685
            
            
            
            1.6
            %
            
            
            6,685
            
            
            
            2.3
            %
            
            
            13,551
            
            
            
            5.0
            %Commercial
      not owner-occupied
            
            
            17,497
            
            
            
            5.0
            %
            
            
            8,831
            
            
            
            3.0
            %
            
            
            10,008
            
            
            
            3.7
            %Hotel/motel
            
            
            12,909
            
            
            
            3.7
            %
            
            
            7,683
            
            
            
            2.6
            %
            
            
            1,371
            
            
            
            0.5
            %Industrial
            
            
            -
            
            
            
            0.0
            %
            
            
            -
            
            
            
            0.0
            %
            
            
            483
            
            
            
            0.2
            %Multi-family
      properties
            
            
            7,789
            
            
            
            2.2
            %
            
            
            10,362
            
            
            
            3.5
            %
            
            
            8,641
            
            
            
            3.2
            %Special
      purpose property
            
            
            2,337
            
            
            
            0.6
            %
            
            
            1,050
            
            
            
            0.4
            %
            
            
            735
            
            
            
            0.3
            %Other
            
            
            2,010
            
            
            
            0.6
            %
            
            
            3,915
            
            
            
            1.3
            %
            
            
            222
            
            
            
            0.1
            %Total
      construction and development loans
            
            $
            352,732
            
            
            
            100.0
            %
            
            $
            295,246
            
            
            
            100.0
            %
            
            $
            268,629
            
            
            
            100.0
            %%
      of total loans
            
            
            38.3
            %
            
            
            
            
            
            
            36.0
            %
            
            
            
            
            
            
            35.7
            %








2007
            
            
            2006
            
            
            2005$
      Amount
            
            
            %
      to Total
            
            
            $
      Amount
            
            
            %
      to Total
            
            
            $
      Amount
            
            
            %
      to TotalCommercial real
      estate:Owner-occupied:Office
            
            $
            34,291
            
            
            
            13.8
            %
            
            $
            31,210
            
            
            
            12.2
            %
            
            $
            41,254
            
            
            
            17.8
            %Retail
            
            
            22,114
            
            
            
            8.9
            %
            
            
            23,117
            
            
            
            9.1
            %
            
            
            30,329
            
            
            
            13.1
            %Other
            
            
            34,263
            
            
            
            13.8
            %
            
            
            38,151
            
            
            
            14.9
            %
            
            
            44,971
            
            
            
            19.4
            %Not
      owner-occupied:Office
            
            
            29,210
            
            
            
            11.8
            %
            
            
            28,686
            
            
            
            11.2
            %
            
            
            17,407
            
            
            
            7.5
            %Retail
            
            
            36,780
            
            
            
            14.8
            %
            
            
            31,503
            
            
            
            12.3
            %
            
            
            19,167
            
            
            
            8.3
            %Other
            
            
            27,418
            
            
            
            11.0
            %
            
            
            26,072
            
            
            
            10.2
            %
            
            
            14,487
            
            
            
            6.3
            %Other:Hotel/motel
            
            
            11,399
            
            
            
            4.6
            %
            
            
            16,131
            
            
            
            6.3
            %
            
            
            17,812
            
            
            
            7.7
            %Industrial
            
            
            2,626
            
            
            
            1.1
            %
            
            
            3,246
            
            
            
            1.3
            %
            
            
            2,082
            
            
            
            0.9
            %Multi-family
      properties
            
            
            14,894
            
            
            
            6.0
            %
            
            
            19,379
            
            
            
            7.6
            %
            
            
            12,774
            
            
            
            5.5
            %Special
      purpose property
            
            
            34,876
            
            
            
            14.0
            %
            
            
            37,938
            
            
            
            14.9
            %
            
            
            30,574
            
            
            
            13.2
            %Other
            
            
            401
            
            
            
            0.2
            %
            
            
            29
            
            
            
            0.0
            %
            
            
            744
            
            
            
            0.3
            %Total
      commercial real estate loans
            
            $
            248,272
            
            
            
            100.0
            %
            
            $
            255,462
            
            
            
            100.0
            %
            
            $
            231,601
            
            
            
            100.0
            %%
      of total loans
            
            
            26.9
            %
            
            
            
            
            
            
            31.1
            %
            
            
            
            
            
            
            30.8
            %




29





A summary
of loans from each market outstanding at December 31, 2007 is presented in the
following table.





South
      Georgia
            
            
            North
      Georgia
            
            
            FloridaMarket
            
            
            Market
            
            
            Market
            
            
            Treasury
            
            
            Total(Dollars
      in Thousands)Commercial
      and financial
            
            $
            33,519
            
            
            $
            43,942
            
            
            $
            1,230
            
            
            $
            39
            
            
            $
            78,730Agricultural
      (including loans secured by farmland)
            
            
            29,398
            
            
            
            4,398
            
            
            
            8,065
            
            
            
            -
            
            
            
            41,861Real
      estate - construction
            
            
            78,079
            
            
            
            218,479
            
            
            
            55,662
            
            
            
            512
            
            
            
            352,732Real
      estate – commercial
            
            
            83,139
            
            
            
            137,115
            
            
            
            23,432
            
            
            
            4,586
            
            
            
            248,272Real
      estate - residential
            
            
            130,477
            
            
            
            29,708
            
            
            
            9,454
            
            
            
            4,518
            
            
            
            174,157Installment
      loans to individuals and others
            
            
            14,158
            
            
            
            5,491
            
            
            
            148
            
            
            
            6,214
            
            
            
            26,011368,770
            
            
            
            439,133
            
            
            
            97,991
            
            
            
            15,869
            
            
            
            921,763Deferred
      loan fees and unearned interest, net
            
            
            340
            
            
            
            (367
            )
            
            
            (374
            )
            
            
            (13
            )
            
            
            (414
            )369,110
            
            
            
            438,766
            
            
            
            97,617
            
            
            
            15,856
            
            
            
            921,349Allowance
      for loan losses
            
            
            (4,608
            )
            
            
            (8,085
            )
            
            
            (1,268
            )
            
            
            1,055
            
            
            
            (12,906
            )$
            364,502
            
            
            $
            430,681
            
            
            $
            96,349
            
            
            $
            16,911
            
            
            $
            908,443








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, 2007
            
            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
            
            $
            56,209
            
            
            $
            28,555
            
            
            $
            277,080
            
            
            $
            62,991
            
            
            $
            38,286
            
            
            $
            16,943
            
            
            $
            480,064Due
      after one year through five years
            
            
            21,065
            
            
            
            12,032
            
            
            
            72,206
            
            
            
            141,262
            
            
            
            77,312
            
            
            
            7,091
            
            
            
            330,968Due
      after five years
            
            
            1,456
            
            
            
            1,274
            
            
            
            3,446
            
            
            
            44,019
            
            
            
            58,559
            
            
            
            1,977
            
            
            
            110,731Total
            
            $
            78,730
            
            
            $
            41,861
            
            
            $
            352,732
            
            
            $
            248,272
            
            
            $
            174,157
            
            
            $
            26,011
            
            
            $
            921,763Of
      the above loans maturing after one year,those
      with predetermined fixed rates
            
            $
            12,337
            
            
            $
            9,883
            
            
            $
            24,734
            
            
            $
            144,861
            
            
            $
            101,711
            
            
            $
            6,763
            
            
            $
            300,289those
      with floating or adjustable rates
            
            
            10,184
            
            
            
            3,423
            
            
            
            50,918
            
            
            
            40,420
            
            
            
            34,160
            
            
            
            2,305
            
            
            
            141,410Total
      maturing after one year
            
            $
            22,521
            
            
            $
            13,306
            
            
            $
            75,652
            
            
            $
            185,281
            
            
            $
            135,871
            
            
            $
            9,068
            
            
            $
            441,699





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 and 2007, we moderated our preferences and
began competing for more fixed-rate commercial and residential
mortgages.  At December 31, 2007, approximately 63% of our loan
portfolio will either mature or reprice within the next 12 months, an 8%
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,
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(Dollars
      in Thousands)Loans
      accounted for on a nonaccrual basis
            
            $
            11,405
            
            
            $
            4,013
            
            
            $
            7,856
            
            
            $
            1,417
            
            
            $
            7,048Accruing
      loans which are contractually past due 90 days or more as to principal or
      interest payments
            
            
            37
            
            
            
            34
            
            
            
            2
            
            
            
            11
            
            
            
            -Troubled
      debt restructurings not included above
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,045
            
            
            
            1,168Total
      nonperforming loans
            
            $
            11,442
            
            
            $
            4,047
            
            
            $
            7,858
            
            
            $
            3,473
            
            
            $
            8,216Ratio
      of nonperforming loans to total loans (%)
            
            
            1.24
            
            
            
            0.49
            
            
            
            1.04
            
            
            
            0.54
            
            
            
            1.53Allowance
      for loan losses to nonperforming loans (%)
            
            
            112.79
            
            
            
            271.95
            
            
            
            140.98
            
            
            
            261.04
            
            
            
            123.41




30





During
the fourth quarter of 2007, a residential land loan was placed on nonaccrual
status, which had an outstanding principal balance of $6.1 million, or 53% of
our total nonperforming loans as of December 31, 2007.  Although the
loan is secured by approximately 229 acres in northwest Florida, we have
allocated a specific reserve of approximately $1.1 million to this impaired
loan.





Our
foreclosed assets increased $5.4 million in 2007, from $988,000 at December 31,
2006 to $6.4 million at December 31, 2007.  Due to economic conditions
in the Atlanta area, some builders and developers have been unable to
satisfy their obligations to us and we have foreclosed on their
collateral.  However, we have decided to select certain parcels of
foreclosed assets to hold rather than to force distressed sales of these
properties in this market.  The foreclosed properties held at December
31, 2007 include $2.8 million in commercial properties, $2.6 million in
residential homes and $1.0 million in residential lots.





At
December 31, 2007, we had $17.7 million in total delinquent loans (loans past
due 30 days or more) and still accruing interest, or 1.92% of total loans,
representing a significant increase from 0.28% at December 31,
2006.





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, 2007, the gross interest income that would have been
recorded if our nonperforming loans had been current in accordance with their
original terms was approximately $753,000.  The amount of interest
income on the above nonperforming loans that was included in net income for the
year ended December 31, 2007 was approximately $34,000.  The allowance
for loan losses related to our nonperforming loans amounted to approximately
$2.0 million and $602,000 at December 31, 2007 and 2006,
respectively.





Potential
Problem Loans


In
addition to our nonperforming loans discussed above, we have identified
$12.6 million in potential problem loans as of December 31,
2007.  These are construction and land development loans that were
past due 30 to 89 days at year-end.  Potential problem loans are loans
where known credit problems of the borrowers causes management to doubt the
ability of such borrowers to comply with the present repayment terms. This
may result in disclosure of such loans as nonperforming in future
periods.





Allowance
For Loan Losses





At
December 31, 2007, our allowance for loan losses as a percentage of total loans
was 1.40%, compared to 1.34% at December 31, 2006.  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 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.





31





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, 2007, we had $2.31 million in specific reserves on $16.30 million
in individually evaluated impaired and other significant potential problem
loans.  We did not have any specific reserves on any individually
evaluated loans at December 31, 2006.





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 days or more.  The
allowance factors are based on industry standards and supported by our own
historical loss analysis.  At December 31, 2007, we had $4.00 million
in general reserves allocated to $119.7 million rated and delinquent
loans.  This is an increase from the $3.22 million reserved on a lower
balance of $85.0 million rated and delinquent loans at December 31,
2006.  We had a significant 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, 2007, we had
$6.57 million in general reserves compared to $6.89 million one year
ago.  This 4.7% decrease in the general reserve is primarily due to a
re-allocation of the general reserves into the reserves for loans that are
internally rated, criticized by our banking examiners, or past due 30 days or
more.  The general reserves on construction and development loans
increased 5.8% and our general reserves on residential real estate increased
71.4%.  These increases were offset by a 27.7% decrease in our general
reserves on our commercial real estate loans and a 46.0% decrease in our general
reserves on our commercial (non real estate) loans.





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.





32





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,
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003Percentage
      of
            
            
            
            
            
            Percentage
      of
            
            
            
            
            
            Percentage
      of
            
            
            
            
            
            Percentage
      of
            
            
            
            
            
            Percentage
      ofLoans
      in
            
            
            
            
            
            Loans
      in
            
            
            
            
            
            Loans
      in
            
            
            
            
            
            Loans
      in
            
            
            
            
            
            Loans
      inCategory
            
            
            
            
            
            Category
            
            
            
            
            
            Category
            
            
            
            
            
            Category
            
            
            
            
            
            Categoryto
      Total
            
            
            
            
            
            to
      Total
            
            
            
            
            
            to
      Total
            
            
            
            
            
            to
      Total
            
            
            
            
            
            to
      TotalAmount
            
            
            Loans
            
            
            Amount
            
            
            Loans
            
            
            Amount
            
            
            Loans
            
            
            Amount
            
            
            Loans
            
            
            Amount
            
            
            Loans(Dollars
      in Thousands)Commercial
      and financial
            
            $
            229
            
            
            
            8.6
            %
            
            $
            972
            
            
            
            8.1
            %
            
            $
            2,670
            
            
            
            6.7
            %
            
            $
            1,167
            
            
            
            8.9
            %
            
            $
            1,570
            
            
            
            9.8
            %Agricultural
      (including loans secured by farmland)
            
            
            1,029
            
            
            
            4.5
            %
            
            
            1,184
            
            
            
            5.3
            %
            
            
            323
            
            
            
            7.4
            %
            
            
            490
            
            
            
            4.2
            %
            
            
            741
            
            
            
            4.5
            %Real
      estate - construction
            
            
            8,383
            
            
            
            38.2
            %
            
            
            4,875
            
            
            
            35.9
            %
            
            
            4,427
            
            
            
            35.5
            %
            
            
            2,211
            
            
            
            25.8
            %
            
            
            1,169
            
            
            
            18.6
            %Real
      estate – commercial
            
            
            2,008
            
            
            
            27.0
            %
            
            
            2,276
            
            
            
            31.1
            %
            
            
            2,280
            
            
            
            30.8
            %
            
            
            3,514
            
            
            
            37.0
            %
            
            
            3,793
            
            
            
            37.8
            %Real
      estate - residential
            
            
            815
            
            
            
            18.9
            %
            
            
            547
            
            
            
            17.4
            %
            
            
            208
            
            
            
            16.9
            %
            
            
            1,337
            
            
            
            21.1
            %
            
            
            1,557
            
            
            
            23.9
            %Consumer
      and other loans
            
            
            215
            
            
            
            2.8
            %
            
            
            255
            
            
            
            2.2
            %
            
            
            512
            
            
            
            2.7
            %
            
            
            335
            
            
            
            3.0
            %
            
            
            548
            
            
            
            5.4
            %Unallocated
            
            
            227
            
            
            
            
            
            
            
            897
            
            
            
            
            
            
            
            659
            
            
            
            
            
            
            
            12
            
            
            
            
            
            
            
            761Total
            
            $
            12,906
            
            
            
            100.0
            %
            
            $
            11,006
            
            
            
            100.0
            %
            
            $
            11,079
            
            
            
            100.0
            %
            
            $
            9,066
            
            
            
            100.0
            %
            
            $
            10,139
            
            
            
            100.0
            %








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,
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(Dollars
      in Thousands)Balance
      at beginning of year
            
            $
            11,006
            
            
            $
            11,079
            
            
            $
            9,066
            
            
            $
            10,139
            
            
            $
            12,097Charge-offs:Commercial
      and financial
            
            
            66
            
            
            
            115
            
            
            
            31
            
            
            
            511
            
            
            
            365Agricultural
      (including loans secured by farmland)
            
            
            10
            
            
            
            -
            
            
            
            -
            
            
            
            24
            
            
            
            890Real
      estate - construction
            
            
            324
            
            
            
            24
            
            
            
            -
            
            
            
            -
            
            
            
            9Real
      estate - commercial
            
            
            257
            
            
            
            314
            
            
            
            7
            
            
            
            1,228
            
            
            
            443Real
      estate - residential
            
            
            65
            
            
            
            208
            
            
            
            43
            
            
            
            467
            
            
            
            401Installment
      loans to individuals and other loans
            
            
            146
            
            
            
            160
            
            
            
            200
            
            
            
            343
            
            
            
            1,011868
            
            
            
            821
            
            
            
            281
            
            
            
            2,573
            
            
            
            3,119Recoveries:Commercial
      and financial
            
            
            55
            
            
            
            118
            
            
            
            111
            
            
            
            117
            
            
            
            673Agricultural
      (including loans secured by farmland)
            
            
            56
            
            
            
            41
            
            
            
            247
            
            
            
            151
            
            
            
            14Real
      estate - construction
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Real
      estate - commercial
            
            
            28
            
            
            
            335
            
            
            
            394
            
            
            
            268
            
            
            
            137Real
      estate - residential
            
            
            108
            
            
            
            87
            
            
            
            148
            
            
            
            52
            
            
            
            43Installment
      loans to individuals and other loans
            
            
            121
            
            
            
            167
            
            
            
            205
            
            
            
            312
            
            
            
            294368
            
            
            
            748
            
            
            
            1,105
            
            
            
            900
            
            
            
            1,161Net
      charge-offs (recoveries)
            
            
            500
            
            
            
            73
            
            
            
            (824
            )
            
            
            1,673
            
            
            
            1,958Additions
      provided to the allowance charged to operations
            
            
            2,400
            
            
            
            -
            
            
            
            1,189
            
            
            
            600
            
            
            
            -Balance
      at end of year
            
            $
            12,906
            
            
            $
            11,006
            
            
            $
            11,079
            
            
            $
            9,066
            
            
            $
            10,139Average
      balance of loans outstanding
            
            $
            883,334
            
            
            $
            792,278
            
            
            $
            706,052
            
            
            $
            569,858
            
            
            $
            540,787Ratio
      of net charge-offs (recoveries) during the year to average loans
      outstanding during the year (%)
            
            
            0.06
            
            
            
            0.01
            
            
            
            (0.12
            )
            
            
            0.29
            
            
            
            0.36





33





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,
            
            2007
            
            
            2006
            
            
            2005Average
      Balance
            
            
            Rate
            
            
            Average
      Balance
            
            
            Rate
            
            
            Average
      Balance
            
            
            Rate(Dollars
      in Thousands)Noninterest-bearing
      demand
            
            $
            98,475
            
            
            
            -
            
            
            $
            100,472
            
            
            
            -
            
            
            $
            106,700
            
            
            
            -Interest-bearing
      demand
            
            
            309,037
            
            
            
            3.58
            %
            
            
            266,374
            
            
            
            3.09
            %
            
            
            206,418
            
            
            
            1.63
            %Savings
            
            
            37,231
            
            
            
            1.51
            %
            
            
            39,366
            
            
            
            1.34
            %
            
            
            42,154
            
            
            
            0.74
            %Retail
      time deposits < $100,000
            
            
            300,618
            
            
            
            5.06
            %
            
            
            265,627
            
            
            
            4.37
            %
            
            
            221,861
            
            
            
            3.29
            %Retail
      time deposits >
      $100,000
            
            
            168,842
            
            
            
            4.94
            %
            
            
            147,193
            
            
            
            4.30
            %
            
            
            118,398
            
            
            
            3.38
            %Brokered
      time deposits >
      $100,000
            
            
            34,410
            
            
            
            5.03
            %
            
            
            40,184
            
            
            
            4.42
            %
            
            
            45,878
            
            
            
            3.25
            %Total
            
            $
            948,613
            
            
            
            3.89
            %
            
            $
            859,216
            
            
            
            3.31
            %
            
            $
            741,409
            
            
            
            2.22
            %





Our total
deposit portfolio grew $71.7 million, or 7.9%, in 2007.  Of this
increase, $57.2 million is from time deposits.  The average rate paid
on time deposits increased 67 basis points from 4.35% in 2006 to 5.02% in
2007.  As with most community banks, loan volume is the driver for the
remainder of our balance sheet.  When we have strong loan demand, we
will be more competitive for retail time deposits within our
markets.  We do not intend to be aggressively competitive for retail
time deposits in 2008.





The
maturities of time deposits as of December 31, 2007 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
            
            $
            69,729
            
            
            $
            51,562
            
            
            $
            9,522
            
            
            $
            130,813Over
      three through six months
            
            
            76,540
            
            
            
            46,449
            
            
            
            6,209
            
            
            
            129,198Over
      six months through twelve months
            
            
            92,111
            
            
            
            52,583
            
            
            
            2,000
            
            
            
            146,694Over
      twelve months
            
            
            74,342
            
            
            
            37,068
            
            
            
            17,868
            
            
            
            129,278Total
            
            $
            312,722
            
            
            $
            187,662
            
            
            $
            35,599
            
            
            $
            535,983








LIQUIDITYAND 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, 2007, our liquidity position, which is an internally-calculated
ratio of short-term funds available to short-term and potentially volatile
liabilities, was 15.76%.  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 28.73%.  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%.





34





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, 2007
            
            Contractual
      Maturities
            
            
            Expected
      Cash Flows
            
            
            Difference(Dollars
      in Thousands)Due
      in one year or less
            
            $
            7,792
            
            
            $
            39,534
            
            
            $
            31,742Due
      after one year through five years
            
            
            97,725
            
            
            
            87,383
            
            
            
            (10,342
            )Due
      after five years through ten years
            
            
            34,101
            
            
            
            44,876
            
            
            
            10,775Due
      after ten years
            
            
            46,657
            
            
            
            14,482
            
            
            
            (32,175
            )Total
            
            $
            186,275
            
            
            $
            186,275
            
            
            $
            -





Our
liquidity from investments is somewhat limited since we pledge certain
investments to secure public deposits and certain borrowing
arrangements.  At December 31, 2007, approximately 53.1% of our $194.8
million investment portfolio was pledged as collateral to others.





Borrowings


As a
result of an increase in our in-market deposits, we were able to reduce our
reliance on brokered deposits to fund our loan growth in 2007.  Our
brokered deposits decreased 5.7% from $37.8 million at December 31, 2006 to
$35.6 million at December 31, 2007.  We also decreased our advances
from the Federal Home Loan Bank of Atlanta (the “FHLB”) by 4.3%, from $90.2
million at December 31, 2006 to $86.3 million at December 31, 2007.





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 the three-month London Interbank Offered Rate
(“LIBOR”) plus 1.63% (6.46% at December 31, 2007).  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 were 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 guaranteed, on a subordinated basis, all of PAB
Trust I’s obligations under the trust preferred securities.  PAB Trust
I’s sole asset were 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, 2007, we had $3.6 million in an available secured credit line with
the FHLB and an additional $45.6 million in unsecured Fed Funds lines of credit
available with correspondent banks.





35




Contractual
Obligations


Summarized
below are our contractual obligations as of December 31, 2007.





1
      year
            
            
            Over
      1
            
            
            Over
      3
            
            
            More
      thanContractual
      Obligations
            
            Total
            
            
            or
      less
            
            
            to
      3 years
            
            
            to
      5 years
            
            
            5
      years(Dollars
      in Thousands)FHLB
      Advances
            
            $
            86,298
            
            
            $
            7,594
            
            
            $
            20,222
            
            
            $
            35,745
            
            
            $
            22,737Operating
      Lease Obligations
            
            
            1,593
            
            
            
            367
            
            
            
            497
            
            
            
            321
            
            
            
            408Guaranteed
      Preferred Beneficial Interests in Debentures
            
            
            10,310
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            10,310$
            98,201
            
            
            $
            7,961
            
            
            $
            20,719
            
            
            $
            36,066
            
            
            $
            33,455





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,
2007, we had outstanding commitments to extend credit through open lines of
credit of approximately $154.1 million and outstanding standby letters of credit
of approximately $4.2 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 atDecember 31,
2007was not
material.





Commitments
of Capital


At
December 31, 2007, there were no binding commitments for material capital
expenditures outstanding.





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, 2007, 2006 and 2005.





MinimumRegulatory2007
            
            
            2006
            
            
            2005
            
            
            RequirementTotal
      Capital to Risk Weighted Assets
            
            
            11.3
            %
            
            
            12.3
            %
            
            
            12.4
            %
            
            
            8.0
            %Tier
      1 Capital to Risk Weighted Assets
            
            
            10.0
            %
            
            
            11.1
            %
            
            
            11.1
            %
            
            
            4.0
            %Tier
      1 Capital to Average Assets (Leverage Ratio)
            
            
            8.5
            %
            
            
            9.1
            %
            
            
            9.2
            %
            
            
            4.0
            %





Total
stockholders’ equity increased $2.4 million, or 2.5%, during
2007.  Stockholders’ equity increased primarily from the retention of
$5.4 million in earnings (net income of $10.8 million less $5.4 million in
dividends paid), other comprehensive income of $1.8 million and the issuance of
$691,000 in stock, offset by stock buy-back transactions of $5.9 million in
2007.  As a percentage of total assets, stockholders’ equity
represented 8.2% at the end of 2007, compared to 8.5% at the end of 2006, as the
pace of asset growth slightly exceeded the net increase in equity.





36





RESULTSOF OPERATIONS





Net
income for the year ended December 31, 2007 was $10.8 million, or $1.13 per
diluted share, as compared to $13.7 million, or $1.41 per diluted share, during
the same period in 2006.  The $2.9 million, or 21.5%, decrease in net
income is the net result of a $1.5 million decrease in net interest income (or
$1.4 million on a taxable-equivalent basis), a $2.4 million increase in the
provision for loan losses and a $1.4 million increase in other expenses, offset
by a $611,000 increase in other income and a $1.8 million decrease in income tax
expense.  The impact on our year to date earnings from our three de
novo branches and the loan production office opened between October 2006 and
February 2007 was approximately $1.5 million, or approximately $0.16 per diluted
share.  Our return on average assets (“ROA”) and return on average
equity (“ROE”) for the year ended December 31, 2007 were 0.93% and 11.00%,
respectively, compared to a 1.29% ROA and a 14.99% ROE for 2006.





The
reasons for these changes are discussed in more detail below.





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 2007,
on a tax equivalent basis, decreased by $1.39 million, or 3.2%, over
2006.  Interest income (on a tax equivalent basis) increased $7.27
million, or 9.3%, and interest expense increased by $8.65 million, or 25.8%,
during 2007.  The growth in interest income is the result of a $91.9
million increase in the average balance of our earning assets and a one basis
point improvement in the average yield on those earning assets during the year,
from 7.77% in 2006 to 7.78% in 2007.  The increase in interest expense
is the result of a $93.6 million increase in the average balance of our
interest-bearing liabilities and a 52 basis point rise in the average rate paid
on those interest-bearing liabilities from 3.87% in 2006 to 4.39% in
2007.





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 was 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 was 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.





The net
interest margin is net interest income expressed as a percentage of average
earning assets.   Our net interest margin decreased from 4.43% in
2006 to 3.93% in 2007, a 50 basis point decline.  The reduction in
short-term interest rates during the third and fourth quarters of 2007 caused
our earning assets to re-price downwards faster than our interest-bearing
liabilities re-priced downwards.  Our ability to improve our net
interest margin in 2008 is not expected considering the interest rate
environment and narrowing spreads on our earning assets.








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, 2007, we recorded $2.4 million as a provision for loan
losses, while we did not incur a provision for loan losses in
2006.  The increase is due to a growing loan portfolio, as well as a
significant increase in the level of nonperforming loans at December 31,
2007.  We recorded $868,000 in loan charge-offs against the allowance
for loan losses in 2007, a 5.7% increase compared to $821,000 in charge-offs in
2006.  However, we recovered $368,000 in previously charged-off loans
during 2007, bringing our net charge-offs to $500,000, or 0.06% of average
loans, for the year.





37




Noninterest
Income





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





For
      the Year Ended December 31,
            
            2007
            
            
            
            
            
            2006
            
            
            
            
            
            2005Percentage
            
            
            
            
            
            PercentageChange
            
            
            
            
            
            ChangeAmount
            
            
            2007
      vs. 2006
            
            
            Amount
            
            
            2006
      vs. 2005
            
            
            Amount(Dollars
      In Thousands)Service
      charges on deposit accounts
            
            $
            3,617
            
            
            
            -6.7
            %
            
            $
            3,875
            
            
            
            -3.5
            %
            
            $
            4,017Mortgage
      origination fees
            
            
            405
            
            
            
            -18.8
            %
            
            
            499
            
            
            
            -17.0
            %
            
            
            601Brokerage
      commissions and fees
            
            
            13
            
            
            
            30.0
            %
            
            
            10
            
            
            
            -23.1
            %
            
            
            13ATM
      / debit card fee income
            
            
            643
            
            
            
            14.6
            %
            
            
            561
            
            
            
            19.4
            %
            
            
            470Other
      commissions and fees
            
            
            221
            
            
            
            -10.2
            %
            
            
            246
            
            
            
            3.8
            %
            
            
            237Securities
      transactions, net
            
            
            313
            
            
            
            -157.7
            %
            
            
            (542
            )
            
            
            4827.3
            %
            
            
            (11
            )Earnings
      of bank-owned life insurance
            
            
            406
            
            
            
            3.0
            %
            
            
            394
            
            
            
            14.5
            %
            
            
            344Gain
      (loss) on disposal / write-down of assets
            
            
            81
            
            
            
            252.2
            %
            
            
            23
            
            
            
            -129.1
            %
            
            
            (79
            )Other
      noninterest income
            
            
            292
            
            
            
            -7.0
            %
            
            
            314
            
            
            
            42.1
            %
            
            
            221Total
      Noninterest Income
            
            $
            5,991
            
            
            
            11.4
            %
            
            $
            5,380
            
            
            
            -7.4
            %
            
            $
            5,813





Noninterest
income increased 11.4% in 2007.  As a percentage of average assets,
noninterest income, excluding securities transactions and other non-recurring
gains and losses, has been 0.49%, 0.55% and 0.62% for each of the last three
years ended December 31, 2007, 2006 and 2005, 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 have decreased since 2005 due to a decrease in refinancing
activity because of the interest rate environment and due to turnover in
mortgage originators during 2006 and 2007.





Fee
income from ATM and debit cards increased in 2006 and 2007 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 offering a no-fee ATM deposit
product in selective markets for competitive reasons, which may reduce our ATM
fee income opportunities going forward.





We
incurred a net $313,000 gain on security transactions during 2007, compared to a
$542,000 net loss in 2006.  During 2007, we recorded a $372,000 gain
on the sale of equity securities and a $59,000 net loss on the sale of various
debt securities.  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.





We
recorded a net gain on the sale of foreclosed assets in 2007 of $94,000, offset
by a write-down of obsolete equipment of $13,000.  This is compared to
a net gain on the sale of foreclosed assets 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.




38




Noninterest
Expense





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





For
      the Year Ended December 31,
            
            2007
            
            
            
            
            
            2006
            
            
            
            
            
            2005Percentage
            
            
            
            
            
            PercentageChange
            
            
            
            
            
            ChangeAmount
            
            
            2007
      vs. 2006
            
            
            Amount
            
            
            2006
      vs. 2005
            
            
            Amount(Dollars
      In Thousands)Salaries
      and wages
            
            $
            16,431
            
            
            
            6.7
            %
            
            $
            15,396
            
            
            
            15.6
            %
            
            $
            13,322Deferred
      loan cost
            
            
            (1,969
            )
            
            
            11.0
            %
            
            
            (1,774
            )
            
            
            10.3
            %
            
            
            (1,609
            )Employee
      benefits
            
            
            4,119
            
            
            
            -6.3
            %
            
            
            4,396
            
            
            
            29.4
            %
            
            
            3,398Net
      occupancy expense of premises
            
            
            2,374
            
            
            
            18.4
            %
            
            
            2,005
            
            
            
            2.1
            %
            
            
            1,963Furniture
      and equipment expense
            
            
            2,279
            
            
            
            3.4
            %
            
            
            2,203
            
            
            
            5.8
            %
            
            
            2,082Advertising
      and business development
            
            
            626
            
            
            
            9.2
            %
            
            
            573
            
            
            
            5.9
            %
            
            
            541Supplies
      and printing
            
            
            463
            
            
            
            -6.7
            %
            
            
            496
            
            
            
            -5.9
            %
            
            
            527Telephone
      and internet charges
            
            
            635
            
            
            
            34.8
            %
            
            
            471
            
            
            
            28.3
            %
            
            
            367Postage
      and courier
            
            
            645
            
            
            
            13.4
            %
            
            
            569
            
            
            
            -6.4
            %
            
            
            608Legal
      and accounting fees
            
            
            559
            
            
            
            25.1
            %
            
            
            447
            
            
            
            7.5
            %
            
            
            416Consulting
      fees
            
            
            209
            
            
            
            -31.9
            %
            
            
            307
            
            
            
            -25.7
            %
            
            
            413Director
      fees and expenses
            
            
            398
            
            
            
            -8.5
            %
            
            
            435
            
            
            
            5.6
            %
            
            
            412Service
      charges and fees
            
            
            622
            
            
            
            23.4
            %
            
            
            504
            
            
            
            0.0
            %
            
            
            504Other
      noninterest expense
            
            
            2,199
            
            
            
            2.8
            %
            
            
            2,139
            
            
            
            16.6
            %
            
            
            1,834Total
      Noninterest Expense
            
            $
            29,590
            
            
            
            5.1
            %
            
            $
            28,167
            
            
            
            13.7
            %
            
            $
            24,778





Noninterest
expense increased 5.1% in 2007, from $28.2 million in 2006 to $29.6 million in
2007.  As a percentage of average assets, noninterest expense was
2.54%, 2.64% and 2.61% in 2007, 2006 and 2005, respectively.  Our
overhead efficiency ratio, a measure of noninterest expense as a percentage of
net interest income plus other noninterest income, increased from 55.88% in 2006
to 60.74% in 2007.





The 6.7%
increase in salaries and wages is the result of new hires, annual raises and
promotions.  We increased our number of full time employees by 1.6%,
from 311 at December 31, 2006 to 316 at December 31, 2007.  Deferred
loan cost, which is a credit against salaries and wages, increased 11.0% from
2006 and resulted in a decrease in expense reported during 2007, compared to
2006.  The increase in the deferral of loan costs is due to an
increase in most standard loan costs during 2007.





Employee
benefits decreased due to an 8% decrease in health insurance costs and a 71%
decrease in employee relocation and other qualified moving
expenses.  During 2006, we expensed non-recurring moving expenses for
several members of our management team.





Occupancy
expense and furniture and equipment expense increased significantly in 2007 due
to a 53% increase in lease expense for additional office space and
equipment.  We also incurred an 18% increase in real and personal
property taxes paid during 2007, compared to 2006.





Telephone
and internet charges continued to increase significantly during 2007 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 25.1%
increase in legal and accounting fees is related to a 67% increase in our legal
consultation and litigation fees.  Our accounting and audit fees only
increased 5% from 2006.





Consulting
fees continued to decrease in 2007, 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 8.5%
decrease in director fees is attributable to the reduction of our Board of
Directors from 14 to 13 members in May 2007 and fewer committee meetings
throughout the year.





39





Income
Taxes





The
provision for income tax expense as a percentage of pre-tax income was 34.5%,
35.3% and 33.8% for 2007, 2006 and 2005, respectively.  Since the
first quarter of 2006, we have invested in several affordable housing projects
to receive State of Georgia low income housing tax credits to help reduce our
state income tax expense.  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 2007, our net income was $1.6 million, or $0.18 per diluted
share, compared to net income of $3.3 million, or $0.34 per share, posted in the
fourth quarter of 2006.  In the fourth quarter of 2007, we provided
$1.8 million to the allowance for loan losses, while we did not record a
provision for loan losses in the fourth quarter of 2006.  Our net
interest margin for the fourth quarter of 2007 was 3.61% compared to 4.09% in
2006.  The average yield on earning assets decreased 29 basis points
to 7.48% in the fourth quarter of 2007 from 7.77% in 2006.  However,
the average rate paid on interest-bearing liabilities increased 13 basis points,
from 4.24% in 2006 to 4.36% in the fourth quarter of 2007.





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.





40





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, 2007.  For more detailed disclosure on recent
accounting developments, see Note 1 to the Consolidated Financial Statements
included in Item 8 of this Report.





ITEM7A.
            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, 2007, our
one-year management-adjusted gap ratio of 0.98 was within our policy
guidelines.  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 1.13
at year-end.





We have
reduced the level of asset-sensitivity on the Company’s balance sheet in an
effort to better mitigate our interest rate risk in an interest rate
decline.  We have accomplished this by conscientiously lengthening the
duration of our earning assets and shortening the duration of our deposits and
other borrowings.  Also, in June 2006, we entered into a $50 million
3-year 8.25% Prime rate floor contract to further hedge our interest rate risk
in a declining interest rate environment.





41





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
      DefinedRate
      Sensitive Assets (RSA)
            
            $
            572,541
            
            
            $
            604,014
            
            
            $
            686,218Rate Sensitive
      Liabilities (RSL)
            
            
            536,090
            
            
            
            673,616
            
            
            
            826,839RSA
      minus RSL (Gap)
            
            $
            36,451
            
            
            $
            (69,602
            )
            
            $
            (140,621
            )Gap
      Ratio (RSA/RSL)
            
            
            1.07
            
            
            
            0.90
            
            
            
            0.83Management-AdjustedRate
      Sensitive Assets (RSA)
            
            $
            614,721
            
            
            $
            685,701
            
            
            $
            837,686Rate Sensitive
      Liabilities (RSL)
            
            
            543,327
            
            
            
            687,465
            
            
            
            852,246RSA
      minus RSL (Gap)
            
            $
            71,394
            
            
            $
            (1,764
            )
            
            $
            (14,560
            )Gap
      Ratio (RSA/RSL)
            
            
            1.13
            
            
            
            1.00
            
            
            
            0.98








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, 2007, the simulation model projected net
interest income would increase 2.00% over the next year if market rates
immediately rose by 200 basis points and the model projected net interest income
to decrease 8.37% 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
            
            4.29%
            
            3.08%+200
      bps
            
            3.43%
            
            2.00%+100
      bps
            
            1.23%
            
            0.58%-100
      bps
            
            -3.51%
            
            -4.02%-200
      bps
            
            -6.37%
            
            -8.37%-300
      bps
            
            -7.48%
            
            -13.77%








42





ITEM8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA





QuarterlyFinancial Summary for 2007 and 2006


(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, 2007:Interest
      income
            
            $
            20,451
            
            
            $
            21,345
            
            
            $
            21,866
            
            
            $
            21,013Interest
      expense
            
            
            9,783
            
            
            
            10,386
            
            
            
            11,084
            
            
            
            10,956Net
      interest income
            
            
            10,668
            
            
            
            10,959
            
            
            
            10,782
            
            
            
            10,057Provision
      for loan losses
            
            
            -
            
            
            
            200
            
            
            
            400
            
            
            
            1,800Net
      interest income after provision for loan losses
            
            
            10,668
            
            
            
            10,759
            
            
            
            10,382
            
            
            
            8,257Other
      income
            
            
            1,478
            
            
            
            1,359
            
            
            
            1,471
            
            
            
            1,682Other
      expenses
            
            
            7,470
            
            
            
            7,209
            
            
            
            7,471
            
            
            
            7,440Income
      before income taxes
            
            
            4,676
            
            
            
            4,909
            
            
            
            4,382
            
            
            
            2,499Income
      tax
            
            
            1,612
            
            
            
            1,688
            
            
            
            1,523
            
            
            
            858Net
      income
            
            $
            3,064
            
            
            $
            3,221
            
            
            $
            2,859
            
            
            $
            1,641Basic
      earnings per share
            
            $
            0.32
            
            
            $
            0.34
            
            
            $
            0.30
            
            
            $
            0.18Diluted
      earnings per share
            
            $
            0.32
            
            
            $
            0.33
            
            
            $
            0.30
            
            
            $
            0.18Year
      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
            
            
            $
            0.34




43













MANAGEMENT’SREPORT 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, 2007.  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, 2007, 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 26,
      2008
            
            February 26,
      2008Date
            
            Date





44











Certified
Public Accountants, LLC








REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM








To
the Board of Directors


PAB
Bankshares, Inc.


Valdosta,
Georgia








We have
audited PAB Bankshares, Inc.’s internal control over financial reporting as of
December 31, 2007, 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 included in the accompanying “Management’s Report on Internal Control
over Financial Reporting.”  Our responsibility is to express an
opinion on 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, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk.  Our
audit also included 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.




45





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, PAB Bankshares, Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2007, 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, and the related consolidated statements of
income, comprehensive income, stockholders' equity, and cash flows of PAB
Bankshares, Inc., and our report dated, February 18, 2008, expressed an
unqualified opinion.








/s/
Mauldin & Jenkins, LLC








Albany,
Georgia


February
18, 2008




46










Certified
Public Accountants, LLC








REPORTOF 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, 2007 and 2006, and the related consolidated statements of
income, stockholders' equity and comprehensive income, and cash flows for each
of the years in the three-year period ended December 31,
2007.  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.  Our audit
of financial statements included examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of PAB Bankshares, Inc. and
Subsidiaries as of December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2007 in conformity with accounting principles generally
accepted in the United States of America.





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), PAB Bankshares and Subsidiaries’ internal
control over financial reporting as of December 31, 2007, based oncriteria established
inInternal Control -
Integrated Frameworkissued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) and our report dated February 18, 2008,expressed an unqualified
opinion.








/s/
Mauldin & Jenkins, LLC








Albany,
Georgia


February
18, 2008





47





PABBANKSHARES, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


DECEMBER
31, 2007 AND 2006









2007
            
            
            2006ASSETSCash
      and balances due from banks
            
            $
            29,451,700
            
            
            $
            26,712,252Interest-bearing
      deposits in other banks
            
            
            393,276
            
            
            
            550,307Federal
      funds sold
            
            
            559,444
            
            
            
            41,612,728Investment
      securities
            
            
            194,794,481
            
            
            
            184,092,858Loans
            
            
            921,348,906
            
            
            
            820,304,092Allowance
      for loan losses
            
            
            (12,905,938
            )
            
            
            (11,006,097
            )Net
      loans
            
            
            908,442,968
            
            
            
            809,297,995Premises
      and equipment, net
            
            
            20,177,671
            
            
            
            20,779,587Goodwill
            
            
            5,984,604
            
            
            
            5,984,604Cash
      value of bank-owned life insurance policies
            
            
            11,881,384
            
            
            
            11,474,964Foreclosed
      assets
            
            
            6,360,258
            
            
            
            987,814Other
      assets
            
            
            20,625,156
            
            
            
            19,310,677Total
      assets
            
            $
            1,198,670,942
            
            
            $
            1,120,803,786LIABILITIES
      AND STOCKHOLDERS' EQUITYDeposits:Noninterest-bearing
      demand
            
            $
            89,423,571
            
            
            $
            100,910,593Interest-bearing
      demand and savings
            
            
            354,742,862
            
            
            
            328,828,309Time
            
            
            535,982,585
            
            
            
            478,744,090Total
      deposits
            
            
            980,149,018
            
            
            
            908,482,992Federal
      funds purchased and securities sold under agreements to
      repurchase
            
            
            16,175,370
            
            
            
            7,648,664Advances
      from the Federal Home Loan Bank of Atlanta
            
            
            86,297,705
            
            
            
            90,190,702Guaranteed
      preferred beneficial interests in debentures (trust preferred
      securities)
            
            
            10,310,000
            
            
            
            10,310,000Other
      liabilities
            
            
            8,062,877
            
            
            
            8,855,694Total
      liabilities
            
            
            1,100,994,970
            
            
            
            1,025,488,052Commitments
      and contingenciesStockholders'
      equity:Preferred
      stock, no par value; 1,500,000 shares authorized; no shares
      issued
            
            
            -
            
            
            
            -Common
      stock, no par value; 98,500,000 shares authorized;9,223,217 and
      9,504,969 shares issued and outstanding
            
            
            1,217,065
            
            
            
            1,217,065Additional
      paid-in capital
            
            
            22,792,940
            
            
            
            27,584,852Retained
      earnings
            
            
            72,822,852
            
            
            
            67,476,178Accumulated
      other comprehensive income (loss)
            
            
            843,115
            
            
            
            (962,361
            )Total
      stockholders' equity
            
            
            97,675,972
            
            
            
            95,315,734Total
      liabilities and stockholders' equity
            
            $
            1,198,670,942
            
            
            $
            1,120,803,786





See
accompanying notes to consolidated financial statements.





48





PABBANKSHARES, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME


YEARS
ENDED DECEMBER 31, 2007, 2006 AND 2005










2007
            
            
            2006
            
            
            2005Interest
      income:Interest
      and fees on loans
            
            $
            74,060,094
            
            
            $
            67,353,896
            
            
            $
            51,804,646Interest
      and dividends on investment securities:Taxable
            
            
            8,210,696
            
            
            
            7,718,646
            
            
            
            5,580,856Nontaxable
            
            
            1,214,213
            
            
            
            922,097
            
            
            
            413,026Other
      interest income
            
            
            1,190,678
            
            
            
            1,571,446
            
            
            
            1,572,029Total
      interest income
            
            
            84,675,681
            
            
            
            77,566,085
            
            
            
            59,370,557Interest
      expense:Interest
      on deposits
            
            
            36,887,599
            
            
            
            28,455,480
            
            
            
            16,475,739Interest
      on Federal Home Loan Bank advances
            
            
            4,068,962
            
            
            
            3,847,529
            
            
            
            3,053,155Interest
      on other borrowings
            
            
            1,253,271
            
            
            
            1,252,427
            
            
            
            868,954Total
      interest expense
            
            
            42,209,832
            
            
            
            33,555,436
            
            
            
            20,397,848Net
      interest income
            
            
            42,465,849
            
            
            
            44,010,649
            
            
            
            38,972,709Provision
      for loan losses
            
            
            2,400,000
            
            
            
            -
            
            
            
            1,188,600Net
      interest income after provision for loan losses
            
            
            40,065,849
            
            
            
            44,010,649
            
            
            
            37,784,109Other
      income:Service
      charges on deposit accounts
            
            
            3,616,552
            
            
            
            3,874,908
            
            
            
            4,017,244Other
      fee income
            
            
            1,282,167
            
            
            
            1,315,441
            
            
            
            1,320,987Securities
      transactions, net
            
            
            312,988
            
            
            
            (542,253
            )
            
            
            (11,464
            )Other
      noninterest income
            
            
            779,560
            
            
            
            731,544
            
            
            
            485,783Total
      other income
            
            
            5,991,267
            
            
            
            5,379,640
            
            
            
            5,812,550Other
      expenses:Salaries
      and employee benefits
            
            
            18,581,881
            
            
            
            18,017,713
            
            
            
            15,110,181Occupancy
      expense of premises
            
            
            2,373,917
            
            
            
            2,004,599
            
            
            
            1,962,923Furniture
      and equipment expense
            
            
            2,278,600
            
            
            
            2,202,592
            
            
            
            2,081,575Other
      noninterest expense
            
            
            6,355,767
            
            
            
            5,942,224
            
            
            
            5,623,480Total
      other expenses
            
            
            29,590,165
            
            
            
            28,167,128
            
            
            
            24,778,159Income
      before income tax expense
            
            
            16,466,951
            
            
            
            21,223,161
            
            
            
            18,818,500Income
      tax expense
            
            
            5,681,236
            
            
            
            7,487,944
            
            
            
            6,365,777Net
      income
            
            $
            10,785,715
            
            
            $
            13,735,217
            
            
            $
            12,452,723Earnings
      per common share:Basic
            
            $
            1.14
            
            
            $
            1.45
            
            
            $
            1.31Diluted
            
            $
            1.13
            
            
            $
            1.41
            
            
            $
            1.28





See
accompanying notes to consolidated financial statements.





49








PABBANKSHARES, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME


YEARS
ENDED DECEMBER 31, 2007, 2006 AND 2005










2007
            
            
            2006
            
            
            2005Net
      income
            
            $
            10,785,715
            
            
            $
            13,735,217
            
            
            $
            12,452,723Other
      comprehensive income (loss):Unrealized
      gain on cash flow hedge during the period,net of tax of $281,360; $60,703;
      and $0
            
            
            506,137
            
            
            
            129,124
            
            
            
            -Unrealized
      holding gains (losses) on securities available for sale arising during the
      period, net of tax (benefit) of $809,190; ($123,554); and
      ($504,222)
            
            
            1,502,781
            
            
            
            (229,456
            )
            
            
            (923,493
            )Reclassification
      adjustment for (gains) losses on securities available for sale included in
      net income, net of tax (benefit) of $109,546; ($189,789); and
      ($4,012)
            
            
            (203,442
            )
            
            
            352,464
            
            
            
            7,4521,805,476
            
            
            
            252,132
            
            
            
            (916,041
            )Comprehensive
      income
            
            $
            12,591,191
            
            
            $
            13,987,349
            
            
            $
            11,536,682





See
accompanying notes to consolidated financial statements.





50





PABBANKSHARES, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY


YEARS
ENDED DECEMBER 31, 2007, 2006 AND 2005










AccumulatedAdditional
            
            
            
            
            
            OtherCommon
      Stock
            
            
            Paid-in
            
            
            Retained
            
            
            ComprehensiveShares
            
            
            Stated
      Value
            
            
            Capital
            
            
            Earnings
            
            
            Income
      (Loss)
            
            
            TotalBalance,
      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
            
            
            
            -
            
            
            
            -
            
            
            
            451,729Balance,
      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
            
            
            
            -
            
            
            
            -
            
            
            
            1,671,873Balance,
      December 31, 2006
            
            
            9,504,969
            
            
            
            1,217,065
            
            
            
            27,584,852
            
            
            
            67,476,178
            
            
            
            (962,361
            )
            
            
            95,315,734Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            10,785,715
            
            
            
            -
            
            
            
            10,785,715Other
      comprehensive income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,805,476
            
            
            
            1,805,476Cash
      dividends declared,$.58 per share
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (5,439,041
            )
            
            
            -
            
            
            
            (5,439,041
            )Stock
      acquired and cancelled under stock repurchase plan
            
            
            (344,492
            )
            
            
            -
            
            
            
            (5,894,104
            )
            
            
            -
            
            
            
            -
            
            
            
            (5,894,104
            )Stock-based
      compensation
            
            
            -
            
            
            
            -
            
            
            
            410,851
            
            
            
            -
            
            
            
            
            
            
            
            410,851Stock
      options exercised
            
            
            62,740
            
            
            
            -
            
            
            
            691,341
            
            
            
            -
            
            
            
            -
            
            
            
            691,341Balance,
      December 31, 2007
            
            
            9,223,217
            
            
            $
            1,217,065
            
            
            $
            22,792,940
            
            
            $
            72,822,852
            
            
            $
            843,115
            
            
            $
            97,675,972





See
accompanying notes to consolidated financial statements.





51





PABBANKSHARES, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


YEARS
ENDED DECEMBER 31, 2007, 2006 AND 2005









2007
            
            
            2006
            
            
            2005CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
            
            $
            10,785,715
            
            
            $
            13,735,217
            
            
            $
            12,452,723Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation,
      amortization and accretion, net
            
            
            1,716,530
            
            
            
            1,668,092
            
            
            
            2,190,391Provision
      for loan losses
            
            
            2,400,000
            
            
            
            -
            
            
            
            1,188,600Provision
      for deferred taxes
            
            
            (644,268
            )
            
            
            303,268
            
            
            
            (940,628
            )Net
      realized (gain) loss on securities transactions
            
            
            (312,988
            )
            
            
            542,253
            
            
            
            11,464Net
      (gain) loss on disposal or write down of assets
            
            
            (70,860
            )
            
            
            (26,048
            )
            
            
            79,309Stock-based
      compensation expense
            
            
            410,851
            
            
            
            290,245
            
            
            
            -Increase
      in cash value of bank-owned life insurance
            
            
            (406,420
            )
            
            
            (394,242
            )
            
            
            (343,518
            )Increase
      (decrease) in deferred compensation accrual
            
            
            (226,951
            )
            
            
            223,709
            
            
            
            (14,727
            )Decrease
      in retirement and severance accruals
            
            
            (159,799
            )
            
            
            (232,441
            )
            
            
            (357,508
            )(Increase)
      decrease in interest receivable
            
            
            8,761
            
            
            
            (1,372,405
            )
            
            
            (1,762,178
            )Increase
      in interest payable
            
            
            78,775
            
            
            
            397,514
            
            
            
            460,375Increase
      in taxes receivable
            
            
            (957,764
            )
            
            
            (730,032
            )
            
            
            (1,149,243
            )Net
      change in other assets and other liabilities
            
            
            (485,914
            )
            
            
            254,635
            
            
            
            622,312Net
      cash provided by operating activities
            
            
            12,135,668
            
            
            
            14,659,765
            
            
            
            12,437,372CASH
      FLOWS FROM INVESTING ACTIVITIES(Increase)
      decrease in interest-bearing deposits in other banks
            
            
            157,031
            
            
            
            2,527,593
            
            
            
            (2,093,163
            )(Increase)
      decrease in federal funds sold
            
            
            41,053,284
            
            
            
            966,121
            
            
            
            (9,962,728
            )Purchase
      of debt securities
            
            
            (43,392,095
            )
            
            
            (69,673,261
            )
            
            
            (59,463,549
            )Proceeds
      from sales and calls of debt securities
            
            
            22,537,742
            
            
            
            22,802,388
            
            
            
            12,794,845Proceeds
      from maturities and paydowns of debt securities
            
            
            11,734,367
            
            
            
            20,456,192
            
            
            
            16,447,139Purchase
      of equity securities
            
            
            (65,858
            )
            
            
            (887,783
            )
            
            
            (802,300
            )Redemption
      of equity securities
            
            
            886,151
            
            
            
            338,600
            
            
            
            418,800Net
      increase in loans
            
            
            (108,962,052
            )
            
            
            (74,742,227
            )
            
            
            (106,135,736
            )Purchase
      of premises and equipment
            
            
            (1,243,446
            )
            
            
            (5,344,196
            )
            
            
            (1,490,608
            )Proceeds
      from disposal of fixed assets and foreclosed assets
            
            
            2,234,053
            
            
            
            6,398,818
            
            
            
            164,059Net
      cash used in investing activities
            
            
            (75,060,823
            )
            
            
            (97,157,755
            )
            
            
            (150,123,241
            )CASH
      FLOWS FROM FINANCING ACTIVITIESNet
      increase in deposits
            
            
            71,666,026
            
            
            
            92,802,250
            
            
            
            158,130,306Net
      increase (decrease) in federal funds purchased and securities sold under
      repurchase agreements
            
            
            8,526,706
            
            
            
            1,331,529
            
            
            
            (7,850,963
            )Advances
      from Federal Home Loan Bank
            
            
            47,500,000
            
            
            
            45,000,000
            
            
            
            38,318,600Payments
      on advances from Federal Home Loan Bank
            
            
            (51,392,997
            )
            
            
            (44,852,896
            )
            
            
            (47,276,127
            )Dividends
      paid
            
            
            (5,432,369
            )
            
            
            (4,984,149
            )
            
            
            (4,284,703
            )Proceeds
      from the exercise of stock options
            
            
            691,341
            
            
            
            1,671,873
            
            
            
            451,729Proceeds
      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
            )Liquidating
      distribution of preferred stock in REIT subsidiaries
            
            
            -
            
            
            
            -
            
            
            
            (107,000
            )Acquisition
      of stock under stock repurchase plans
            
            
            (5,894,104
            )
            
            
            (2,503,298
            )
            
            
            (1,468,714
            )Net
      cash provided by financing activities
            
            
            65,664,603
            
            
            
            88,014,059
            
            
            
            135,905,128





52





PAB
BANKSHARES, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


YEARS
ENDED DECEMBER 31, 2007, 2006 AND 2005









2007
            
            
            2006
            
            
            2005Net
      increase (decrease) in cash and balances due from banks
            
            $
            2,739,448
            
            
            $
            5,516,069
            
            
            $
            (1,780,741
            )Cash
      and balances due from banks at beginning of period
            
            
            26,712,252
            
            
            
            21,196,183
            
            
            
            22,976,924Cash
      and balances due from banks at end of period
            
            $
            29,451,700
            
            
            $
            26,712,252
            
            
            $
            21,196,183SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONCash
      paid during the period for:Interest
            
            $
            42,131,057
            
            
            $
            33,157,922
            
            
            $
            19,937,473Taxes
            
            $
            5,770,337
            
            
            $
            7,532,047
            
            
            $
            8,455,648NONCASH
      INVESTING AND FINANCING TRANSACTIONS(Increase)
      decrease in unrealized losses on securities available for
    sale
            
            $
            1,998,983
            
            
            $
            189,243
            
            
            $
            (1,416,251
            )Increase
      in unrealized gain on cash flow hedge
            
            $
            787,496
            
            
            $
            189,827
            
            
            $
            -Transfer
      of loans to foreclosed assets
            
            $
            7,417,079
            
            
            $
            7,303,184
            
            
            $
            170,958





See
accompanying notes to consolidated financial statements.





53





PABBANKSHARES, 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, 2007:





Banking Locations
            
            Number of OfficesSouth
      Georgia Market:Valdosta,
      Lowndes County
            
            3
      (including the main office)Lake
      Park, Lowndes County
            
            1Adel,
      Cook County
            
            1Bainbridge,
      Decatur County
            
            3Cairo,
      Grady County
            
            1Statesboro,
      Bulloch County
            
            2Baxley,
      Appling County
            
            1Hazlehurst,
      Jeff Davis County
            
            1North
      Georgia Market:McDonough,
      Henry County
            
            1Stockbridge,
      Henry County
            
            1Oakwood,
      Hall County
            
            1Athens,
      Oconee County
            
            1Snellville,
      Gwinnett County
            
            2
      (including a loan production office)Cumming,
      Forsyth County
            
            1
      (loan production office)Florida
      Market:Ocala,
      Marion County
            
            1St.
      Augustine, St. Johns County
            
            1
      (loan production office)Jacksonville,
      Duval County
            
            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.  The Company has
determined that Financial Accounting Standards Board (“FASB”) Interpretation No.
46R (Revised December 2003), Consolidation of Variable Interest
Entities requires deconsolidation of both PAB Bankshares Capital Trust I
and II.




54





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.  At various times
throughout the year, cash balances held at other financial institutions will
exceed federally insured limits.





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, 2007, 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





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 10-40 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, 2007.





There
were no changes in the carrying amount of goodwill during the years ended
December 31, 2007, 2006 and 2005.





56





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.





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, 2007, 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 year ended December 31, 2005 if the Company had applied the fair value
recognition provisions of FASB No. 123 to stock-based employee
compensation.





2005Net
      income, as reported
            
            $
            12,452,723Deduct:Total stock-based
      employee compensation expensedetermined under
      fair value based method for allawards, net of
      related tax effects
            
            
            (265,594
            )Pro
      forma net income
            
            $
            12,187,129Earnings
      per share:Basic
      – as reported
            
            $
            1.31Basic
      – pro forma
            
            $
            1.29Diluted
      – as reported
            
            $
            1.28Diluted
      – pro forma
            
            $
            1.26





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





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
September 2006, the FASB issued Statement No. 157, Fair Value
Measurements.The Statement 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 Statement, 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 Statement establishes
a fair value hierarchy that prioritizes the information used to develop those
assumptions.  Under the Statement, fair value measurements would be
separately disclosed by level within the fair value
hierarchy.  Statement No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and is not expected to
have a material impact on the Company’s financial condition or results of
operations.





In
February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an Amendment of FASB Statement No.
115.  The Statement permits an entity to choose to measure many
financial instruments and certain other items at fair value at specified
election dates.  A business entity will report unrealized gains and
losses on items for which the fair value option has been elected in earnings at
each subsequent reporting date.  The fair value option may be applied
instrument by instrument (with a few exceptions), is irrevocable (unless a new
election date occurs) and is applied only to entire instruments and not to
portions of instruments.  Most of the provisions in Statement 159 are
elective; however, the amendment to FASB Statement No. 115, Accounting for Certain Investments
in Debt and Equity Securities, applies to all entities with
available-for-sale and trading securities.  Statement No. 159 is
effective as of the beginning of an entity’s first fiscal year that begins after
November 15, 2007 and is not expected to have a material impact on the Company’s
financial condition or results of operations.





In
December 2007, the FASB issued Statement No. 141 (Revised 2007), Business
Combinations.  The Statement will significantly change the
accounting for business combinations, as an acquiring entity will be required to
recognize all the assets and liabilities assumed in a transaction at the
acquisition-date fair value with limited exceptions.  The Statement
changes the accounting treatment for several specific items, such as acquisition
costs, noncontrolling interests (formerly referred to as minority interests),
contingent liabilities, restructuring costs and changes in deferred tax asset
valuation allowances.  The Statement also includes a substantial
number of new disclosure requirements.  Statement No. 141R applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008.  Early adoption is prohibited.  The
Company is currently evaluating the impact the adoption of this statement will
have on the accounting for future acquisitions and business
combinations.





In
December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements – An Amendment of ARB No.
51.  The Statement establishes new accounting and reporting
standards for the noncontrolling interest (formerly referred to as minority
interests) in a subsidiary and for the deconsolidation of a
subsidiary.  Statement No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008.  Early adoption is prohibited.  The Company currently
does not have any noncontrolling interests and is evaluating the impact the
adoption of this statement will have on the accounting for future business
combinations.





58





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 $5,607,000 and $7,533,000 at December 31, 2007 and 2006,
respectively.








NOTE
      3.
            INVESTMENT
      SECURITIES





A summary
of the amortized cost and approximate fair value of investment securities, with
gross unrealized gains and losses, follows.





Amortized
              Cost
            
            
            Gross
              Unrealized
              Gains
            
            
            Gross
              Unrealized
              Losses
            
            
            Fair
              ValueDecember
      31, 2007U.S.
      Government sponsored agencies
            
            $
            69,787,616
            
            
            $
            512,362
            
            
            $
            (64,692
            )
            
            $
            70,235,286State
      and municipal securities
            
            
            32,480,766
            
            
            
            204,241
            
            
            
            (352,938
            )
            
            
            32,332,069Mortgage-backed
      securities
            
            
            77,152,178
            
            
            
            379,068
            
            
            
            (330,401
            )
            
            
            77,200,845Corporate
      debt securities
            
            
            6,537,841
            
            
            
            10,655
            
            
            
            (41,123
            )
            
            
            6,507,373Equity
      securities
            
            
            8,516,305
            
            
            
            2,603
            
            
            
            -
            
            
            
            8,518,908$
            194,474,706
            
            
            $
            1,108,929
            
            
            $
            (789,154
            )
            
            $
            194,794,481December
      31, 2006U.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





The
amortized cost and fair value of investment securities as of December 31, 2007,
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
              ValueDue
      in one year or less
            
            $
            3,588,376
            
            
            $
            3,584,330Due
      from one to five years
            
            
            29,838,652
            
            
            
            29,923,193Due
      from five to ten years
            
            
            22,913,643
            
            
            
            23,003,384Due
      after ten years
            
            
            52,465,552
            
            
            
            52,563,821Mortgage-backed
      securities
            
            
            77,152,178
            
            
            
            77,200,845Equity
      securities
            
            
            8,516,305
            
            
            
            8,518,908$
            194,474,706
            
            
            $
            194,794,481





Securities
with a carrying value of $103,509,033 and $116,802,664 at December 31, 2007 and
2006, respectively, were pledged to secure public deposits, certain borrowing
arrangements and for other purposes.





59








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, 2007, 2006 and 2005 consist of the following:





2007
            
            
            2006
            
            
            2005Gross
      gains on securities transactions
            
            $
            434,217
            
            
            $
            167,187
            
            
            $
            14,834Gross
      losses on securities transactions
            
            
            (121,229
            )
            
            
            (709,440
            )
            
            
            (26,298
            )Net
      realized gain (loss) on securities transactions
            
            $
            312,988
            
            
            $
            (542,253
            )
            
            $
            (11,464
            )








The
following table shows the gross unrealized losses and fair value of securities,
aggregated by category, at December 31, 2007 and 2006.  At December
31, 2007 there are three U.S. Government sponsored agency debt issues, fourteen
mortgage-backed securities issued by U.S. Government sponsored agencies,
twenty-three 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, none of the declines in value are deemed to be other than
temporary.





Less
      than Twelve Months
            
            
            Twelve
      Months or LongerDecember
      31, 2007
            
            Fair
              Value
            
            
            Unrealized
              Losses
            
            
            Fair
              Value
            
            
            Unrealized
              LossesU.S.
      Government sponsored agencies
            
            $
            11,293,466
            
            
            $
            23,169
            
            
            $
            11,444,150
            
            
            $
            41,523State
      and municipal securities
            
            
            7,933,083
            
            
            
            53,094
            
            
            
            10,007,484
            
            
            
            299,844Mortgage-backed
      securities
            
            
            10,618,640
            
            
            
            7,273
            
            
            
            26,792,785
            
            
            
            323,128Corporate
      debt securities
            
            
            968,300
            
            
            
            31,606
            
            
            
            526,950
            
            
            
            9,517Equity
      securities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      temporarily impaired securities
            
            $
            30,813,489
            
            
            $
            115,142
            
            
            $
            48,771,369
            
            
            $
            674,012December
      31, 2006U.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





60





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      4.
            LOANS
      AND ALLOWANCE FOR LOAN LOSSES





The
composition of the loan portfolio as of December 31, 2007 and 2006
follows.





2007
            
            
            2006Commercial
      and financial
            
            $
            78,729,774
            
            
            $
            66,376,066Agricultural
            
            
            41,860,681
            
            
            
            43,302,385Real
      estate – construction
            
            
            352,731,985
            
            
            
            295,245,619Real
      estate – commercial
            
            
            248,271,663
            
            
            
            255,461,494Real
      estate – residential
            
            
            174,157,534
            
            
            
            142,501,330Installment
      loans to individuals and others
            
            
            25,825,467
            
            
            
            18,290,234Overdrafts
            
            
            186,155
            
            
            
            124,073921,763,259
            
            
            
            821,301,201Deferred
      loan fees and unearned interest, net
            
            
            (414,353
            )
            
            
            (997,109
            )921,348,906
            
            
            
            820,304,092Allowance
      for loan losses
            
            
            (12,905,938
            )
            
            
            (11,006,097
            )$
            908,442,968
            
            
            $
            809,297,995





Changes
in the allowance for loan losses for the years ended December 31, 2007, 2006 and
2005 follows.





2007
            
            
            2006
            
            
            2005Balance,
      beginning of year
            
            $
            11,006,097
            
            
            $
            11,079,193
            
            
            $
            9,066,566Provision
      charged to operations
            
            
            2,400,000
            
            
            
            -
            
            
            
            1,188,600Loans
      charged-off
            
            
            (868,201
            )
            
            
            (821,214
            )
            
            
            (281,331
            )Recoveries
            
            
            368,042
            
            
            
            748,118
            
            
            
            1,105,358Balance,
      end of year
            
            $
            12,905,938
            
            
            $
            11,006,097
            
            
            $
            11,079,193





A summary
of information pertaining to impaired loans as of December 31, 2007 and 2006
follows.




2007
              
              
              2006Loans
      accounted for on a nonaccrual basis
              
              $
              11,404,832
              
              
              $
              4,013,477Loans
      past due 90 days or more and still accruing
              
              
              37,378
              
              
              
              33,688Total
      impaired loans
              
              $
              11,442,210
              
              
              $
              4,047,165Valuation
      allowance related to impaired loans
              
              $
              1,965,439
              
              
              $
              601,564


Additional
information on impaired loans for the years ended December 31, 2007, 2006 and
2005 follows.





2007
            
            
            2006
            
            
            2005Average
      recorded investment in impaired loans
            
            $
            4,883,934
            
            
            $
            4,081,837
            
            
            $
            5,864,878Approximate
      amount of interest income that would have been recorded if the impaired
      loans had remained current and on an accrual status
            
            $
            753,000
            
            
            $
            261,600
            
            
            $
            412,200Interest
      income recognized on a cash basis on
              impaired
      loans
            
            $
            33,658
            
            
            $
            52,377
            
            
            $
            12,992


61


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, 2007 follows.





Balance,
      beginning of year
            
            $
            13,236,211Advances
            
            
            25,860,998Repayments
            
            
            (18,271,937
            )Transactions
      due to changes in related parties
            
            
            9,419,887Balance,
      end of year
            
            $
            30,245,159








NOTE
      5.
            PREMISES
      AND EQUIPMENT





Premises
and equipment as of December 31, 2007 and 2006 follows.





2007
            
            
            2006Land
            
            $
            6,201,540
            
            
            $
            6,227,080Buildings
      and improvements
            
            
            18,489,560
            
            
            
            17,861,267Furniture,
      fixtures and equipment
            
            
            9,935,865
            
            
            
            9,942,429Construction
      in progress
            
            
            -
            
            
            
            210,11234,626,965
            
            
            
            34,240,888Less
      accumulated depreciation
            
            
            (14,449,294
            )
            
            
            (13,461,301
            )$
            20,177,671
            
            
            $
            20,779,587





Depreciation
expense amounted to $1,701,263, $1,615,825 and $1,715,036, for the years ended
December 31, 2007, 2006 and 2005, respectively.





The
Company leases office space at seven 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, 2007
follows.





Year
            
            Amount2008
            
            $
            367,3602009
            
            
            257,5452010
            
            
            238,9172011
            
            
            223,0952012
            
            
            98,221Later
            
            
            407,606$
            1,592,744





The
Company also has commitments on various short-term operating leases for
equipment.  Total lease expense amounted to $611,836, $401,090 and
$304,781 for the years ended December 31, 2007, 2006 and 2005,
respectively.


62


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      6.
            DEPOSITS





A summary
of interest-bearing deposits as of December 31, 2007 and 2006
follows.





2007
            
            
            2006Interest-bearing
      demand
            
            $
            319,512,641
            
            
            $
            291,693,803Savings
            
            
            35,230,221
            
            
            
            37,134,506Time,
      $100,000 and over
            
            
            223,260,805
            
            
            
            198,807,994Other
      time
            
            
            312,721,780
            
            
            
            279,936,096$
            890,725,447
            
            
            $
            807,572,399





The
Company had $35,599,000 and $37,754,000 in brokered deposits included in time
deposits $100,000 and over as of December 31, 2007 and 2006,
respectively.





Interest
expense on deposits for the years ended December 31, 2007, 2006 and 2005
follows.


2007
            
            
            2006
            
            
            2005Interest-bearing
      demand
            
            $
            11,049,142
            
            
            $
            8,221,174
            
            
            $
            3,363,143Savings
            
            
            563,840
            
            
            
            525,973
            
            
            
            313,214Time,
      $100,000 and over
            
            
            10,064,962
            
            
            
            8,111,150
            
            
            
            5,491,811Other
      time
            
            
            15,209,655
            
            
            
            11,597,183
            
            
            
            7,307,571$
            36,887,599
            
            
            $
            28,455,480
            
            
            $
            16,475,739





The
scheduled maturities of time deposits at December 31, 2007 follow.





Year
            
            Amount2008
            
            $
            406,704,8622009
            
            
            68,381,7922010
            
            
            48,677,9032011
            
            
            8,629,5012012
            
            
            3,451,795Later
            
            
            136,732$
            535,982,585








NOTE
      7.
            FEDERAL
      FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO
      REPURCHASE





Federal
funds purchased represent unsecured borrowings from other banks and generally
mature daily.  The Company has $50,000,000 in unsecured Federal funds
lines of credit with correspondent banks.  At December 31, 2007, the
Company had $4,401,500 in Federal funds purchased under these lines of
credit.





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, 2007 and 2006 were $11,773,870 and $7,648,664,
respectively.


63


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, 2007 and 2006.





2007
            
            
            2006Adjustable
      rate advances due at various dates through September 30, 2009 with a
      weighted-average rate of 4.94% at December 31, 2007
            
            $
            10,941,580
            
            
            $
            35,941,580Fixed
      rate advances due at various dates through February 26, 2024 with a
      weighted-average rate of 4.53% at December 31, 2007
            
            
            14,356,125
            
            
            
            15,249,122Convertible
      advances due at various dates
      through      May 19, 2015 with a
      weighted-average rate of 4.29% at December 31, 2007
            
            
            61,000,000
            
            
            
            39,000,000$
            86,297,705
            
            
            $
            90,190,702








The Bank
has pledged $62,846,965 in qualifying residential and commercial real estate
mortgage loans and $27,880,460 in investment securities as collateral on the
advances from the FHLB.





Contractual
maturities of the advances from the FHLB at December 31, 2007
follow.  Actual maturities may differ from contractual maturities
because of the conversion option of the convertible advances.





Year
            
            Amount2008
            
            $
            7,593,7892009
            
            
            4,564,4162010
            
            
            15,657,4562011
            
            
            10,263,8032012
            
            
            25,481,173Later
            
            
            22,737,068$
            86,297,705


64


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 the three-month London Interbank
Offered Rate (“LIBOR”) plus 1.63% (currently 6.46%).  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, 2007 and 2006, respectively, for
common capital securities issued by the issuer trusts.


65


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      10.
            INCOME
      TAXES





The
components of income tax expense for the years ended December 31, 2007, 2006 and
2005 follow.





2007
            
            
            2006
            
            
            2005Current
            
            $
            6,325,504
            
            
            $
            7,184,676
            
            
            $
            7,306,405Deferred
            
            
            (644,268
            )
            
            
            303,268
            
            
            
            (940,628
            )$
            5,681,236
            
            
            $
            7,487,944
            
            
            $
            6,365,777





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, 2007, 2006
and 2005 follows.





2007
            
            
            2006
            
            
            2005Tax
      at statutory rate
            
            $
            5,763,433
            
            
            $
            7,428,106
            
            
            $
            6,586,475Increase
      (decrease) resulting from:State
      income tax, net of federal tax benefit
            
            
            96,846
            
            
            
            352,316
            
            
            
            57,109Amortization
      of investment tax credits
            
            
            288,600
            
            
            
            167,422
            
            
            
            66,781Tax
      exempt income, net
            
            
            (370,499
            )
            
            
            (290,545
            )
            
            
            (150,942
            )Increase
      in cash value of bank- owned life insurance policies
            
            
            (142,247
            )
            
            
            (137,985
            )
            
            
            (120,231
            )Deferred
      tax adjustment
            
            
            -
            
            
            
            (3
            )
            
            
            11Stock
      based compensation
            
            
            35,493
            
            
            
            (47,686
            )
            
            
            -Other
      items, net
            
            
            9,610
            
            
            
            16,319
            
            
            
            (73,426
            )Income
      tax expense
            
            $
            5,681,236
            
            
            $
            7,487,944
            
            
            $
            6,365,777





The
components of deferred income taxes at December 31, 2007 and 2006
follow.





2007
            
            
            2006Deferred
      tax assets and (liabilities):Accrued
      severance payable
            
            $
            -
            
            
            $
            55,930Allowance
      for loan losses
            
            
            4,517,078
            
            
            
            3,852,134Deferred
      compensation
            
            
            710,434
            
            
            
            789,867Deferred
      loan origination cost
            
            
            (520,786
            )
            
            
            (444,455
            )Deferred
      loan origination fees
            
            
            665,893
            
            
            
            778,234Impaired
      loan interest
            
            
            231,431
            
            
            
            78,558Other
      assets
            
            
            21,179
            
            
            
            25,934Premises
      and equipment
            
            
            (525,574
            )
            
            
            (638,872
            )Nonqualified
      stock options
            
            
            76,837
            
            
            
            34,894Unrealized
      gain on cash flow hedge derivative instrument
            
            
            (342,063
            )
            
            
            (60,703
            )Unrealized
      (gain) loss on securities available for sale
            
            
            (111,921
            )
            
            
            587,724Net
      deferred tax assets
            
            $
            4,722,508
            
            
            $
            5,059,245


66





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      10.
            INCOME
      TAXES (Continued)





The
Company has invested in affordable housing projects to receive State of Georgia
low income housing tax credits to help reduce state income tax
expense.  The investment in these credits totaled $2,632,556 and
$1,403,225 at December 31, 2007 and 2006, respectively.  The projected
availability of the unused credits follows:





Year
      of projected availability:
            
            Amount2008
            
            $
            797,5212009
            
            
            797,5212010
            
            
            797,5212011
            
            
            797,5212012
            
            
            797,521Later
            
            
            2,390,468Total
            
            $
            6,378,073








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 3.0%, 3.5%, and
4.5% of the participants’ eligible compensation was accrued as the discretionary
profit sharing contributions for 2007, 2006 and 2005,
respectively.  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 salaries and
employee benefits expense during 2007, 2006 and 2005 amounted to $862,419,
$705,675 and $756,288, 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 $2,029,812 and $2,256,763 at December 31, 2007 and 2006,
respectively.  On an annual basis, the Company re-evaluates the net
present value of these future obligations and records an additional expense to
account for the accrual.  The expense for these deferred compensation
plans charged to salaries and employee benefits expense were $99,457, $388,796,
and $150,360 during 2007, 2006 and 2005, respectively.


67


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      13.
            OTHER
      INCOME AND EXPENSES





Other fee
income for the years ended December 31, 2007, 2006 and 2005
follows.





2007
            
            
            2006
            
            
            2005Mortgage
      origination fees
            
            $
            404,749
            
            
            $
            498,727
            
            
            $
            600,615Brokerage
      commissions and fees
            
            
            13,487
            
            
            
            9,831
            
            
            
            13,467ATM
      and debit card fee income
            
            
            642,685
            
            
            
            560,906
            
            
            
            470,421Insurance
      premiums
            
            
            29,215
            
            
            
            38,793
            
            
            
            47,379Other
      fee income
            
            
            192,031
            
            
            
            207,184
            
            
            
            189,105Total
      other fee income
            
            $
            1,282,167
            
            
            $
            1,315,441
            
            
            $
            1,320,987





Other
noninterest income for the years ended December 31, 2007, 2006 and 2005
follows.





2007
            
            
            2006
            
            
            2005Earnings
      on bank-owned life insurance
            
            $
            406,419
            
            
            $
            394,242
            
            
            $
            343,518Gain
      (loss) on disposal and write-down of assets
            
            
            80,851
            
            
            
            22,616
            
            
            
            (79,310
            )Check
      order revenue
            
            
            217,778
            
            
            
            230,606
            
            
            
            142,587Other
      noninterest income
            
            
            74,512
            
            
            
            84,080
            
            
            
            78,988Total
      other noninterest income
            
            $
            779,560
            
            
            $
            731,544
            
            
            $
            485,783





Other
noninterest expense for the years ended December 31, 2007, 2006 and 2005
follows.





2007
            
            
            2006
            
            
            2005Advertising
      and business development
            
            $
            625,765
            
            
            $
            573,368
            
            
            $
            541,075Supplies
      and printing
            
            
            463,113
            
            
            
            495,840
            
            
            
            527,389Telephone
      and internet charges
            
            
            634,445
            
            
            
            471,124
            
            
            
            366,995Postage
      and courier
            
            
            644,774
            
            
            
            569,309
            
            
            
            607,987Legal
      and accounting fees
            
            
            559,417
            
            
            
            446,842
            
            
            
            416,006Director
      fees and expenses
            
            
            398,078
            
            
            
            434,797
            
            
            
            412,762Service
      charges and fees
            
            
            621,923
            
            
            
            504,045
            
            
            
            504,137Other
      noninterest expenses
            
            
            2,408,252
            
            
            
            2,446,899
            
            
            
            2,247,129Total
      other noninterest expense
            
            $
            6,355,767
            
            
            $
            5,942,224
            
            
            $
            5,623,480


68


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, 2007, 2006 and 2005 follows.





2007
            
            
            2006
            
            
            2005Basic
      earnings per share:Net
      income
            
            $
            10,785,715
            
            
            $
            13,735,217
            
            
            $
            12,452,723Weighted
      average common shares outstanding
            
            
            9,418,796
            
            
            
            9,499,434
            
            
            
            9,514,775Earnings
      per common share
            
            $
            1.14
            
            
            $
            1.45
            
            
            $
            1.31Diluted
      earnings per share:Net
      income
            
            $
            10,785,715
            
            
            $
            13,735,217
            
            
            $
            12,452,723Weighted
      average common shares outstanding
            
            
            9,418,796
            
            
            
            9,499,434
            
            
            
            9,514,775Effect
      of dilutive stock options
            
            
            141,528
            
            
            
            207,555
            
            
            
            172,119Weighted
      average diluted common shares outstanding
            
            
            9,560,324
            
            
            
            9,706,989
            
            
            
            9,686,894Earnings
      per common share
            
            $
            1.13
            
            
            $
            1.41
            
            
            $
            1.28








For the
years ended December 31, 2007, 2006 and 2005, options to purchase 180,788,
59,896 and 101,983, 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,
2007, 2006 and 2005, the Company recorded $144,329, $138,458 and $114,354,
respectively, of expense associated with this program.  The number of
shares in the program at December 31, 2007 and 2006 was 98,544 and 84,838,
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 Board of Directors amended the plan in
2007.  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


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.  At December 31, 2007, there were
65,300 options outstanding that were granted under the 1994 Employee Stock
Option Plan.





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.  At December 31, 2007, there were
622,366 stock options available for grant and there were 629,446 options
outstanding that were granted 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 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.





At
December 31, 2007, there was approximately $932,000 of unrecognized compensation
cost related to stock-based payments, which is expected to be recognized over a
weighted-average period of 3.69 years.


70


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, 2007, 2006 and 2005 and
changes during the years ended on those dates follows.





2007
            
            
            2006
            
            
            2005Number
            
            
            Weighted-
              Average
              Exercise
              Price
            
            
            Number
            
            
            Weighted-
              Average
              Exercise
              Price
            
            
            Number
            
            
            Weighted-
              Average
              Exercise
              PriceUnder
      option, beginning of year
            
            
            659,286
            
            
            $
            13.85
            
            
            
            703,597
            
            
            $
            11.91
            
            
            
            651,777
            
            
            $
            11.03Granted
            
            
            108,500
            
            
            
            16.49
            
            
            
            121,500
            
            
            
            20.55
            
            
            
            122,500
            
            
            
            14.57Exercised
            
            
            (62,740
            )
            
            
            11.02
            
            
            
            (160,511
            )
            
            
            10.42
            
            
            
            (61,180
            )
            
            
            7.38Forfeited
            
            
            (10,300
            )
            
            
            16.55
            
            
            
            (5,300
            )
            
            
            13.58
            
            
            
            (9,500
            )
            
            
            13.16Under
      option, end of year
            
            
            694,746
            
            
            $
            14.48
            
            
            
            659,286
            
            
            $
            13.85
            
            
            
            703,597
            
            
            $
            11.91Exercisable
      at end of year
            
            
            427,546
            
            
            $
            12.76
            
            
            
            403,486
            
            
            $
            12.08
            
            
            
            477,295
            
            
            $
            11.73Weighted-average
      fair value per option of options granted during year
            
            
            
            
            
            $
            4.55
            
            
            
            
            
            
            $
            6.19
            
            
            
            
            
            
            $
            4.41Total
      grant-date fair valueof options vested duringthe year
            
            
            
            
            
            $
            433,000
            
            
            
            
            
            
            $
            321,000
            
            
            
            
            
            
            $
            294,000Total
      intrinsic value of options exercised during the year
            
            
            
            
            
            $
            468,000
            
            
            
            
            
            
            $
            1,520,000
            
            
            
            
            
            
            $
            439,000




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





Year
      ended
              December 31,
      2007
            
            
            Year
      ended
              December 31,
      2006Stock
      options vested and expected to vest:Number
            
            
            636,320
            
            
            
            612,723Weighted
      average exercise price
            
            $
            14.23
            
            
            $
            13.55Aggregate
      intrinsic value
            
            
            645,000
            
            
            
            4,763,000Weighted
      average contractual term of options
            
            5.52
      years
            
            
            5.62
      yearsStock
      options vested and currently exercisable:Number
            
            
            427,546
            
            
            
            403,486Weighted
      average exercise price
            
            $
            12.76
            
            
            $
            12.08Aggregate
      intrinsic value
            
            
            631,000
            
            
            
            3,729,000Weighted
      average contractual term of options
            
            4.04
      years
            
            
            4.17
      years


71





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, 2007 follows.





Options
      Outstanding
            
            
            Options
      ExercisableRange
      of Exercise Prices
            
            
            Number
            
            
            Weighted-
      Average Contractual Life in Years
            
            
            Weighted-
              Average
              Exercise
              Price
            
            
            Number
            
            
            Weighted-
              Average
              Exercise
              Price$
            7.70
      - 8.41
            
            
            
            70,800
            
            
            
            4.69
            
            
            $
            7.82
            
            
            
            67,600
            
            
            $
            7.819.38
      - 10.60
            
            
            
            127,548
            
            
            
            3.56
            
            
            
            10.14
            
            
            
            127,548
            
            
            
            10.1410.71
      - 13.31
            
            
            
            74,100
            
            
            
            3.72
            
            
            
            12.68
            
            
            
            63,500
            
            
            
            12.6213.73
      - 13.73
            
            
            
            69,500
            
            
            
            9.96
            
            
            
            13.73
            
            
            
            -
            
            
            
            -13.75
      - 14.32
            
            
            
            70,250
            
            
            
            6.81
            
            
            
            14.02
            
            
            
            30,650
            
            
            
            13.9915.54
      - 15.54
            
            
            
            16,800
            
            
            
            6.00
            
            
            
            15.54
            
            
            
            11,200
            
            
            
            15.5416.25
      - 16.25
            
            
            
            72,000
            
            
            
            1.80
            
            
            
            16.25
            
            
            
            72,000
            
            
            
            16.2516.99
      - 19.50
            
            
            
            74,249
            
            
            
            6.70
            
            
            
            18.13
            
            
            
            33,749
            
            
            
            17.9421.32
      - 21.32
            
            
            
            26,000
            
            
            
            9.01
            
            
            
            21.32
            
            
            
            4,000
            
            
            
            21.3221.35
      - 22.21
            
            
            
            93,499
            
            
            
            8.89
            
            
            
            21.43
            
            
            
            17,299
            
            
            
            21.37694,746
            
            
            
            5.80
            
            
            $
            14.48
            
            
            
            427,546
            
            
            $
            12.76





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.




2007
              
              2006
              
              2005Risk-free
      interest rate
              4.39%
      - 4.68%
              
              4.39%
      - 4.86%
              
              3.95%
      - 4.27%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)
              2.63%
      - 3.50%
              
              2.73%
      - 2.82%
              
              3.05%
      - 3.08%Weighted
      average expected dividends (as a percent of the fair value of the
      stock)
              3.20%
              
              2.80%
              
              3.06%Expected
      volatility
              26.62%
      - 31.62%
              
              30.73%
      - 32.19%
              
              32.68%
      - 35.29%Weighted-average
      expected volatility
              28.23%
              
              31.00%
              
              34.02%


NOTE
      18.
            STOCK
      REPURCHASE PLAN





In May
2007, 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.  In December 2007, the Company’s Board of Directors approved
an additional plan to repurchase up to 200,000 shares of the Company’s common
stock over the next twelve-month period.  During 2007 and 2006, the
Company acquired and canceled 344,492 and 124,559 shares of common stock, for an
annual cost of $5,894,104 and $2,503,298, respectively.  A balance of
212,250 shares remained available under the plans for repurchase at December 31,
2007.


72


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, 2007 and 2006, the
Company reported a $635,000 gain, net of a $342,000 tax effect, and a $129,000
gain, net of a $61,000 tax effect, in other comprehensive income related to cash
flow hedges, respectively.  For the twelve month period ended December
31, 2007, the Company recorded $102,000 of interest income on this derivative
instrument.  The Company did not record any interest income on this
derivative instrument for the twelve months ended December 31,
2006.  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
years ended December 31, 2007 and 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, 2007
and 2006 follows.





December
      31, 2007
            
            Notional
      amount
            
            
            Floor
      rate
            
            
            Maturity
      in months
            
            
            Estimated
      fair value at December 31, 2007
            
            
            Net
      unrealized gains (losses)Derivatives
      Designated as CashFlow Hedges:Hedging
      cash flows on prime-based floating rate loans
            
            $
            50,000,000
            
            
            
            8.25
            %
            
            
            18
            
            
            $
            1,307,000
            
            
            $
            977,000Total
      Derivative Instruments
            
            $
            50,000,000
            
            
            
            8.25
            %
            
            
            18
            
            
            $
            1,307,000
            
            
            $
            977,000





December
      31, 2006
            
            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
            
            
            $
            190,000Total
      Derivative Instruments
            
            $
            50,000,000
            
            
            
            8.25
            %
            
            
            30
            
            
            $
            625,000
            
            
            $
            190,000


73





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





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, 2007 and 2006 follows.





2007
            
            
            2006Commitments
      to extend credit
            
            $
            154,113,000
            
            
            $
            154,450,000Standby
      letters of credit
            
            $
            4,239,000
            
            
            $
            7,316,000





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.





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 any such pending 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.  The
Bank, as a matter of policy, does not generally extend credit to any single
borrower or group of related borrowers in excess of 25% of the Bank’s statutory
capital, or approximately $15,000,000.





As of
December 31, 2007, approximately 88% 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 Bank’s foreclosed assets are located in those same
markets.  Accordingly, the ultimate collectibility of the Bank's loan
portfolio and the recovery of the carrying amount of foreclosed assets 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.


74


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





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, 2007,
approximately $5,804,000 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, 2007 and
2006, the Company and the Bank met all capital adequacy requirements to which
they are subject.





As of
December 31, 2007, 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.


75





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
    ProvisionsAs
      of December 31, 2007:Total
      Capital to Risk   Weighted Assets:Consolidated
            
            $
            113,471,000
            
            
            
            11.3
            %
            
            $
            80,515,000
            
            
            
            8.0
            %
            
            
            -
      N/A -Bank
            
            $
            112,073,000
            
            
            
            11.2
            %
            
            $
            80,429,000
            
            
            
            8.0
            %
            
            $
            100,536,000
            
            
            
            10.0
            %Tier
      1 Capital to Risk  Weighted Assets:Consolidated
            
            $
            100,885,000
            
            
            
            10.0
            %
            
            $
            40,258,000
            
            
            
            4.0
            %
            
            
            -
      N/A -Bank
            
            $
            99,501,000
            
            
            
            9.9
            %
            
            $
            40,214,000
            
            
            
            4.0
            %
            
            $
            60,322,000
            
            
            
            6.0
            %Tier
      1 Capital to  Average Assets:Consolidated
            
            $
            100,885,000
            
            
            
            8.5
            %
            
            $
            47,550,000
            
            
            
            4.0
            %
            
            
            -
      N/A -Bank
            
            $
            99,501,000
            
            
            
            8.4
            %
            
            $
            47,500,000
            
            
            
            4.0
            %
            
            $
            59,375,000
            
            
            
            5.0
            %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
            %








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.


76


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      23.
            FAIR
      VALUE OF FINANCIAL INSTRUMENTS
(Continued)





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-SheetInstruments: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, 2007 and 2006 are summarized below.  All dollar
amounts have been rounded to the nearest thousand.





2007
            
            
            2006Carrying
              Amount
            
            
            Fair
              Value
            
            
            Carrying
              Amount
            
            
            Fair
              ValueCash
      and balances due from banks, interest-bearing deposits with other banks
      and federal funds sold
            
            $
            30,404,000
            
            
            $
            30,404,000
            
            
            $
            68,875,000
            
            
            $
            68,875,000Investment
      securities
            
            
            194,794,000
            
            
            
            194,794,000
            
            
            
            184,093,000
            
            
            
            184,093,000Loans,
      net
            
            
            908,443,000
            
            
            
            908,164,000
            
            
            
            809,298,000
            
            
            
            808,642,000Cash
      flow hedge derivative instrument
            
            
            1,307,000
            
            
            
            1,307,000
            
            
            
            625,000
            
            
            
            625,000Deposits
            
            
            980,149,000
            
            
            
            988,098,000
            
            
            
            908,483,000
            
            
            
            909,374,000Federal
      funds purchased and securities sold under agreements to
      repurchase
            
            
            16,175,000
            
            
            
            16,175,000
            
            
            
            7,649,000
            
            
            
            7,649,000Advances
      from the FHLB
            
            
            86,298,000
            
            
            
            85,422,000
            
            
            
            90,191,000
            
            
            
            90,550,000Beneficial
      interest in debentures
            
            
            10,310,000
            
            
            
            10,310,000
            
            
            
            10,310,000
            
            
            
            10,310,000




77


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, 2007 AND 2006





2007
            
            
            2006ASSETSCash
      on deposit with subsidiary bank
            
            $
            4,060,144
            
            
            $
            2,545,609Investment
      securities
            
            
            -
            
            
            
            812,700Investment
      in subsidiary
            
            
            106,601,746
            
            
            
            105,280,203Other
      assets
            
            
            825,703
            
            
            
            653,573Total
      assets
            
            $
            111,487,593
            
            
            $
            109,292,085LIABILITIES
      AND STOCKHOLDERS' EQUITYGuaranteed
      preferred beneficial interests in debentures (trust preferred
      securities)
            
            $
            10,310,000
            
            
            $
            10,310,000Dividends
      payable
            
            
            1,337,368
            
            
            
            1,330,696Other
      liabilities
            
            
            2,164,253
            
            
            
            2,335,655Total
      liabilities
            
            
            13,811,621
            
            
            
            13,976,351Stockholders'
      equity
            
            
            97,675,972
            
            
            
            95,315,734Total
      liabilities and stockholders' equity
            
            $
            111,487,593
            
            
            $
            109,292,085


78


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


YEARS
ENDED DECEMBER 31, 2007, 2006 AND 2005





2007
            
            
            2006
            
            
            2005IncomeDividends
      from subsidiaries
            
            $
            12,445,000
            
            
            $
            6,640,000
            
            
            $
            4,500,000Interest
      and dividends on investment securities
            
            
            21,862
            
            
            
            118,500
            
            
            
            22,226Securities
      transactions, net
            
            
            371,606
            
            
            
            166,954
            
            
            
            -Other
      income
            
            
            1,040
            
            
            
            -
            
            
            
            6Total
      income
            
            
            12,839,508
            
            
            
            6,925,454
            
            
            
            4,522,232Expenses
            
            
            1,605,380
            
            
            
            2,134,953
            
            
            
            1,342,311Income
      before income tax benefitand equity in undistributed earnings of
      subsidiaries
            
            
            11,234,128
            
            
            
            4,790,501
            
            
            
            3,179,921Income
      tax benefit
            
            
            388,311
            
            
            
            695,010
            
            
            
            484,711Income
      before equity in undistributedearnings (distributions in excess of
      earnings) of subsidiaries
            
            
            11,622,439
            
            
            
            5,485,511
            
            
            
            3,664,632Equity
      in undistributed earnings (distributions in excess of earnings) of
      subsidiaries
            
            
            (836,724
            )
            
            
            8,249,706
            
            
            
            8,788,091Net
      income
            
            $
            10,785,715
            
            
            $
            13,735,217
            
            
            $
            12,452,723


79


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, 2007, 2006 AND 2005





2007
            
            
            2006
            
            
            2005CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Income
            
            $
            10,785,715
            
            
            $
            13,735,217
            
            
            $
            12,452,723Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation,
      (accretion) and amortization
            
            
            -
            
            
            
            (24,650
            )
            
            
            68,900Deferred
      tax provision
            
            
            4,852
            
            
            
            (30,815
            )
            
            
            9,936Net
      realized gain on securities transactions
            
            
            (371,606
            )
            
            
            (166,954
            )
            
            
            -Distributions
      in excess of earnings (undistributed earnings) of
    subsidiaries
            
            
            836,724
            
            
            
            (8,249,705
            )
            
            
            (8,788,091
            )Increase
      (decrease) in deferred compensation accrual
            
            
            (133,699
            )
            
            
            223,708
            
            
            
            (14,727
            )Decrease
      in retirement accrual
            
            
            -
            
            
            
            -
            
            
            
            (135,891
            )Stock-based
      compensation expense
            
            
            410,851
            
            
            
            290,245
            
            
            
            -Net
      change in other assets and liabilities
            
            
            (24,721
            )
            
            
            (179,269
            )
            
            
            (70,080
            )Net
      cash provided by operating activities
            
            
            11,508,116
            
            
            
            5,597,777
            
            
            
            3,522,770CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of debt securities
            
            
            -
            
            
            
            (9,999,191
            )
            
            
            -Proceeds
      from maturities of debt securities
            
            
            -
            
            
            
            10,087,000
            
            
            
            -Redemption
      of equity securities
            
            
            641,551
            
            
            
            246,954
            
            
            
            -Net
      cash provided by investing activities
            
            
            641,551
            
            
            
            334,763
            
            
            
            -CASH
      FLOWS FROM FINANCING ACTIVITIESDividends
      paid
            
            
            (5,432,369
            )
            
            
            (4,984,149
            )
            
            
            (4,284,703
            )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
            
            
            691,341
            
            
            
            1,671,873
            
            
            
            451,729Acquisition
      of stock under stock repurchase plans
            
            
            (5,894,104
            )
            
            
            (2,503,298
            )
            
            
            (1,468,714
            )Net
      cash used in financing activities
            
            
            (10,635,132
            )
            
            
            (5,815,574
            )
            
            
            (5,301,688
            )Net
      increase (decrease) in cash
            
            
            1,514,535
            
            
            
            116,966
            
            
            
            (1,778,918
            )Cash
      at beginning of period
            
            
            2,545,609
            
            
            
            2,428,643
            
            
            
            4,207,561Cash
      at end of period
            
            $
            4,060,144
            
            
            $
            2,545,609
            
            
            $
            2,428,643


80


ITEM9.
            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.








ITEM9A.
            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 44. 
The Report of Independent Registered Accounting Firm appears on page 45. 
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 fourth quarter ended December 31, 2007, 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.








ITEM9B.
            OTHER
      INFORMATION





There was
no information required to be disclosed in a report on Form 8-K during the
fourth quarter of 2007 that has not been reported.








PART
III








ITEM10.
            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 “2008 Proxy Statement”) relating to the 2008
annual meeting of shareholders of PAB and is incorporated herein by
reference.








ITEM11.
            EXECUTIVE
      COMPENSATION





Information
regarding executive compensation will be included in the 2008 Proxy Statement
and is incorporated herein by reference.


81


ITEM12.
            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 2008
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, 2007:





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
            
            
            694,746
            
            
            $
            14.48
            
            
            
            622,366Equity
      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.








ITEM13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE





Information
regarding certain relationships and related transactions will be included in the
2008 Proxy Statement and is incorporated herein by reference.








ITEM14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





Information
regarding principal accountant fees and services will be included in the 2008
Proxy Statement and is incorporated herein by reference.


82


PART
IV





ITEM15.
            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 March 27,
    2007).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. Fourth Amended and Restated Dividend Reinvestment and
      Common Stock Purchase Plan.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).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).
  83
  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 Officer.31.2
              
              Rule
      13a-14(a) Certification of Chief Financial Officer.32.1
              
              Section
      1350 Certification of Chief Executive Officer.32.2
              
              Section
      1350 Certification of Chief Financial
Officer.


84


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
      17, 2008By:
            /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 17,
      2008R.
      Bradford Burnette/s/ Walter W. Carroll II
            
            Director
            
            March 17,
      2008Walter
      W. Carroll IIDirector,
      ChairmanJames
      L. Dewar, Jr./s/ Michael H. Godwin
            
            Director
            
            March 17,
      2008Michael
      H. Godwin/s/ James B. Lanier, Jr.
            
            Director
            
            March 17,
      2008James
      B. Lanier, Jr./s/ John E. Mansfield, Jr.
            
            Director
            
            March 17,
      2008John
      E. Mansfield, Jr./s/ Kennith D. McLeod
            
            Director
            
            March 17,
      2008Kennith
      D. McLeod, CPA/s/ Douglas W. McNeill
            
            Director,
      Vice Chairman
            
            March 17,
      2008Douglas
      W. McNeill/s/ Paul E. Parker
            
            Director
            
            March 17,
      2008Paul
      E. Parker/s/ F. Ferrell Scruggs, Sr.
            
            Director
            
            March 17,
      2008F.
      Ferrell Scruggs, Sr./s/ Joe P. Singletary, Jr.
            
            Director
            
            March 17,
      2008Joe
      P. Singletary, Jr./s/ Donald J. Torbert, Jr.
            
            Executive
      Vice President and
            
            March 17,
      2008Donald
      J. Torbert, Jr., CPA
            
            Chief
      Financial Officer (PrincipalFinancial
      and Accounting Officer)/s/ M. Burke Welsh, Jr.
            
            Director,
      President and
            
            March 17,
      2008M.
      Burke Welsh, Jr.
            
            Chief
      Executive Officer(Principal
      Executive Officer)/s/ David K. Williams
            
            Director
            
            March 17,
      2008David
      K. Williams




85