UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 _____________
 FORM
10-Q
 
 Quarterly
Report Pursuant to Section 13 or 15(d) of the
 Securities
Exchange Act of 1934
 
 For the
Quarterly Period Ended March 31, 2008 – 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
 
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
 Yes x No  ̈
 
 Indicate
by check mark 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 x  Non-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
number of shares outstanding of the registrant’s common stock at April 30, 2008
was 9,146,702 shares.
  
  TABLE OF
CONTENTS
 
 PagePART
      I
                FINANCIAL
      INFORMATIONItem
      1.
                Consolidated Financial Statements
    (Unaudited)Statements of Condition
                1Statements of Income
                2Statements of Comprehensive Income
                3Statements of Stockholders’ Equity
                4Statements of Cash Flows
                5Notes to Consolidated Financial
    Statements
                7Item
      2.
                Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                12Item
      3.
                Quantitative and Qualitative Disclosures About Market
      Risk
                26Item
      4.
                Controls and Procedures
                28PART II
                OTHER
      INFORMATIONItem
      1.
                Legal Proceedings
                28Item
      1A.
                Risk Factors
                28Item
      2.
                Unregistered Sales of Equity Securities and Use of
      Proceeds
                29Item
      3.
                Defaults Upon Senior Securities
                29Item
      4.
                Submission of Matters to a Vote of Security
      Holders
                29Item
      5.
                Other Information
                29Item
      6.
                Exhibits
                29SIGNATURES
                30
  Table of Contents
  PART
I.  FINANCIAL INFORMATION
 
 PAB BANKSHARES, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CONDITION
 AS
OF MARCH 31, 2008 AND DECEMBER 31, 2007
  March 31,
                2008
              
              
              December 31,
                2007(Unaudited)ASSETSCash
      and due from banks
              
              $
              21,615,890
              
              
              $
              29,451,700Interest-bearing
      deposits in other banks
              
              
              718,717
              
              
              
              393,276Federal
      funds sold
              
              
              15,466,074
              
              
              
              559,444Investment
      securities
              
              
              181,033,919
              
              
              
              194,794,481Loans
              
              
              934,926,820
              
              
              
              921,348,906Allowance
      for loan losses
              
              
              (13,874,687
              )
              
              
              (12,905,938
              )Net
      loans
              
              
              921,052,133
              
              
              
              908,442,968Premises
      and equipment, net
              
              
              19,900,940
              
              
              
              20,177,671Goodwill
              
              
              5,984,604
              
              
              
              5,984,604Cash
      value of bank-owned life insurance policies
              
              
              11,986,629
              
              
              
              11,881,384Foreclosed
      assets
              
              
              7,237,233
              
              
              
              6,360,258Other
      assets
              
              
              20,044,493
              
              
              
              20,625,156Total
      assets
              
              $
              1,205,040,632
              
              
              $
              1,198,670,942LIABILITIES
      AND STOCKHOLDERS' EQUITYDeposits:Noninterest-bearing
      demand
              
              $
              97,029,022
              
              
              $
              89,423,571Interest-bearing
      demand and savings
              
              
              331,184,082
              
              
              
              354,742,862Time
              
              
              543,890,646
              
              
              
              535,982,585Total
      deposits
              
              
              972,103,750
              
              
              
              980,149,018Federal
      funds purchased and securities sold under agreements to
      repurchase
              
              
              12,990,328
              
              
              
              16,175,370Advances
      from the Federal Home Loan Bank of Atlanta
              
              
              104,144,331
              
              
              
              86,297,705Guaranteed
      preferred beneficial interests in debentures (trust preferred
      securities)
              
              
              10,310,000
              
              
              
              10,310,000Other
      liabilities
              
              
              6,626,214
              
              
              
              8,062,877Total
      liabilities
              
              
              1,106,174,623
              
              
              
              1,100,994,970Stockholders'
      equity:Preferred
      stock, no par value; 1,500,000 shares authorized; no shares issued Common
      stock, no par value; 98,500,000 shares authorized; 9,153,902 and 9,223,217
      shares issued and outstanding
              
              
              1,217,065
              
              
              
              1,217,065Additional
      paid-in capital
              
              
              21,949,159
              
              
              
              22,792,940Retained
      earnings
              
              
              72,791,850
              
              
              
              72,822,852Accumulated
      other comprehensive income
              
              
              2,907,935
              
              
              
              843,115Total
      stockholders' equity
              
              
              98,866,009
              
              
              
              97,675,972Total
      liabilities and stockholders' equity
              
              $
              1,205,040,632
              
              
              $
              1,198,670,942
  See
accompanying notes to consolidated financial statements.
  1
 Table of Contents
  PAB
BANKSHARES, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF INCOME
 THREE
MONTHS ENDED MARCH 31, 2008 AND 2007
 (Unaudited)
 Three
      Months Ended March 31,2008
              
              
              2007Interest
      income:Interest
      and fees on loans
              
              $
              16,656,796
              
              
              $
              17,684,704Interest
      and dividends on investment securities:Taxable
              
              
              1,993,051
              
              
              
              2,012,457Nontaxable
              
              
              327,583
              
              
              
              284,571Other
      interest income
              
              
              53,046
              
              
              
              469,487Total
      interest income
              
              
              19,030,476
              
              
              
              20,451,219Interest
      expense:Interest
      on deposits
              
              
              8,417,362
              
              
              
              8,453,531Interest
      on Federal Home Loan Bank advances
              
              
              930,299
              
              
              
              1,051,564Interest
      on other borrowings
              
              
              337,373
              
              
              
              277,831Total
      interest expense
              
              
              9,685,034
              
              
              
              9,782,926Net
      interest income
              
              
              9,345,442
              
              
              
              10,668,293Provision
      for loan losses
              
              
              1,200,000
              
              
              
              -Net
      interest income after provision for loan losses
              
              
              8,145,442
              
              
              
              10,668,293Other
      income:Service
      charges on deposit accounts
              
              
              904,905
              
              
              
              835,888Other
      fee income
              
              
              447,683
              
              
              
              314,153Securities
      transactions, net
              
              
              183,384
              
              
              
              173,333Other
      noninterest income
              
              
              107,257
              
              
              
              155,119Total
      other income
              
              
              1,643,229
              
              
              
              1,478,493Other
      expenses:Salaries
      and employee benefits
              
              
              5,012,102
              
              
              
              4,776,539Occupancy
      expense of premises
              
              
              599,050
              
              
              
              535,797Furniture
      and equipment expense
              
              
              524,515
              
              
              
              578,968Other
      noninterest expense
              
              
              1,693,616
              
              
              
              1,578,874Total
      other expenses
              
              
              7,829,283
              
              
              
              7,470,178Income
      before income tax expense
              
              
              1,959,388
              
              
              
              4,676,608Income
      tax expense
              
              
              661,915
              
              
              
              1,611,826Net
      income
              
              $
              1,297,473
              
              
              $
              3,064,782Earnings
      per common share:Basic
              
              $
              0.14
              
              
              $
              0.32Diluted
              
              $
              0.14
              
              
              $
              0.32
 
 See
accompanying notes to consolidated financial statements.
  2
 Table of Contents
 
 PAB
BANKSHARES, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
 THREE
MONTHS ENDED MARCH 31, 2008 AND 2007
 (Unaudited)
 Three
      Months Ended March 31,2008
              
              
              2007Net
      income
              
              $
              1,297,473
              
              
              $
              3,064,782Other
      comprehensive income:Unrealized
      gain on cash flow hedges during the period, net of  tax of
      $426,929 and $21,905
              
              
              792,868
              
              
              
              24,293Unrealized
      holding gains on securities available for sale arising during the period,
      net of tax of $749,081 and $316,015
              
              
              1,391,152
              
              
              
              586,883Reclassification
      adjustment for gains on securities available for sale included in net
      income, net of tax of $64,184 and $60,667
              
              
              (119,200
              )
              
              
              (112,666
              )2,064,820
              
              
              
              498,510Comprehensive
      income
              
              $
              3,362,293
              
              
              $
              3,563,292
 
 See
accompanying notes to consolidated financial statements.
  3
 Table of Contents
  PAB
BANKSHARES, INC.AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
 THREE
MONTHS ENDED MARCH 31, 2008 (Unaudited) AND YEAR ENDED DECEMBER 31,
2007
 
 Additional
              
              
              
              
              
              Accumulated
      OtherCommon
      Stock
              
              
              Paid-in
              
              
              Retained
              
              
              ComprehensiveShares
              
              
              Par
      Value
              
              
              Capital
              
              
              Earnings
              
              
              Loss
              
              
              TotalBalance,
      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, $0.58 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
              
              
              
              97,675,972Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,297,473
              
              
              
              -
              
              
              
              1,297,473Other
      comprehensive income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,064,820
              
              
              
              2,064,820Cash
      dividends declared, $0.145 per share
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,328,475
              )
              
              
              -
              
              
              
              (1,328,475
              )Stock
      acquired and cancelled under stock repurchase plan
              
              
              (69,315
              )
              
              
              -
              
              
              
              (933,364
              )
              
              
              -
              
              
              
              -
              
              
              
              (933,364
              )Stock-based
      compensation
              
              
              -
              
              
              
              -
              
              
              
              89,583
              
              
              
              -
              
              
              
              -
              
              
              
              89,583Balance,
      March 31, 2008
              
              
              9,153,902
              
              
              $
              1,217,065
              
              
              $
              21,949,159
              
              
              $
              72,791,850
              
              
              $
              2,907,935
              
              
              $
              98,866,009
 
 See
accompanying notes to consolidated financial statements.
  4
 Table of Contents
  PAB BANKSHARES, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 THREE
MONTHS ENDED MARCH 31, 2008 AND 2007
 (Unaudited)
 Three
      Months Ended March 31,2008
              
              
              2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
              
              $
              1,297,473
              
              
              $
              3,064,782Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation,
      amortization and accretion, net
              
              
              404,688
              
              
              
              430,371Provision
      for loan losses
              
              
              1,200,000
              
              
              
              -Net
      realized gain on securities transactions
              
              
              (183,384
              )
              
              
              (173,333
              )Loss
      on disposal of assets
              
              
              66,038
              
              
              
              6,824Stock-based
      compensation expense
              
              
              89,583
              
              
              
              90,541Increase
      in cash value of bank-owned life insurance
              
              
              (105,245
              )
              
              
              (99,087
              )Decrease
      in deferred compensation accrual
              
              
              (42,082
              )
              
              
              (8,784
              )Decrease
      in retirement accruals
              
              
              -
              
              
              
              (159,799
              )Net
      change in taxes receivable and taxes payable
              
              
              666,915
              
              
              
              687,678Decrease
      in interest receivable
              
              
              1,457,991
              
              
              
              728,032Increase
      (decrease) in interest payable
              
              
              (132,624
              )
              
              
              72,718Net
      increase in prepaid expenses and other assets
              
              
              (1,035,974
              )
              
              
              (418,839
              )Net
      decrease in accrued expenses and other liabilities
              
              
              (1,253,065
              )
              
              
              (1,018,361
              )Net
      cash provided by operating activities
              
              
              2,430,314
              
              
              
              3,202,743CASH
      FLOWS FROM INVESTING ACTIVITIESIncrease
      in interest-bearing deposits in other banks
              
              
              (325,441
              )
              
              
              (766,513
              )Increase
      in federal funds sold
              
              
              (14,906,630
              )
              
              
              (23,437,272
              )Purchase
      of debt securities
              
              
              (20,336,097
              )
              
              
              (4,564,930
              )Proceeds
      from sales of debt securities
              
              
              17,567,701
              
              
              
              -Proceeds
      from calls of debt securities
              
              
              16,042,927
              
              
              
              320,992Proceeds
      from maturities and paydowns of debt securities
              
              
              3,590,661
              
              
              
              3,566,650Purchase
      of equity investments
              
              
              (938,184
              )
              
              
              (5,702
              )Proceeds
      from sales and redemption of equity investments
              
              
              -
              
              
              
              275,318Net
      increase in loans
              
              
              (15,858,872
              )
              
              
              (33,853,362
              )Purchase
      of premises and equipment
              
              
              (119,317
              )
              
              
              (744,573
              )Proceeds
      from disposal of assets
              
              
              1,127,543
              
              
              
              779,667Net
      cash used in investing activities
              
              
              (14,155,709
              )
              
              
              (58,429,725
              )CASH
      FLOWS FROM FINANCING ACTIVITIESNet
      increase (decrease) in deposits
              
              
              (8,045,268
              )
              
              
              45,933,427Net
      increase (decrease) in federal funds purchased and securities sold under
      repurchase agreements
              
              
              (3,185,042
              )
              
              
              3,990,865Advances
      from the Federal Home Loan Bank
              
              
              25,000,000
              
              
              
              -Payments
      on Federal Home Loan Bank advances
              
              
              (7,153,374
              )
              
              
              (159,549
              )Dividends
      paid
              
              
              (1,337,367
              )
              
              
              (1,330,696
              )Proceeds
      from the exercise of stock options
              
              
              -
              
              
              
              270,257Purchase
      of cash flow hedge derivative instruments
              
              
              (456,000
              )
              
              
              -Acquisition
      of stock under stock repurchase plans
              
              
              (933,364
              )
              
              
              (202,665
              )Net
      cash provided by financing activities
              
              
              3,889,585
              
              
              
              48,501,639
  5
 Table of Contents
  PAB
BANKSHARES, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 THREE
MONTHS ENDED MARCH 31, 2008 AND 2007 (Continued)
 (Unaudited)
 Three
      Months Ended March 31,2008
              
              
              2007Net
      decrease in cash and due from banks
              
              $
              (7,835,810
              )
              
              $
              (6,725,343
              )Cash
      and due from banks at beginning of period
              
              
              29,451,700
              
              
              
              26,712,252Cash
      and due from banks at end of period
              
              $
              21,615,890
              
              
              $
              19,986,909SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONCash
      paid during the period for:Interest
              
              $
              9,817,658
              
              
              $
              9,710,208Taxes
              
              $
              -
              
              
              $
              -NONCASH
      INVESTING AND FINANCING TRANSACTIONSIncrease
      (decrease) in unrealized gains on securities available for
      sale
              
              $
              1,956,849
              
              
              $
              (729,565
              )Increase
      in unrealized gain on cash flow hedges
              
              $
              1,219,797
              
              
              $
              46,198Transfer
      of loans to foreclosed assets
              
              $
              2,049,707
              
              
              $
              160,321
 
 See
accompanying notes to consolidated financial statements.
  6
 Table of Contents
  PAB BANKSHARES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 
  NOTE
1. 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.
 
 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.  The Company follows
Financial Accounting Standards Board (“FASB”) Interpretation No. 46R (Revised
December 2003), Consolidation
of Variable Interest Entities.  This interpretation addresses
consolidation by business entities of variable interest entities and when such
entities are subject to consolidation under the provisions of this
interpretation.  The Company has determined that the provisions of
FASB Interpretation No. 46R require deconsolidation of PAB Bankshares Capital
Trust II.
 
 
 NOTE
2.  BASIS OF PRESENTATION
 
 The
accompanying consolidated financial information of the Company is unaudited;
however, such information reflects all adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position and results of
operations.  The results of operations for the three months ended
March 31, 2008 are not necessarily indicative of the results that may be
expected for the full year.  These statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2007.
  7
 Table of Contents
  PAB
BANKSHARES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 
 NOTE
2.  BASIS OF PRESENTATION (Continued)
 
 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 conformity 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.
 
 
 NOTE
3.  EARNINGS PER COMMON 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 of stock
options.
 
 The
components used to calculate basic and diluted earnings per share for the three
months ended March 31, 2008 and 2007 follow.
 
 Three
      Months Ended March 31,2008
              
              
              2007Basic
      earnings per share:Net
      income
              
              $
              1,297,473
              
              
              $
              3,064,782Weighted
      average common shares outstanding
              
              
              9,180,952
              
              
              
              9,515,976Earnings
      per common share
              
              $
              0.14
              
              
              $
              0.32Diluted
      earnings per share:Net
      income
              
              $
              1,297,473
              
              
              $
              3,064,782Weighted
      average common shares outstanding
              
              
              9,180,952
              
              
              
              9,515,976Effect
      of dilutive stock options
              
              
              58,915
              
              
              
              175,257Weighted
      average diluted common  shares outstanding
              
              
              9,239,867
              
              
              
              9,691,233Earnings
      per common share
              
              $
              0.14
              
              
              $
              0.32
  8
 Table of Contents
  PAB
BANKSHARES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  NOTE
4.  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.  In January 2008, the Company entered into a $25 million
notional amount, 3-year 5.75%/6.50% Prime rate collar contract and a $25 million
notional amount, 5-year 6.00%/7.25% Prime rate collar contract to further hedge
against interest rate risk in a declining rate environment.  The
premiums paid for these contracts were $170,000 and $286,000,
respectively.  These contracts are 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 March 31, 2008, the Company reported
a $793,000 gain, net of a $427,000 tax effect, in other comprehensive income
related to cash flow hedges.  The Company documents, both at inception
and periodically over the life of the hedge, its analysis of actual and expected
hedge effectiveness.  To the extent that the hedge of future cash
flows is deemed ineffective, changes in the fair value of the derivative are
recognized in earnings as a component of other non-interest
expense.  For the three month periods ended March 31, 2008 and March
31, 2007, 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 March 31, 2008 is shown in the following
table:
 
 Weighted-AverageNotional
      amount
              
              
              Floor
      rate
              
              
              Cap
      rate
              
              
              Maturity
      in months
              
              
              Estimated fair value
                at March 31, 2008
              
              
              Net unrealized
                gainsDerivatives
      Designated as Cash Flow Hedges:Hedging
      cash flows on prime- based floating rate loans
              
              $
              100,000,000
              
              
              
              7.06
              %
              
              
              6.88
              %
              
              
              31
              
              
              $
              2,927,000
              
              
              $
              2,197,000Total
      Derivative Instruments
              
              $
              100,000,000
              
              
              
              7.06
              %
              
              
              6.88
              %
              
              
              31
              
              
              $
              2,927,000
              
              
              $
              2,197,000
  9
 Table of Contents
  NOTE
5.  STOCK PLANS AND STOCK-BASED EMPLOYEE COMPENSATION
 
 At March
31, 2008, the Company had two fixed stock option plans under which it has
granted options to its employees and directors to purchase common stock at the
fair market value on the date of the 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.
 
 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 March 31, 2008, there were
62,700 options outstanding that were granted under the 1994 Employee Stock
Option Plan.
 
 Under the
1999 Stock Option Plan (as amended), the Board of Directors can grant up to
1,400,000 stock options to directors, employees, consultants and advisors of the
Company.  On March 31, 2008, there were 584,466 shares available for
grant and there were 667,346 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 Accounting Principles Board (“APB”)
Opinion No. 25, Accounting for
Stock Issued to Employees,and related Interpretations, as permitted by
FASB No. 123, Accounting for
Stock-Based Compensation.  Effective January 1, 2006, the
Company adopted FASB No. 123R, Share-Based Payment,
utilizing the “modified prospective” method as described in FASB No.
123R.  In the “modified prospective” method, compensation cost is
recognized for all stock-based payments granted after the effective date and for
all unvested awards granted prior to the effective date.  In
accordance with FASB No. 123R, prior period amounts were not restated. FASB No.
123R also requires the tax benefits associated with these stock-based payments
to be classified as financing activities in the Consolidated Statements of Cash
Flows, rather than as operating cash flows as required under previous
regulations.
 
 At March
31, 2008, there was approximately $958,000 of unrecognized compensation cost
related to stock-based payments, which is expected to be recognized over a
weighted-average period of 3.77 years.
 
 NOTE
6.  FAIR VALUE MEASUREMENTS
  On
January 1, 2008, the Company adopted FASB No. 157, Fair Value
Measurements.  FASB No. 157 defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements.  FASB No. 157 applies to reported balances that are
required or permitted to be measured at fair value under existing accounting
pronouncements; accordingly, the standard does not require any new fair value
measurements of reported balances.
 
 FASB No.
157 emphasizes that fair value is a market-based measurement, not an
entity-specific measurement.  Therefore, a fair value measurement
should be determined based on the assumptions that market participants would use
in pricing the asset or liability.  As a basis for considering market
participant assumptions in fair value measurements, FASB No. 157 establishes a
fair value hierarchy that distinguishes between market participant assumptions
based on market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the hierarchy)
and the reporting entity’s own assumptions about market participant assumptions
(unobservable inputs classified within Level 3 of the
hierarchy).
  10
 Table of Contents
  Level 1
inputs utilize quoted prices (unadjusted) in active markets for identical assets
or liabilities that the Company has the ability to access. Level 2 inputs are
inputs other than quoted prices included in Level 1 that are observable for the
asset or liability, either directly or indirectly. Level 2 inputs may include
quoted prices for similar assets and liabilities in active markets, as well as
inputs that are observable for the asset or liability (other than quoted
prices), such as interest rates, foreign exchange rates and yield curves that
are observable at commonly quoted intervals. Level 3 inputs are unobservable
inputs for the asset or liability, which are typically based on an entity’s own
assumptions, as there is little, if any, related market activity. In instances
where the determination of the fair value measurement is based on inputs from
different levels of the fair value hierarchy, the level in the fair value
hierarchy within which the entire fair value measurement falls is based on the
lowest level input that is significant to the fair value measurement in its
entirety. The Company’s assessment of the significance of a particular input to
the fair value measurement in its entirety requires judgment, and considers
factors specific to the asset or liability.
 
 As
discussed in Note 4, the Company uses floor and collar derivative contracts to
manage its interest rate risk.   The valuation of these
instruments is determined using widely accepted valuation techniques including
discounted cash flow analysis on the expected cash flows of each derivative.
This analysis reflects the contractual terms of the derivatives, including the
period to maturity, and uses observable market-based inputs, including interest
rate curves and implied volatilities.  The fair values of interest
rate options are determined using the market standard methodology of discounting
the future expected cash receipts that would occur if variable interest rates
fell below the strike rate of the floors or rise above the strike price of the
collar.  The variable interest rates used in the calculation of
projected receipts on the floor (cap) are based on an expectation of future
interest rates derived from observable market interest rate curves and
volatilities.  To comply with the provisions of FASB No. 157, the
Company incorporates credit valuation adjustments to appropriately reflect both
its own nonperformance risk and the respective counterparty’s nonperformance
risk in the fair value measurements.  In adjusting the fair value of
its derivative contracts for the effect of nonperformance risk, the Company has
considered the impact of netting and any applicable credit enhancements, such as
collateral postings, thresholds, mutual puts, and guarantees.
 
 Although
the Company has determined that the majority of the inputs used to value its
derivatives fall within Level 2 of the fair value hierarchy, the credit
valuation adjustments associated with its derivatives utilize Level 3 inputs,
such as estimates of current credit spreads to evaluate the likelihood of
default by itself and its counterparties.  However, as of March 31,
2008, the Company has assessed the significance of the impact of the credit
valuation adjustments on the overall valuation of its derivative positions and
has determined that the credit valuation adjustments are not significant to the
overall valuation of its derivatives. As a result, the Company has determined
that its derivative valuations in their entirety are classified in Level 2 of
the fair value hierarchy.  The Company does not have any fair value
measurements using significant unobservable inputs (Level 3) as of March 31,
2008.
 
 The table
below presents the Company’s assets and liabilities measured at fair value on a
recurring basis as of March 31, 2008, aggregated by the level in the fair value
hierarchy within which those measurements fall.
 
 Quoted
      Prices in Active Markets for Identical Assets
              
              
              Significant
      Other Observable Inputs
              
              
              Significant
      Unobservable Inputs(Level
      1)
              
              
              (Level
      2)
              
              
              (Level
      3)
              
              
              TotalAssetsInvestment
      securities available-for-sale
              
              $
              557,323
              
              
              $
              180,476,596
              
              
              $
              -
              
              
              $
              181,033,919Derivative
      financial instruments
              
              
              -
              
              
              
              2,927,055
              
              
              
              -
              
              
              
              2,927,055Total
      assets at fair value
              
              $
              557,323
              
              
              $
              183,403,651
              
              
              $
              -
              
              
              $
              183,960,974
  11
 Table of Contents
  CAUTIONARY
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
 
 Certain
statements set forth in this Report or incorporated herein by reference,
including, without limitation, matters discussed in Item 2 “Management's Discussion and Analysis
of Financial Condition and Results of Operation” beginning on this page,
are “forward-looking statements” within the meaning of the federal securities
laws, including, without limitation, statements regarding our outlook on
earnings, asset quality 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
“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, a reduction in demand for credit and/or a decline in real estate
values; (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,
residential 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, the Company’s Annual Report on Form 10-K for the year ended December
31, 2007.  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.
 
 ITEM 2.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION
 
 The
following discussion and analysis of the consolidated financial condition and
results of operations of the Company should be read in conjunction with the
Consolidated Financial Statements and related Notes included in this Report as
well as the Consolidated Financial Statements, related Notes, and Management’s
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company’s 2007 Annual Report on Form 10-K, and is qualified in
its entirety by the foregoing and other more detailed financial information
appearing elsewhere.  Historical results of operations and the
percentage relationships among any amounts included, and any trends which may
appear to be inferred, should not be taken as being necessarily indicative of
trends in operations or results of operations for any future
periods.
 
 Our
operating subsidiary, The Park Avenue Bank, is a $1.2 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 commercial and individual customers in our
markets.  Competition, regulation, credit risk, and interest rate risk
are the primary factors that we must manage in order to be
successful.
  12
 Table of Contents
  We
generally group our offices into three geographic regions for discussion
purposes due to the varying demographics of each market.  Our offices
in Lowndes, Cook, Decatur, Grady, Bulloch, Appling and Jeff Davis counties are
collectively referred to as our “South Georgia” market.  Our offices
in Henry, Hall, Oconee, Cobb, Gwinnett and Forsyth counties are collectively
referred to as our “North Georgia” market.  Our offices in Marion,
Duval and St. Johns counties are collectively referred to as our “Florida”
market.  In addition, our corporate assets, correspondent bank account
balances, investment portfolio, out-of-market participation loans, insider loans
and insider deposits, borrowings, etc. are reported at the corporate level, in
what we refer to as the “Treasury”.
 
 The table
below provides summary demographic data on each of our markets.
 
 Market/
                County
              
              Total
      Population1
              
              
              Population
      Change (%)2
              
              
              Projected
      Population Change (%)3
              
              
              Median
      2007 Household Income ($)1
              
              
              Household
      Income Change (%)2
              
              
              Projected
      Household Income Change (%)3Selected
      Georgia Counties:South
      Georgia:Appling
              
              
              17,928
              
              
              
              2.92
              
              
              
              2.32
              
              
              
              36,004
              
              
              
              19.00
              
              
              
              13.37Bulloch
              
              
              65,115
              
              
              
              16.31
              
              
              
              10.35
              
              
              
              36,690
              
              
              
              24.74
              
              
              
              16.22Cook
              
              
              16,824
              
              
              
              6.68
              
              
              
              4.43
              
              
              
              32,716
              
              
              
              19.72
              
              
              
              13.35Decatur
              
              
              29,981
              
              
              
              6.17
              
              
              
              3.97
              
              
              
              35,199
              
              
              
              22.60
              
              
              
              14.83Grady
              
              
              24,999
              
              
              
              5.66
              
              
              
              2.84
              
              
              
              34,565
              
              
              
              20.19
              
              
              
              13.23Jeff
      Davis
              
              
              13,042
              
              
              
              2.82
              
              
              
              1.79
              
              
              
              32,307
              
              
              
              19.91
              
              
              
              13.21Lowndes
              
              
              102,189
              
              
              
              10.94
              
              
              
              7.54
              
              
              
              40,606
              
              
              
              24.48
              
              
              
              15.44North
      Georgia:Forsyth
              
              
              158,051
              
              
              
              60.61
              
              
              
              36.71
              
              
              
              90,724
              
              
              
              33.41
              
              
              
              22.04Gwinnett
              
              
              800,680
              
              
              
              36.07
              
              
              
              20.47
              
              
              
              79,730
              
              
              
              31.74
              
              
              
              21.40Hall
              
              
              176,932
              
              
              
              27.04
              
              
              
              15.50
              
              
              
              56,358
              
              
              
              25.49
              
              
              
              16.44Henry
              
              
              196,080
              
              
              
              64.30
              
              
              
              33.63
              
              
              
              72,290
              
              
              
              26.15
              
              
              
              15.25Oconee
              
              
              33,600
              
              
              
              28.12
              
              
              
              17.22
              
              
              
              67,533
              
              
              
              23.43
              
              
              
              16.79State
      of Georgia
              
              
              9,654,958
              
              
              
              17.94
              
              
              
              11.69
              
              
              
              55,102
              
              
              
              29.09
              
              
              
              19.57Selected
      Florida Counties:Duval
              
              
              897,561
              
              
              
              15.24
              
              
              
              10.64
              
              
              
              50,508
              
              
              
              23.99
              
              
              
              17.89Marion
              
              
              328,656
              
              
              
              26.94
              
              
              
              18.57
              
              
              
              39,452
              
              
              
              23.18
              
              
              
              15.17St.
      Johns
              
              
              178,025
              
              
              
              44.58
              
              
              
              26.01
              
              
              
              63,436
              
              
              
              26.61
              
              
              
              18.69State
      of Florida
              
              
              18,893,813
              
              
              
              18.22
              
              
              
              12.80
              
              
              
              48,591
              
              
              
              25.10
              
              
              
              17.12National
      Total
              
              
              306,348,230
              
              
              
              8.86
              
              
              
              6.26
              
              
              
              53,154
              
              
              
              26.06
              
              
              
              17.59
    1
                Based
      on actual 2007 market demographics provided by SNL
    Financial.
 2
                Based
      on actual changes from 2000 to 2007 provided by SNL
    Financial.
 3
                Estimated
      changes from 2007 to 2012 provided by SNL
  Financial.
  13
 Table of Contents
  FINANCIAL
CONDITION
 
 During
the three months ended March 31, 2008, our total assets increased $6.4 million,
or 2.1% on an annualized basis, to $1.21 billion.  Our loan portfolio
increased $13.6 million, or 5.9% on an annualized basis, to $934.9 million at
March 31, 2008 from $921.3 million at December 31, 2007.  Total
deposits decreased $8.0 million, or 3.3% on an annualized basis, to $972.1
million at March 31, 2008 from $980.1 million at December 31,
2007.  The decrease in total deposits is primarily the result of our
decision to not aggressively compete in our markets for higher-priced
deposits.  Instead, we utilized brokered deposits and advances from
the Federal Home Loan Bank (the “FHLB”), which were at lower rates than our
in-market retail deposits, to fund our loan growth in the first quarter of
2008.  Brokered deposits increased $30.2 million and advances from the
FHLB increased $17.8 million during the first quarter of 2008.
 
 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 monitor and evaluate trends in our residential real estate
markets.  We understand there are risks involved in lending on
residential real estate, and we have developed underwriting criteria and
internal controls to manage our risks.  However, we cannot control
market risk and we expect to incur additional losses as a result of the
continuing weakness in the residential real estate markets around Atlanta and
Florida. Additional information on our asset quality is included under the
heading “Provision for Loan Losses” in our “RESULTS OF OPERATIONS” discussion
below.
 
 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
              
              Mar-08
              
              
              Mar-07
              
              
              Mar-06
              
              
              Mar-05(#
      of Months Supply)Housing
      Inventory:Henry
      County
              
              
              12.6
              
              
              
              9.3
              
              
              
              8.6
              
              
              
              8.5Clayton
      County
              
              
              9.3
              
              
              
              12.5
              
              
              
              7.7
              
              
              
              6.0Newton
      County
              
              
              12.3
              
              
              
              7.9
              
              
              
              9.0
              
              
              
              8.1South
      Fulton County
              
              
              9.1
              
              
              
              7.5
              
              
              
              8.2
              
              
              
              9.4Vacant Developed Lots
      Inventory:Henry
      County
              
              
              113.0
              
              
              
              37.0
              
              
              
              25.0
              
              
              
              26.0Clayton
      County
              
              
              62.0
              
              
              
              29.0
              
              
              
              29.0
              
              
              
              15.0Newton
      County
              
              
              93.0
              
              
              
              29.0
              
              
              
              22.0
              
              
              
              23.0South
      Fulton County
              
              
              67.0
              
              
              
              26.0
              
              
              
              20.0
              
              
              
              21.0
  14
 Table of Contents
  The
following table summarizes our loan and deposit portfolios classified by type
and market as of March 31, 2008.
 
 South
              
              
              NorthAs
      of March  31, 2008
              
              Georgia
              
              
              Georgia
              
              
              Florida
              
              
              Treasury
              
              
              Total(Dollars
      in Thousands)LoansCommercial
      and financial
              
              $
              34,139
              
              
              $
              46,849
              
              
              $
              2,318
              
              
              $
              37
              
              
              $
              83,343Agricultural
      (including loans secured by farmland)
              
              
              29,850
              
              
              
              4,530
              
              
              
              8,193
              
              
              
              -
              
              
              
              42,573Real
      estate – construction
              
              
              83,499
              
              
              
              220,893
              
              
              
              58,391
              
              
              
              609
              
              
              
              363,392Real
      estate - commercial
              
              
              77,251
              
              
              
              136,192
              
              
              
              23,262
              
              
              
              4,460
              
              
              
              241,165Real
      estate - residential
              
              
              134,756
              
              
              
              31,678
              
              
              
              8,228
              
              
              
              4,429
              
              
              
              179,091Installment
      loans to individuals and other loans
              
              
              13,629
              
              
              
              5,660
              
              
              
              160
              
              
              
              6,255
              
              
              
              25,704373,124
              
              
              
              445,802
              
              
              
              100,552
              
              
              
              15,790
              
              
              
              935,268Deferred
      loan fees and unearned interest, net
              
              
              282
              
              
              
              (253
              )
              
              
              (363
              )
              
              
              (7
              )
              
              
              (341
              )Total
      loans
              
              $
              373,406
              
              
              $
              445,549
              
              
              $
              100,189
              
              
              $
              15,783
              
              
              $
              934,927Percentage
      of total
              
              
              40.0
              %
              
              
              47.3
              %
              
              
              10.7
              %
              
              
              2.0
              %
              
              
              100.0
              %DepositsNoninterest-bearing
      demand
              
              $
              73,106
              
              
              $
              14,447
              
              
              $
              3,561
              
              
              $
              5,915
              
              
              $
              97,029Interest-bearing
      demand and savings
              
              
              260,368
              
              
              
              40,068
              
              
              
              30,157
              
              
              
              591
              
              
              
              331,184Time
      less than $100,000
              
              
              157,521
              
              
              
              50,493
              
              
              
              90,629
              
              
              
              156
              
              
              
              298,799Time
      greater than or equal to $100,000
              
              
              98,623
              
              
              
              37,631
              
              
              
              42,962
              
              
              
              100
              
              
              
              179,316Brokered
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              65,776
              
              
              
              65,776Total
      deposits
              
              $
              589,618
              
              
              $
              142,639
              
              
              $
              167,309
              
              
              $
              72,538
              
              
              $
              972,104Percentage
      of total
              
              
              60.6
              %
              
              
              14.7
              %
              
              
              17.2
              %
              
              
              7.5
              %
              
              
              100.0
              %
 
 In
addition to the geographic concentrations noted in the tables above, we had
approximately $78.5 million in loans secured by real estate in Florida to
customers of our South Georgia, North Georgia and Treasury
offices.
  15
 Table of Contents
  The table
below summarizes our loan portfolio by loan type as of the end of each of the
last five quarters.
 
 As
      of Quarter End
                    
                    Mar-08
                    
                    
                    Dec-07
                    
                    
                    Sep-07
                    
                    
                    Jun-07
                    
                    
                    Mar-07(Dollars
      In Thousands)Commercial
      and financial
                    
                    $
                    83,343
                    
                    
                    $
                    78,730
                    
                    
                    $
                    78,556
                    
                    
                    $
                    78,048
                    
                    
                    $
                    69,347Agricultural
      (including loans secured by farmland)
                    
                    
                    42,573
                    
                    
                    
                    41,861
                    
                    
                    
                    42,608
                    
                    
                    
                    46,973
                    
                    
                    
                    38,102Real
      estate - construction
                    
                    
                    363,392
                    
                    
                    
                    352,732
                    
                    
                    
                    339,019
                    
                    
                    
                    328,347
                    
                    
                    
                    323,837Real
      estate - commercial
                    
                    
                    241,165
                    
                    
                    
                    248,272
                    
                    
                    
                    257,841
                    
                    
                    
                    270,978
                    
                    
                    
                    252,654Real
      estate -  residential
                    
                    
                    179,091
                    
                    
                    
                    174,157
                    
                    
                    
                    164,967
                    
                    
                    
                    161,404
                    
                    
                    
                    153,025Installment
      loans to individuals and other loans
                    
                    
                    25,704
                    
                    
                    
                    26,011
                    
                    
                    
                    21,691
                    
                    
                    
                    20,246
                    
                    
                    
                    17,958935,268
                    
                    
                    
                    921,763
                    
                    
                    
                    904,682
                    
                    
                    
                    905,996
                    
                    
                    
                    854,923Deferred
      loan fees and unearnedinterest,
      net
                    
                    
                    (341
                    )
                    
                    
                    (414
                    )
                    
                    
                    (600
                    )
                    
                    
                    (839
                    )
                    
                    
                    (847
                    )934,927
                    
                    
                    
                    921,349
                    
                    
                    
                    904,082
                    
                    
                    
                    905,157
                    
                    
                    
                    854,076Allowance
      for loan losses
                    
                    
                    (13,875
                    )
                    
                    
                    (12,906
                    )
                    
                    
                    (11,497
                    )
                    
                    
                    (11,342
                    )
                    
                    
                    (11,085
                    )$
                    921,052
                    
                    
                    $
                    908,443
                    
                    
                    $
                    892,585
                    
                    
                    $
                    893,815
                    
                    
                    $
                    842,991
 
 
 The
percentage of loans outstanding by loan type at the indicated dates is presented
in the following table:
 
 As
      of Quarter End
              
              Mar-08
              
              
              Dec-07
              
              
              Sep-07
              
              
              Jun-07
              
              
              Mar-07Commercial
      and financial
              
              
              8.91
              %
              
              
              8.55
              %
              
              
              8.69
              %
              
              
              8.62
              %
              
              
              8.12
              %Agricultural
      (including loans secured by farmland)
              
              
              4.55
              %
              
              
              4.54
              %
              
              
              4.71
              %
              
              
              5.19
              %
              
              
              4.46
              %Real
      estate - construction
              
              
              38.87
              %
              
              
              38.28
              %
              
              
              37.50
              %
              
              
              36.27
              %
              
              
              37.92
              %Real
      estate - commercial
              
              
              25.80
              %
              
              
              26.95
              %
              
              
              28.52
              %
              
              
              29.94
              %
              
              
              29.58
              %Real
      estate - residential
              
              
              19.16
              %
              
              
              18.90
              %
              
              
              18.25
              %
              
              
              17.83
              %
              
              
              17.92
              %Installment
      loans to individuals and other loans
              
              
              2.75
              %
              
              
              2.82
              %
              
              
              2.40
              %
              
              
              2.24
              %
              
              
              2.10
              %100.04
              %
              
              
              100.04
              %
              
              
              100.07
              %
              
              
              100.09
              %
              
              
              100.10
              %Deferred
      loan fees and unearned interest, net
              
              
              -0.04
              %
              
              
              -0.04
              %
              
              
              -0.07
              %
              
              
              -0.09
              %
              
              
              -0.10
              %Total
      loans
              
              
              100.00
              %
              
              
              100.00
              %
              
              
              100.00
              %
              
              
              100.00
              %
              
              
              100.00
              %Allowance
      for loan losses
              
              
              -1.48
              %
              
              
              -1.40
              %
              
              
              -1.27
              %
              
              
              -1.25
              %
              
              
              -1.30
              %Net
      loans
              
              
              98.52
              %
              
              
              98.60
              %
              
              
              98.73
              %
              
              
              98.75
              %
              
              
              98.70
              %
  16
 Table of Contents
  Below is
a table showing the collateral distribution of our construction and development
and commercial real estate loan portfolios at the indicated dates.
 
 March
      31, 2008
              
              
              December
      31, 2007
              
              
              March
      31, 2007$
      Amount
              
              
              %
      to Total
              
              
              $
      Amount
              
              
              %
      to Total
              
              
              $
      Amount
              
              
              %
      to Total(Dollars
      in Thousands)Construction and
      development:Acquisition
      and development:1-4
      family residential
              
              $
              141,354
              
              
              
              38.9
              %
              
              $
              130,097
              
              
              
              36.9
              %
              
              $
              132,857
              
              
              
              41.0
              %Commercial
      and multi-family
              
              
              106,894
              
              
              
              29.4
              %
              
              
              105,718
              
              
              
              30.0
              %
              
              
              92,527
              
              
              
              28.6
              %Construction1-4
      family residential spec
              
              
              41,590
              
              
              
              11.4
              %
              
              
              40,392
              
              
              
              11.4
              %
              
              
              36,883
              
              
              
              11.4
              %1-4
      family residential pre-sold
              
              
              1,281
              
              
              
              0.4
              %
              
              
              1,604
              
              
              
              0.4
              %
              
              
              2,068
              
              
              
              0.7
              %1-4
      family residential other
              
              
              26,095
              
              
              
              7.2
              %
              
              
              26,694
              
              
              
              7.6
              %
              
              
              17,891
              
              
              
              5.5
              %Commercial
      owner-occupied
              
              
              6,496
              
              
              
              1.8
              %
              
              
              5,685
              
              
              
              1.6
              %
              
              
              5,585
              
              
              
              1.7
              %Commercial
      not owner-occupied
              
              
              19,069
              
              
              
              5.2
              %
              
              
              17,497
              
              
              
              5.0
              %
              
              
              12,939
              
              
              
              4.0
              %Hotel/motel
              
              
              10,389
              
              
              
              2.9
              %
              
              
              12,909
              
              
              
              3.7
              %
              
              
              10,545
              
              
              
              3.3
              %Multi-family
      properties
              
              
              8,282
              
              
              
              2.3
              %
              
              
              7,789
              
              
              
              2.2
              %
              
              
              7,869
              
              
              
              2.4
              %Special
      purpose property
              
              
              1,942
              
              
              
              0.5
              %
              
              
              2,337
              
              
              
              0.6
              %
              
              
              2,339
              
              
              
              0.7
              %Other
              
              
              -
              
              
              
              0.0
              %
              
              
              2,010
              
              
              
              0.6
              %
              
              
              2,334
              
              
              
              0.7
              %Total
      construction and development loans
              
              $
              363,392
              
              
              
              100.0
              %
              
              $
              352,732
              
              
              
              100.0
              %
              
              $
              323,837
              
              
              
              100.0
              %Percentage of
      total loans
              
              
              38.9
              %
              
              
              
              
              
              
              38.3
              %
              
              
              
              
              
              
              37.9
              %
 
 
 March
      31, 2008
              
              
              December
      31, 2007
              
              
              March
      31, 2007$
      Amount
              
              
              %
      to Total
              
              
              $
      Amount
              
              
              %
      to Total
              
              
              $
      Amount
              
              
              %
      to TotalCommercial real
      estate:Owner-occupied:Office
              
              $
              33,017
              
              
              
              13.7
              %
              
              $
              34,291
              
              
              
              13.8
              %
              
              $
              31,113
              
              
              
              12.3
              %Retail
              
              
              21,478
              
              
              
              8.9
              %
              
              
              22,114
              
              
              
              8.9
              %
              
              
              22,329
              
              
              
              8.8
              %Other
              
              
              36,432
              
              
              
              15.1
              %
              
              
              34,263
              
              
              
              13.8
              %
              
              
              38,340
              
              
              
              15.2
              %Not
      owner-occupied:Office
              
              
              27,598
              
              
              
              11.4
              %
              
              
              29,210
              
              
              
              11.8
              %
              
              
              28,429
              
              
              
              11.3
              %Retail
              
              
              34,613
              
              
              
              14.4
              %
              
              
              36,780
              
              
              
              14.8
              %
              
              
              29,399
              
              
              
              11.6
              %Other
              
              
              25,082
              
              
              
              10.4
              %
              
              
              27,418
              
              
              
              11.0
              %
              
              
              25,468
              
              
              
              10.1
              %Other:Hotel/motel
              
              
              10,885
              
              
              
              4.5
              %
              
              
              11,399
              
              
              
              4.6
              %
              
              
              15,291
              
              
              
              6.1
              %Industrial
              
              
              4,789
              
              
              
              2.0
              %
              
              
              2,626
              
              
              
              1.1
              %
              
              
              2,755
              
              
              
              1.1
              %Multi-family
      properties
              
              
              12,374
              
              
              
              5.1
              %
              
              
              14,894
              
              
              
              6.0
              %
              
              
              20,031
              
              
              
              7.9
              %Special
      purpose property
              
              
              34,897
              
              
              
              14.5
              %
              
              
              34,876
              
              
              
              14.0
              %
              
              
              39,499
              
              
              
              15.6
              %Other
              
              
              -
              
              
              
              0.0
              %
              
              
              401
              
              
              
              0.2
              %
              
              
              -
              
              
              
              0.0
              %Total
      commercial real estate loans
              
              $
              241,165
              
              
              
              100.0
              %
              
              $
              248,272
              
              
              
              100.0
              %
              
              $
              252,654
              
              
              
              100.0
              %Percentage of
      total loans
              
              
              25.8
              %
              
              
              
              
              
              
              26.9
              %
              
              
              
              
              
              
              29.6
              %
  17
 Table of Contents
  The table
below summarizes our deposit portfolio by deposit type as of the end of each of
the last five quarters.
 
 As
      of Quarter End
                
                Mar-08
                
                
                Dec-07
                
                
                Sep-07
                
                
                Jun-07
                
                
                Mar-07(Dollars
      In Thousands)Noninterest-bearing
      demand
                
                $
                97,029
                
                
                $
                89,423
                
                
                $
                91,053
                
                
                $
                98,862
                
                
                $
                107,917Interest-bearing
      demand and savings
                
                
                331,184
                
                
                
                354,743
                
                
                
                362,079
                
                
                
                349,720
                
                
                
                371,484Time
      less than $100,000
                
                
                298,799
                
                
                
                312,722
                
                
                
                315,532
                
                
                
                300,856
                
                
                
                287,982Time
      greater than or equal to $100,000
                
                
                179,316
                
                
                
                187,662
                
                
                
                172,529
                
                
                
                163,973
                
                
                
                158,464Brokered
                
                
                65,776
                
                
                
                35,599
                
                
                
                38,599
                
                
                
                32,436
                
                
                
                28,569Total
      deposits
                
                $
                972,104
                
                
                $
                980,149
                
                
                $
                979,792
                
                
                $
                945,847
                
                
                $
                954,416
 
 The
percentage of deposits outstanding by deposit type at the indicated dates is
presented in the following table:
 
 As
      of Quarter End
              
              Mar-08
              
              
              Dec-07
              
              
              Sep-07
              
              
              Jun-07
              
              
              Mar-07Noninterest-bearing
      demand
              
              
              9.98
              %
              
              
              9.12
              %
              
              
              9.29
              %
              
              
              10.45
              %
              
              
              11.31
              %Interest-bearing
      demand and savings
              
              
              34.07
              %
              
              
              36.19
              %
              
              
              36.96
              %
              
              
              36.98
              %
              
              
              38.92
              %Time
      less than $100,000
              
              
              30.74
              %
              
              
              31.91
              %
              
              
              32.20
              %
              
              
              31.78
              %
              
              
              30.18
              %Time
      greater than or equal to $100,000
              
              
              18.44
              %
              
              
              19.15
              %
              
              
              17.61
              %
              
              
              17.36
              %
              
              
              16.60
              %Brokered
              
              
              6.77
              %
              
              
              3.63
              %
              
              
              3.94
              %
              
              
              3.43
              %
              
              
              2.99
              %Total
      deposits
              
              
              100.00
              %
              
              
              100.00
              %
              
              
              100.00
              %
              
              
              100.00
              %
              
              
              100.00
              %
 
 
 RESULTS
OF OPERATIONS
 
 Net
income for the three months ended March 31, 2008 was $1.3 million, or $0.14 per
diluted share, as compared to $3.1 million, or $0.32 per diluted share, during
the same period in 2007.  The $1.8 million, or 57.7%, decrease in net
income is the net result of a $1.3 million decrease in net interest income, a
$1.2 million increase in the provision for loan loss expense and a $359,000
increase in other expenses, offset by a $165,000 increase in other income and a
$959,000 decrease in income tax expense.
 
 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 earned on assets, primarily loans
and investments, and interest paid on liabilities, primarily deposits and other
borrowed funds.  For the three months ended March 31, 2008, our net
interest income on a taxable-equivalent basis was $9.52 million, a 12.0%
decrease from the $10.82 million in net interest income for the first quarter of
2007.  The decrease in net interest income is due to a 7.0% decrease
in interest income offset in part by a 1.0% decrease in interest
expense.  During the first quarter of 2008, the average balance of our
earning assets increased 6.1% compared to the same period in
2007.  The average balances of our interest-bearing liabilities
increased by 8.4% to fund the asset growth.  The average yield on our
earning assets decreased 102 basis points from 7.91% during the first quarter of
2007, to 6.89% for the first quarter of 2008.  The average rates paid
for our funds decreased 41 basis points from 4.32% during the first quarter of
2007, to 3.91% for the first quarter of 2008.  As a result of these
rate decreases, our net interest spread declined by 61 basis points from 3.59%
during the first quarter of 2007, to 2.98% for the same period in
2008.
 
 The net
interest margin is net interest income expressed as a percentage of average
earning assets.   Our net interest margin for the first quarter
of 2008 was 3.41%, 20 basis points lower than our net interest margin of 3.61%
for the fourth quarter of 2007, and 74 basis points lower than the 4.15%
recorded for the first quarter of 2007.  The reduction in short-term
interest rates during the fourth quarter of 2007 and first quarter of 2008
caused our earning assets to re-price downwards faster than our interest-bearing
liabilities re-priced downwards.  The reduction of interest income due
to our nonperforming assets negatively impacted the net interest margin by 28
basis points during the first quarter of 2008, compared to a 13 basis point
impact in the fourth quarter of 2007 and a four basis point impact in the first
quarter of 2007.  We do not expect our net interest margin to
improve in 2008 considering the increase in nonperforming assets, the interest
rate environment and narrowing spreads on our earning assets.
  18
 Table of Contents
  The
following table details the average balances of interest-earning assets and
interest-bearing liabilities, the amount of interest earned and paid, and the
average yields and rates for the three months ended March 31, 2008 and
2007.  Federally tax-exempt income is presented on a
taxable-equivalent basis assuming a 35% Federal tax rate.  Loan
average balances include loans on nonaccrual status.
 
 For
      the Three Months Ended March 31,
              
              
              
              
              2008
              
              
              
              
              
              
              
              
              2007Average
      Balance
              
              
              Interest
      Income/ Expense
              
              
              Average
      Yield/ Rate
              
              
              Average
      Balance
              
              
              Interest
      Income/ Expense
              
              
              Average
      Yield/ Rate(Dollars
      In Thousands)Interest-earning
      assets:Loans
              
              $
              930,049
              
              
              $
              16,657
              
              
              
              7.20
              %
              
              $
              834,070
              
              
              $
              17,685
              
              
              
              8.60
              %Investment
      securities:Taxable
              
              
              151,172
              
              
              
              1,993
              
              
              
              5.30
              %
              
              
              157,340
              
              
              
              2,012
              
              
              
              5.19
              %Nontaxable
              
              
              33,143
              
              
              
              504
              
              
              
              6.12
              %
              
              
              29,333
              
              
              
              438
              
              
              
              6.05
              %Other
      short-term investments
              
              
              7,097
              
              
              
              53
              
              
              
              3.01
              %
              
              
              36,378
              
              
              
              469
              
              
              
              5.23
              %Total
      interest-earning assets
              
              $
              1,121,461
              
              
              $
              19,207
              
              
              
              6.89
              %
              
              $
              1,057,121
              
              
              $
              20,604
              
              
              
              7.91
              %Interest-bearing
      liabilities:Demand
      deposits
              
              $
              305,907
              
              
              $
              1,927
              
              
              
              2.53
              %
              
              $
              297,988
              
              
              $
              2,590
              
              
              
              3.53
              %Savings
      deposits
              
              
              35,342
              
              
              
              76
              
              
              
              0.86
              %
              
              
              37,587
              
              
              
              147
              
              
              
              1.59
              %Time
      deposits
              
              
              533,563
              
              
              
              6,415
              
              
              
              4.84
              %
              
              
              473,550
              
              
              
              5,716
              
              
              
              4.90
              %FHLB
      advances
              
              
              92,454
              
              
              
              930
              
              
              
              4.05
              %
              
              
              90,112
              
              
              
              1,052
              
              
              
              4.73
              %Notes
      payable
              
              
              10,310
              
              
              
              168
              
              
              
              6.57
              %
              
              
              10,310
              
              
              
              180
              
              
              
              7.09
              %Other
      short-term borrowings
              
              
              18,418
              
              
              
              169
              
              
              
              3.69
              %
              
              
              9,105
              
              
              
              98
              
              
              
              4.35
              %Total
      interest-bearing liabilities
              
              $
              995,994
              
              
              $
              9,685
              
              
              
              3.91
              %
              
              $
              918,652
              
              
              $
              9,783
              
              
              
              4.32
              %Interest
      rate spread
              
              
              
              
              
              
              
              
              
              
              2.98
              %
              
              
              
              
              
              
              
              
              
              
              3.59
              %Net
      interest income
              
              
              
              
              
              $
              9,522
              
              
              
              
              
              
              
              
              
              
              $
              10,821Net
      interest margin
              
              
              
              
              
              
              
              
              
              
              3.41
              %
              
              
              
              
              
              
              
              
              
              
              4.15
              %
 
 
 Provision for Loan
Losses
 During
the first quarter of 2008, we provided $1.2 million to our allowance for loan
losses due to an increase in nonperforming loans and our continued concerns over
residential real estate market conditions.  Additional provisions for
loan losses in the second quarter of 2008 may be warranted if, among other
factors, further weakness in residential real estate is observed in our markets
or if our asset quality deteriorates from current levels.
 
 For the
first three months of 2008, we charged-off $584,000 in loans and recovered
$353,000 in previously charged-off loans.  The $231,000 in net
charge-offs for the year to date results in an annualized 0.10% ratio of net
charge-offs to average loans, which is consistent with our 2007 net charge-off
ratio of 0.10% and our five-year average net charge-off ratio of
0.10%.  At March 31, 2008, the allowance for loan losses as a
percentage of total loans was 1.48%, compared to 1.40% at December 31,
2007.
  19
 Table of Contents
  Our
nonperforming loans increased $14.7 million, from $11.4 million at December 31,
2007 to $26.1 million at March 31, 2008, due primarily to the adverse economic
and market conditions in our Atlanta and Athens, Georgia markets and our
Jacksonville, Florida market.  As a percentage of total loans,
nonperforming loans increased 155 basis points to 2.79% at March 31, 2008 from
1.24% at December 31, 2007.  One relationship totaling $11.6 million
accounted for 44.6% of total nonperforming loans at
quarter-end.  Approximately 90.8% of the loans on nonaccrual status at
March 31, 2008 were construction and development loans, and these loans
represented approximately 6.5% of our total portfolio of construction and
development loans.  The underlying collateral on the nonaccrual loans
consists of (1) 543 acres of undeveloped land in two parcels zoned for
residential development with a total carrying value of $7.3 million, or $13,400
per acre on average, (2) 152 residential lots with a total carrying value of
$7.7 million, or $50,800 per lot on average, (3) 41 residential houses with a
total carrying value of $4.4 million, or $108,100 per house on average, and (4)
six commercial properties with a total carrying value of $6.6 million, or $1.1
million per property on average.  The table below summarizes our
levels of nonperforming loans over the past five quarters.
 
 As
      of Quarter End
              
              Mar-08
              
              
              Dec-07
              
              
              Sep-07
              
              
              Jun-07
              
              
              Mar-07(Dollars
      In Thousands)Loans
      accounted for on a nonaccrual basis
              
              $
              26,090
              
              
              $
              11,405
              
              
              $
              5,185
              
              
              $
              1,986
              
              
              $
              4,192Accruing
      loans which are contractually past due 90 days or more as to principal or
      interest payments
              
              
              13
              
              
              
              37
              
              
              
              34
              
              
              
              27
              
              
              
              69Total
      nonperforming loans
              
              $
              26,103
              
              
              $
              11,442
              
              
              $
              5,219
              
              
              $
              2,013
              
              
              $
              4,261Total
      nonperforming loans as a percentage of total loans
              
              
              2.79
              %
              
              
              1.24
              %
              
              
              0.58
              %
              
              
              0.22
              %
              
              
              0.50
              %
 
 
 Total
loans past due 30-89 days and not categorized as a nonperforming loan amounted
to $9.8 million, or 1.05% of total loans at March 31, 2008, an 87 basis point
decrease compared to a 1.92% ratio at December 31, 2007.  The decrease
in this category is due primarily to the transition of most of those loans into
nonaccrual status or other real estate through workout
situations.  Approximately 65.5% of the loans past due 30-89 days at
March 31, 2008 were construction and development loans, and these loans
represented approximately 1.9% of our total portfolio of construction and
development loans.
 
 Our
foreclosed assets increased $877,000 in the first quarter of 2008, from $6.4
million at December 31, 2007 to $7.2 million at March 31, 2008.  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 March
31, 2008 include (1) 82 acres of undeveloped land in two parcels zoned for
residential development with a total carrying value of $1.2 million, or $14,700
per acre on average, (2) 58 residential lots with a total carrying value of $1.6
million, or $27,400 per lot on average, (3) 17 residential houses with a total
carrying value of $2.3 million, or $133,800 per house on average, and (4) six
commercial properties with a total carrying value of $2.2 million, or $359,800
per property on average.
  20
 Table of Contents
  The
following table summarizes our nonperforming assets by type and market as of
March 31, 2008.
 
 North
      Georgia
              
              
              South
      Georgia
              
              
              Florida
              
              
              Treasury
              
              
              Total(Dollars
      In Thousands)Loans
      accounted for on a nonaccrual basis
              
              $
              22,293
              
              
              $
              1,243
              
              
              $
              2,554
              
              
              $
              -
              
              
              $
              26,090Accruing
      loans which are contractually past due 90 days or more as to principal or
      interest payments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              13
              
              
              
              13Foreclosed
      assets
              
              
              6,801
              
              
              
              436
              
              
              
              -
              
              
              
              -
              
              
              
              7,237Total
      nonperforming assets
              
              $
              29,094
              
              
              $
              1,679
              
              
              $
              2,554
              
              
              $
              13
              
              
              $
              33,340
 
 
 In
addition to our nonperforming loans discussed above, we have identified $6.7
million in potential problem loans as of March 31, 2008.  These are
construction and land development loans that were past due 30 to 89 days at
quarter-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.
 
 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.  We have a comprehensive
methodology for determining the adequacy of our allowance for loan
losses.  This methodology includes an assessment for specific
valuations on larger loans and nonperforming loans, and an assessment based on
environmental factors applied to other homogenous groups of otherwise performing
loans.
 
 The
environmental factors considered in developing our loss measurements
include:
 ·
              lending
      policies and procedures, including changes in underwriting standards and
      collection, charge-off and recovery
practices:
 ·
              changes
      in international, national, regional and local economic and business
      conditions that affect the collectibility of the
  portfolio;
 ·
              changes
      in the nature and volume of the loan
portfolio;
 ·
              experience,
      ability, and depth of lending management and other relevant
      staff;
 ·
              levels
      of and trends in delinquencies and impaired
  loans;
 ·
              changes
      in the quality of our loan review
system;
 ·
              value
      of underlying collateral for collateral-dependent
  loans;
 ·
              existence
      and effect of any concentrations of credit, and changes in the level of
      such concentrations; and
 ·
              other
      external factors such as competition and legal and regulatory
      requirements.
 
 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 our allowance for loan losses,
and may require us to make additions to the allowance based on their judgment
about information available to them at the time of their
examinations.
  21
 Table of Contents
  Other
Income
 A summary
of noninterest income follows:
 
 For
      the Three Months Ended March 31,
              
              2008
              
              
              2007Amount
              
              
              Amount
              
              
              Percent
      Change(Dollars
      In Thousands)Noninterest
      income:Service
      charges on deposit accounts
              
              $
              905
              
              
              $
              836
              
              
              
              8.3
              %Mortgage
      origination fees
              
              
              206
              
              
              
              83
              
              
              
              148.2
              %ATM/
      debit card fee income
              
              
              175
              
              
              
              153
              
              
              
              14.4
              %Securities
      transactions, net
              
              
              183
              
              
              
              173
              
              
              
              5.8
              %Earnings
      on bank-owned life insurance
              
              
              105
              
              
              
              99
              
              
              
              6.1
              %Gain
      (loss) on disposal of assets
              
              
              (66
              )
              
              
              (13
              )
              
              
              407.7
              %Other
      noninterest income
              
              
              135
              
              
              
              147
              
              
              
              -8.2
              %Total
      noninterest income
              
              $
              1,643
              
              
              $
              1,478
              
              
              
              11.2
              %Noninterest
      income (annualized) as a percentage of average assets
              
              
              0.55
              %
              
              
              0.53
              %
 
 Service
charges on deposit accounts increased during the first quarter of 2008 due to a
net increase in NSF and overdraft fees.  We tightened our policy on
waiving these fees for customers, which has resulted in a lower percentage of
waived overdraft and NSF fees.  Our basic service charge fee income on
deposit accounts remained stable from the first quarter of 2007 to the first
quarter of 2008 as we continue to offer a free checking product with no monthly
service fees.
 
 Mortgage
origination fees increased from the first quarter of 2007 to the first quarter
of 2008 as we hired new mortgage originators to replace several lenders lost in
2006 and 2007 due to unexpected turnover.
 
 Fee
income from ATM and debit cards increased as the volume of point-of-sale
transactions continues to increase.  However, we have begun to offer a
no-fee ATM deposit product in certain markets for competitive reasons,
which may reduce our ATM fee income opportunities going forward.
 
 During
the first quarter of 2008, we incurred a loss of $58,000 on the sale of a parcel
of foreclosed real estate and an $8,000 loss on the disposal of an ATM
machine.  This was compared to a loss of $13,000 on the sale of one
parcel of foreclosed real estate in the first quarter of 2007.
  22
 Table of Contents
  Other
Expenses
 A summary
of noninterest expense follows:
 
 For
      the Three Months Ended March 31,
              
              2008
              
              
              2007Amount
              
              
              Amount
              
              
              Percent
      Change(Dollars
      In Thousands)Noninterest
      expenses:Salaries
      and wages
              
              $
              4,236
              
              
              $
              4,151
              
              
              
              2.0
              %Deferred
      loan costs
              
              
              (388
              )
              
              
              (471
              )
              
              
              -17.6
              %Employee
      benefits
              
              
              1,164
              
              
              
              1,096
              
              
              
              6.2
              %Net
      occupancy expense of premises
              
              
              599
              
              
              
              536
              
              
              
              11.8
              %Furniture
      and equipment expense
              
              
              525
              
              
              
              579
              
              
              
              -9.3
              %Advertising
      and business development
              
              
              182
              
              
              
              178
              
              
              
              2.2
              %Supplies
      and printing
              
              
              110
              
              
              
              133
              
              
              
              -17.3
              %Telephone
      and internet charges
              
              
              202
              
              
              
              147
              
              
              
              37.4
              %Postage
      and courier
              
              
              162
              
              
              
              159
              
              
              
              1.9
              %Legal
      and accounting fees
              
              
              113
              
              
              
              108
              
              
              
              4.6
              %Director
      fees and expenses
              
              
              174
              
              
              
              130
              
              
              
              33.8
              %Service
      charges and fees
              
              
              175
              
              
              
              143
              
              
              
              22.4
              %Other
      noninterest expense
              
              
              575
              
              
              
              581
              
              
              
              -1.0
              %Total
      noninterest expense
              
              $
              7,829
              
              
              $
              7,470
              
              
              
              4.8
              %Noninterest
      expense (annualized) as a percentage of average assets
              
              
              2.64
              %
              
              
              2.66
              %
 
 Salaries
and wages expense and employee benefits were up for the quarter due to annual
raises and increased group medical insurance costs.  Deferred loan
costs, which are credits against salaries and wages, decreased due to
a decrease in loan volume.
 
 The
increase in occupancy expense is due to increased lease rates and common area
maintenance charges (“CAM” charges) associated with those leased
properties.  The decrease in furniture and equipment expenses is due
to a reduction in depreciation expense on several large pieces of operations
equipment that became fully depreciated during the third quarter of
2007.  We anticipate making new capital expenditures to replace these
items in the second and third quarters of 2008.
 
 Office
supplies and printing charges decreased from the first quarter of 2007 to the
first quarter of 2008 due to cost-saving awareness and efforts among our
locations to reduce noninterest expenses.  The increase in telephone
and internet charges is due to the addition of redundant lines for capacity and
disaster recovery and rate increases from our service providers beginning in
January 2008.
 
 Director
fees and expenses increased 33.8% for the first quarter of 2008 compared to the
same period in 2007 due to an increase in the fee structure of quarterly
retainers, meeting fees and committee fees paid to our directors.  We
also incurred additional expenses for a director strategic planning session held
in March 2008.
 
 Service
charges and fees increased due to expenses related to a new remote deposit
product that we began offering in 2007.  These fees were nominal
during the first quarter of 2007, as the product was not fully implemented until
later in the year.
 
 Income Tax
Expense
 As a
percentage of net income before taxes, income tax expense was 33.8% and 34.5%
for the three-month periods ended March 31, 2008 and 2007,
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.
  23
 Table of Contents
  LIQUIDITY
AND CAPITAL RESOURCES
 
 Liquidity
is an important factor in our financial condition and affects our ability to
meet the borrowing needs and deposit withdrawal requirements of our
customers.  Assets, consisting primarily of loans and investment
securities, are funded by customer deposits, borrowed funds and retained
earnings.  Maturities in the investment and loan portfolios also
provide a steady flow of funds for reinvestment.  In addition, our
liquidity is enhanced by a relatively stable core deposit base and the
availability of additional funding sources.
 
 At March
31, 2008, our ratio of liquid assets (defined as the sum of cash and due from
bank balances, interest-bearing deposits in other banks, federal funds sold, and
investment securities) to total assets was 18.2%, compared to 18.8% at December
31, 2007.  It is our policy to maintain a ratio of liquid assets to
total assets of at least 15%.
 
 During
the firstquarter of 2008, we utilized the $17.8 million increase in advances
from the FHLB, the $6.4 million decrease in liquid assets and the $2.4 million
in cash flows from operations to fund the $13.6 million growth in loans, the
$8.0 million decrease in deposits, the $3.2 million decrease in federal funds
purchased and securities sold under agreements to repurchase and $1.3 million in
dividends paid to our stockholders during the first quarter of
2008.
 
 Contractual
Obligations
 Summarized
below are our contractual obligations as of March 31, 2008.
 
 Contractual
      Obligations
              
              Total
              
              
              Less
      than 1 year
              
              
              1
      to 3 years
              
              
              3
      to 5 years
              
              
              More
      than 5 years(Dollars
      In Thousands)Federal
      Home Loan Bank of AtlantaAdvances
              
              $
              104,144
              
              
              $
              10,601
              
              
              $
              35,227
              
              
              $
              35,645
              
              
              $
              22,671Operating
      Lease Obligations
              
              
              1,510
              
              
              
              355
              
              
              
              487
              
              
              
              284
              
              
              
              384Guaranteed
      Preferred Beneficial Interests in Debentures
              
              
              10,310
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              10,310$
              115,964
              
              
              $
              10,956
              
              
              $
              35,714
              
              
              $
              35,929
              
              
              $
              33,365
 
 Off Balance Sheet
Arrangements
 Our
financial statements do not reflect various commitments and contingent
liabilities that arise in the normal course of business.  These
off-balance sheet financial instruments include commitments to extend credit and
standby letters of credit.  Such financial instruments are included in
the financial statements when funds are distributed or when the instruments
become payable.  Our exposure to credit loss in the event of
nonperformance by the other party to a financial instrument for commitments to
extend credit, standby letters of credit and credit card commitments is
represented by the contractual amount of those instruments.  We use
the same credit policies in making commitments as we do for on-balance sheet
instruments.  Although these amounts do not necessarily represent
future cash requirements, a summary of our commitments as of March 31, 2008 and
December 31, 2007 are as follows:
 
 Mar-08
              
              
              Dec-07Commitments
      to extend credit
              
              $
              157,810,000
              
              
              $
              154,113,000Standby
      letters of credit
              
              $
              4,205,000
              
              
              $
              4,239,000
 
 In June
2006, we entered into a $50 million notional amount, 3-year, 8.25% Primerate floorcontract to hedge against interest rate risk in a declining rate
environment.  In January 2008, the Company entered into a $25 million
notional amount, 3-year 5.75%/6.50% Prime rate collar contract and a $25 million
notional amount, 5-year 6.00%/7.25% Prime rate collar contract to further hedge
against interest rate risk.  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, are well capitalized and are approved by our
Board of Directors.  Due to these factors, we feel our credit risk
exposure at March 31, 2008 was not material.
  24
 Table of Contents
  Stockholders’
Equity
 Total
equity increased $1.2 million, or 1.2%, during the quarter due primarily to a
$2.1 million increase in accumulated other comprehensive gains, offset by the
repurchase and cancellation of  $933,000 of common stock under our
stock repurchase plan.  The Company earned $1.3 million and declared
$1.3 million in dividends during the quarter.  We declared a $0.145
per common share dividend for the first quarter 2008, which is consistent with
the previous four quarters.  However, due to the decline in net
income, our dividend payout ratio for the first quarter of 2008 was 102.39%,
compared to 45.02% for the first quarter of 2007.  In setting our
dividend on a quarterly basis, we evaluate our capital adequacy and the quality
of our earnings, and we estimate our capital requirements and our earnings
outlook for the next year.  If our actual operating results
deteriorate significantly from our estimates, we may have to adjust our dividend
level in future quarters.  Stockholders’ equity represented 8.2% of
total assets at March 31, 2008 and December 31, 2007.
 
 The
Company maintains a ratio of stockholders’ equity to total assets that is
considered adequate according to regulatory standards.  The Company
and the Bank are required to comply with capital adequacy standards established
by our regulators.  At March 31, 2008, the Company and the Bank were
in compliance with those standards.  There are no conditions or events
since quarter end that we believe have materially changed our regulatory capital
ratios.
 
 The
following table summarizes the regulatory capital ratios of the Company and the
Bank at March 31, 2008.
 
 Company
      Consolidated
              
              
              Bank
              
              
              Minimum
      Regulatory RequirementTotal
      Capital to Risk Weighted Assets
              
              
              11.1
              %
              
              
              11.1
              %
              
              
              8.0
              %Tier
      1 Capital to Risk Weighted Assets
              
              
              9.9
              %
              
              
              9.8
              %
              
              
              4.0
              %Tier
      1 Capital to Average Assets (Leverage Ratio)
              
              
              8.4
              %
              
              
              8.4
              %
              
              
              4.0
              %
 
 On May
22, 2007, our Board of Directors authorized a plan to repurchase up to 300,000
shares of our common stock over the next twelve-month period.  On
December 18, 2007, our Board authorized an additional stock repurchase program
to repurchase up to 200,000 shares of our common stock over the next
twelve-month period.  We plan to use cash on hand to repurchase our
shares on the open market and through private
transactions.   During the first quarter of 2008, we repurchased
69,315 shares at a total cost of $933,000.  Although we may not
repurchase all 500,000 shares within the allotted time period, the programs will
allow us to repurchase our shares as opportunities arise through either the open
market or privately negotiated transactions at prices deemed appropriate by
management.  At March 31, 2008, there were no shares available to be
repurchased under the original 300,000-share plan and there were 142,935 shares
available to be repurchased under the additional 200,000-share
plan.  The expiration date for this plan is December 18,
2008.
 
 CRITICAL
ACCOUNTING ESTIMATES
 
 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 our 2007 Annual Report on Form
10-K.  The following is a brief description of the Company’s critical
accounting estimates 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.
  25
 Table of Contents
  Loans are
considered impaired if, based on current information and events, it is probable
that the Bank will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan
agreement.  The measurement of impaired loans is based on either the
fair value of the underlying collateral, the present value of the future cash
flows discounted at the historical effective interest rate stipulated in the
loan agreement, or the estimated market value of the loan.  In
measuring the fair value of the collateral, management uses assumptions (e.g.,
discount rate) and methodologies (e.g., comparison to the recent selling price
of similar assets) consistent with those that would be utilized by unrelated
third parties.
 
 Management’s
assessment is inherently subjective, as it requires estimates that are
susceptible to significant revision as more information becomes
available.  Changes in various internal and external environmental
factors including, but not limited to, the financial condition of individual
borrowers, economic conditions, historical loss experience, or the condition of
the various markets in which collateral may be sold may affect the required
level of the allowance for loan losses and the associated provision for loan
losses.  Should these environmental factors change, a different amount
may be reported for the allowance for loan losses and the associated provision
for loan losses.
 
 Estimates of Fair
Value
 The
estimation of fair value is significant to a number of the Company’s assets,
including, but not limited to, investment securities, goodwill, other real
estate owned and other repossessed assets.  These are all recorded at
either fair value or at the lower of cost or fair value.  Fair values
are volatile and may be influenced by a number of
factors.  Circumstances that could cause estimates of the fair value
of certain assets and liabilities to change include a change in prepayment
speeds, discount rates, or market interest rates.  Our estimates and
assumptions are reviewed periodically and the effects of revisions are reflected
in the consolidated financial statements in the period they are determined to be
necessary.
 
 Fair
values for most investment securities are based on quoted market
prices.  If quoted market prices are not available, fair values are
based on the quoted prices of similar instruments.  The fair values of
other real estate owned are typically determined based on appraisals by third
parties, less estimated costs to sell.
 
 Estimates
of fair value are also required in performing an impairment analysis of
goodwill.  The Company reviews goodwill for impairment on at least an
annual basis and whenever events or circumstances indicate the carrying value
may not be recoverable.  An impairment would be indicated if the
carrying value exceeds the fair value of a reporting unit.
 
 Recent
Accounting Pronouncements
 
 In
management’s opinion, there are no recent accounting pronouncements that have
had or will have had a material impact on our earnings or financial position as
of or for the quarter ended March 31, 2008.
 
 ITEM 3.
              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 March 31, 2008, our one-year
management-adjusted gap ratio of 1.02 was within our policy
guidelines.  This is a significant improvement compared to our
one-year gap position of 1.25 at March 31, 2006.
 
  26
 Table of Contents
  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 in an additional effort to hedge our
interest rate risk in a declining interest rate environment.  In
January 2008, we entered into a $25 million notional amount, 3-year 5.75%/6.50%
Prime rate collar contract and a $25 million notional amount, 5-year 6.00%/7.25%
Prime rate collar contract to further hedge against interest rate risk in a
declining rate environment.
 
 The table
below has two gap ratio measurements, regulatory and
management-adjusted.  The regulatory gap considers only contractual
maturities or repricings.  The management-adjusted gap ratio 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 ratio 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.
 
 3-Month
              
              
              6-Month
              
              
              1-Year(Dollars
      In Thousands)Regulatory
      DefinedRate
      Sensitive Assets (RSA)
              
              $
              579,237
              
              
              $
              634,064
              
              
              $
              694,850Rate Sensitive
      Liabilities (RSL)
              
              
              531,139
              
              
              
              657,586
              
              
              
              804,637RSA
      minus RSL (Gap)
              
              $
              48,098
              
              
              $
              (23,522
              )
              
              $
              (109,787
              )Gap
      Ratio (RSA/RSL)
              
              
              1.09
              
              
              
              0.96
              
              
              
              0.86Management-AdjustedRate
      Sensitive Assets (RSA)
              
              $
              621,083
              
              
              $
              715,508
              
              
              $
              848,027Rate Sensitive
      Liabilities (RSL)
              
              
              539,023
              
              
              
              672,672
              
              
              
              832,314RSA
      minus RSL (Gap)
              
              $
              82,060
              
              
              $
              42,836
              
              
              $
              15,713Gap
      Ratio (RSA/RSL)
              
              
              1.15
              
              
              
              1.06
              
              
              
              1.02
 
 We use
simulation analysis to monitor changes in net interest income due to the impact
that changes in market interest rates has on our financial
instruments.  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 March
31, 2008, the simulation model projected net interest income would increase
8.99% over the next year if market rates immediately rose by 200 basis points
and the model projected net interest income to decrease 5.14% over the next year
if market rates immediately fell by 100 basis points.  The model
projects net interest income to decrease 8.04% over the next year if market
rates immediately fell by 200 basis points, but we believe this scenario is
highly unlikely, given the current interest rate levels, and this scenario is
included in the table for illustrative purposes only.  Over the past
two years, we have seen lower volatility in our results due 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.
  27
 Table of Contents
  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
              10.43%
              9.55%+200
      bps
              9.22%
              8.99%+100
      bps
              5.88%
              6.26%-100
      bps
              -5.02%
              -5.14%-200
      bps
              -7.55%
              -8.04%
 
 
 ITEM4.
              CONTROLS
      AND PROCEDURES
 
 A review
and evaluation was performed by the Company’s management, including the
Company’s Chief Executive Officer (the “CEO”) and Chief Financial Officer (the
“CFO”), of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures as of the end of the period covered by this
Quarterly Report.  Based on that review and evaluation, the CEO and
CFO have concluded that the Company’s current disclosure controls and
procedures, as designed and implemented, were effective as of the end of the
period covered by this report in alerting them on a timely basis to material
information relating to the Company required to be included in the Company’s
reports filed or submitted under the Securities Exchange Act of
1934.  There have been no significant changes in the Company’s
internal controls over financial reporting that occurred during the Company’s
most recent fiscal quarter that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial
reporting.
 
 
 PART
II.  OTHER INFORMATION
 
 
 ITEM 1.
                  LEGAL
      PROCEEDINGS
 
 The
nature of the business of PAB and the Bank ordinarily results in a certain
amount of litigation.  Accordingly, we are party to a limited number
of lawsuits incidental to our respective businesses.  In our opinion,
the ultimate disposition of these matters will not have a material adverse
impact on our consolidated financial position or results of
operations.
 
 
 ITEM
      1A.
              RISK
      FACTORS
 
 There has
not been any material change in the risk factors disclosure from that contained
in the Company’s 2007 Annual Report on Form 10-K for the fiscal year ended
December 31, 2007.
  28
 Table of Contents
  ITEM
      2.
              UNREGISTERED
      SALE OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
      SECURITIES
 
 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 programs1January
              
              
              37,600
              
              
              $
              13.35
              
              
              
              37,600
              
              
              
              174,650February
              
              
              23,225
              
              
              
              13.98
              
              
              
              23,225
              
              
              
              151,425March
              
              
              8,490
              
              
              
              12.56
              
              
              
              8,490
              
              
              
              142,935Total
              
              
              69,315
              
              
              $
              13.47
              
              
              
              69,315
              
              
              
              142,935
 
 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 the next twelve
      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 twelve month period.  The plan will expire December 18,
      2008.
 
 ITEM3.
              DEFAULTS
      UPON SENIOR SECURITIES
 
 None
 
 ITEM
      4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS
 
 None
 
 ITEM
      5.
              OTHER
      INFORMATION
 
 None
 
 ITEM6.
              EXHIBITS
 
 31.1
              Rule
      13a-14(a) Certification of CEO31.2
              Rule
      13a-14(a) Certification of CFO32.1
              Section
      1350 Certification of CEO32.2
              Section
      1350 Certification of CFO
  29
 Table of Contents
  SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
 PAB BANKSHARES,
      INC.RegistrantDate:   May
      9, 2008
              
              By:
              /s/ M. Burke Welsh, Jr.M.
      Burke Welsh, Jr.President
      and Chief Executive Officer
                (principal
      executive officer of the registrant)Date:   May
      9, 2008
              
              By:
              /s/ Donald J. Torbert, Jr.Donald
      J. Torbert, Jr.Executive
      Vice President and Chief Financial Officer
                (principal
      financial officer of the registrant)
   30