**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**









**FORM
      10-Q**





**Quarterly
      Report Pursuant to Section 13 or 15(d) of the**


**Securities
      Exchange Act of 1934**





For
      the
      Quarterly Period Ended September 30, 2007 – Commission File Number
      000-25422
















**PAB
      BANKSHARES, INC.**


(A
      Georgia Corporation)


IRS
      Employer Identification Number: 58-1473302





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


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








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 o




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


Large
      accelerated filer o
      Accelerated filer x  Non-accelerated
      filer o





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


Yes
o
      No x





The
      number of shares outstanding of the registrant’s common stock at October 31,
      2007 was 9,270,115 shares.















**TABLE
        OF CONTENTS**
 
 PagePART
                  I
              FINANCIAL
                  INFORMATIONItem
                  1.
              Consolidated
                  Financial StatementsStatements
                  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
              11Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market
                  Risk
              24Item
                  4.
              Controls
                  and Procedures
              26PART
                  II
              OTHER
                  INFORMATIONItem
                  1.
              Legal
                  Proceedings
              26Item
                  1A.
              Risk
                  Factors
              26Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              26Item
                  3.
              Defaults
                  Upon Senior Securities
              26Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              26Item
                  5.
              Other
                  Information
              26Item
                  6.
              Exhibits
              27SIGNATURES
              27
 
 i
 *TABLE
            OF CONTENTS*




**PART
      I.  FINANCIAL INFORMATION**


**Item
      1. Consolidated Financial Statements**





**PAB
                BANKSHARES, INC. AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF CONDITION****AS
                OF SEPTEMBER 30, 2007 AND DECEMBER 31, 2006****September
                30,**
            
            
            **December
                31,****2007**
            
            
            **2006****(UNAUDITED)****ASSETS**Cash
                and due from banks
            
            $
            19,307,343
            
            
            $
            26,712,252Interest-bearing
                deposits in other banks
            
            
            614,435
            
            
            
            550,307Federal
                funds sold
            
            
            33,758,006
            
            
            
            41,612,728Investment
                securities
            
            
            187,713,927
            
            
            
            184,092,858Loans
            
            
            904,082,367
            
            
            
            820,304,092Allowance
                for loan losses
            
            
            (11,497,316
            )
            
            
            (11,006,097
            )Net
                loans
            
            
            892,585,051
            
            
            
            809,297,995Premises
                and equipment, net
            
            
            20,448,307
            
            
            
            20,779,587Goodwill
            
            
            5,984,604
            
            
            
            5,984,604Cash
                value of bank-owned life insurance policies
            
            
            11,778,486
            
            
            
            11,474,964Foreclosed
                assets
            
            
            3,676,301
            
            
            
            987,814Other
                assets
            
            
            19,813,436
            
            
            
            19,310,677Total
                assets
            
            $
            1,195,679,896
            
            
            $
            1,120,803,786**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Deposits:Noninterest-bearing
                demand
            
            $
            91,052,698
            
            
            $
            100,910,593Interest-bearing
                demand and savings
            
            
            362,078,856
            
            
            
            328,828,309Time
            
            
            526,660,046
            
            
            
            478,744,090Total
                deposits
            
            
            979,791,600
            
            
            
            908,482,992Federal
                funds purchased and securities sold under agreements to
                repurchase
            
            
            13,663,740
            
            
            
            7,648,664Advances
                from the Federal Home Loan Bank of Atlanta
            
            
            86,439,410
            
            
            
            90,190,702Guaranteed
                preferred beneficial interests in debentures (trust preferred
                securities)
            
            
            10,310,000
            
            
            
            10,310,000Other
                liabilities
            
            
            8,641,665
            
            
            
            8,855,694Total
                liabilities
            
            
            1,098,846,415
            
            
            
            1,025,488,052**Stockholders'
                equity:**Preferred
                stock, no par value; 1,500,000 shares authorized; no shares
                issued
            
            
            -
            
            
            
            -Common
                stock, no par value; 98,500,000 shares authorized;9,291,215
                and 9,504,969 shares issued and outstanding
            
            
            1,217,065
            
            
            
            1,217,065Additional
                paid-in capital
            
            
            23,858,666
            
            
            
            27,584,852Retained
                earnings
            
            
            72,519,239
            
            
            
            67,476,178Accumulated
                other comprehensive loss
            
            
            (761,489
            )
            
            
            (962,361
            )Total
                stockholders' equity
            
            
            96,833,481
            
            
            
            95,315,734Total
                liabilities and stockholders' equity
            
            $
            1,195,679,896
            
            
            $
            1,120,803,786




See
        accompanying notes to consolidated financial statements.




1
 *TABLE
          OF CONTENTS*


**PAB
                BANKSHARES,INC. AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF INCOME****THREE
                MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND
                2006****(UNAUDITED)****Three
                Months Ended**
              **September
                30,**
            
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****Interest
                income**Interest
                and fees on loans
            
            $
            19,243,282
            
            
            $
            17,716,438
            
            
            $
            55,639,658
            
            
            $
            49,940,744Interest
                and dividends on investment securities:Taxable
            
            
            2,052,386
            
            
            
            1,948,777
            
            
            
            6,150,338
            
            
            
            5,620,769Nontaxable
            
            
            309,373
            
            
            
            261,529
            
            
            
            891,169
            
            
            
            643,030Other
                interest income
            
            
            261,069
            
            
            
            246,363
            
            
            
            981,628
            
            
            
            1,122,259Total
                interest income
            
            
            21,866,110
            
            
            
            20,173,107
            
            
            
            63,662,793
            
            
            
            57,326,802**Interest
                expense**Interest
                on deposits
            
            
            9,755,683
            
            
            
            7,548,569
            
            
            
            27,235,546
            
            
            
            20,294,681Interest
                on Federal Home Loan Bank advances
            
            
            1,005,063
            
            
            
            1,073,909
            
            
            
            3,094,322
            
            
            
            2,766,446Interest
                on other borrowings
            
            
            323,631
            
            
            
            313,151
            
            
            
            923,612
            
            
            
            836,658Total
                interest expense
            
            
            11,084,377
            
            
            
            8,935,629
            
            
            
            31,253,480
            
            
            
            23,897,785Net
                interest income
            
            
            10,781,733
            
            
            
            11,237,478
            
            
            
            32,409,313
            
            
            
            33,429,017**Provision
                for loan losses**
            
            
            400,000
            
            
            
            -
            
            
            
            600,000
            
            
            
            -Net
                interest income after provision for loan losses
            
            
            10,381,733
            
            
            
            11,237,478
            
            
            
            31,809,313
            
            
            
            33,429,017**Other
                income**Service
                charges on deposit accounts
            
            
            916,890
            
            
            
            983,122
            
            
            
            2,657,812
            
            
            
            2,922,378Other
                fee income
            
            
            304,482
            
            
            
            300,019
            
            
            
            921,197
            
            
            
            1,017,317Securities
                transactions, net
            
            
            49,174
            
            
            
            (277,762
            )
            
            
            184,009
            
            
            
            (708,105
            )Other
                noninterest income
            
            
            200,612
            
            
            
            198,603
            
            
            
            545,858
            
            
            
            569,999Total
                other income
            
            
            1,471,158
            
            
            
            1,203,982
            
            
            
            4,308,876
            
            
            
            3,801,589**Other
                expenses**Salaries
                and employee benefits
            
            
            4,698,504
            
            
            
            4,458,783
            
            
            
            14,048,867
            
            
            
            13,395,603Occupancy
                expense of premises
            
            
            621,205
            
            
            
            508,537
            
            
            
            1,720,059
            
            
            
            1,472,213Furniture
                and equipment expense
            
            
            588,564
            
            
            
            594,550
            
            
            
            1,751,808
            
            
            
            1,616,891Other
                noninterest expense
            
            
            1,563,195
            
            
            
            1,438,029
            
            
            
            4,629,466
            
            
            
            4,452,752Total
                other expenses
            
            
            7,471,468
            
            
            
            6,999,899
            
            
            
            22,150,200
            
            
            
            20,937,459Income
                before income tax expense
            
            
            4,381,423
            
            
            
            5,441,561
            
            
            
            13,967,989
            
            
            
            16,293,147**Income
                tax expense**
            
            
            1,523,496
            
            
            
            1,908,063
            
            
            
            4,823,256
            
            
            
            5,856,188Net
                income
            
            $
            2,857,927
            
            
            $
            3,533,498
            
            
            $
            9,144,733
            
            
            $
            10,436,959**Earnings
                per common share**Basic
            
            $
            0.30
            
            
            $
            0.37
            
            
            $
            0.96
            
            
            $
            1.10Diluted
            
            $
            0.30
            
            
            $
            0.36
            
            
            $
            0.95
            
            
            $
            1.07




See
      accompanying notes to consolidated financial statements.




2
 *TABLE
          OF CONTENTS*





**PAB
                BANKSHARES, INC. AND
                SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF COMPREHENSIVE INCOME****THREE
                MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND
                2006****(UNAUDITED)****Three
                Months Ended**
              **September
                30,**
            
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Net
                income
            
            $
            2,857,927
            
            
            $
            3,533,498
            
            
            $
            9,144,733
            
            
            $
            10,436,959Other
                comprehensive income:Unrealized
                gain on cash flow hedge during the period, net of tax of $218,386
                and
                $127,492 for the quarter and $125,844 and $124,237 for the year to
                date
            
            
            405,574
            
            
            
            244,677
            
            
            
            217,320
            
            
            
            238,631Unrealized
                holding gains (losses) on securities available for sale arising during
                the
                period, net of tax (benefit) of $1,033,875 and $1,245,745 for the
                quarter
                and $55,545 and ($94,190) for the year to date
            
            
            1,920,056
            
            
            
            2,313,524
            
            
            
            103,158
            
            
            
            (174,922
            )Reclassification
                adjustment for (gains) losses on securities available for sale included
                in
                net income, net of tax (benefit) of $17,211 and ($97,217) for the
                quarter
                and $64,403 and ($247,837) for the year to date
            
            
            (31,963
            )
            
            
            180,545
            
            
            
            (119,606
            )
            
            
            460,2682,293,667
            
            
            
            2,738,746
            
            
            
            200,872
            
            
            
            523,977Comprehensive
                income
            
            $
            5,151,594
            
            
            $
            6,272,244
            
            
            $
            9,345,605
            
            
            $
            10,960,936





See
      accompanying notes to consolidated financial statements.




3
 *TABLE
          OF CONTENTS*




**PAB
                BANKSHARES, INC. AND
                SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF STOCKHOLDERS’ EQUITY****NINE
                MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED) AND YEAR ENDED DECEMBER
                31,
                2006****Accumulated****Additional**
            
            
            
            
            
            **Other****Common
                Stock**
            
            
            **Paid-in**
            
            
            **Retained**
            
            
            **Comprehensive****Shares**
            
            
            **Amount**
            
            
            **Capital**
            
            
            **Earnings**
            
            
            **Loss**
            
            
            **Total****Balance,
                December 31, 2005**
            
            
            9,469,017
            
            
            $
            1,217,065
            
            
            $
            28,126,032
            
            
            $
            58,872,179
            
            
            $
            (1,214,493
            )
            
            $
            87,000,783Net
                income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            13,735,217
            
            
            
            -
            
            
            
            13,735,217Other
                comprehensive income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            252,132
            
            
            
            252,132Cash
                dividends declared,$0.54
                per share
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (5,131,218
            )
            
            
            -
            
            
            
            (5,131,218
            )Stock
                acquired and cancelled under stock repurchase plan
            
            
            (124,559
            )
            
            
            -
            
            
            
            (2,503,298
            )
            
            
            -
            
            
            
            -
            
            
            
            (2,503,298
            )Stock-based
                compensation
            
            
            -
            
            
            
            -
            
            
            
            290,245
            
            
            
            -
            
            
            
            -
            
            
            
            290,245Stock
                options exercised
            
            
            160,511
            
            
            
            -
            
            
            
            1,671,873
            
            
            
            -
            
            
            
            -
            
            
            
            1,671,873**Balance,
                December 31, 2006**
            
            
            9,504,969
            
            
            
            1,217,065
            
            
            
            27,584,852
            
            
            
            67,476,178
            
            
            
            (962,361
            )
            
            
            95,315,734Net
                income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            9,144,733
            
            
            
            -
            
            
            
            9,144,733Other
                comprehensive income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            200,872
            
            
            
            200,872Cash
                dividends declared,$0.435
                per share
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (4,101,672
            )
            
            
            -
            
            
            
            (4,101,672
            )Stock
                acquired and cancelledunder
                stock repurchase plan
            
            
            (266,392
            )
            
            
            -
            
            
            
            (4,654,611
            )
            
            
            -
            
            
            
            -
            
            
            
            (4,654,611
            )Stock-based
                compensation
            
            
            -
            
            
            
            -
            
            
            
            333,641
            
            
            
            -
            
            
            
            -
            
            
            
            333,641Stock
                options exercised
            
            
            52,638
            
            
            
            -
            
            
            
            594,784
            
            
            
            -
            
            
            
            -
            
            
            
            594,784**Balance,
                September 30, 2007**
            
            
            9,291,215
            
            
            $
            1,217,065
            
            
            $
            23,858,666
            
            
            $
            72,519,239
            
            
            $
            (761,489
            )
            
            $
            96,833,481





See
      accompanying notes to consolidated financial statements.




4
 *TABLE
          OF CONTENTS*





**PAB
                BANKSHARES, INC. AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****NINE
                MONTHS ENDED SEPTEMBER 30, 2007 AND 2006****(UNAUDITED)****Nine
                Months Ended September 30,****2007**
            
            
            **2006****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                income
            
            $
            9,144,733
            
            
            $
            10,436,959Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation,
                amortization and accretion, net
            
            
            1,299,923
            
            
            
            1,330,214Provision
                for loan losses
            
            
            600,000
            
            
            
            -Net
                realized (gain) loss on securities transactions
            
            
            (184,009
            )
            
            
            708,105Gain
                on disposal of assets
            
            
            (20,550
            )
            
            
            (29,991
            )Stock-based
                compensation expense
            
            
            333,641
            
            
            
            225,126Increase
                in cash value of bank-owned life insurance
            
            
            (303,522
            )
            
            
            (294,953
            )Increase
                (decrease) in deferred compensation accrual
            
            
            (235,777
            )
            
            
            116,615Decrease
                in retirement accruals
            
            
            (159,799
            )
            
            
            (172,876
            )Net
                change in taxes receivable and taxes payable
            
            
            (603,892
            )
            
            
            (125,517
            )(Increase)
                decrease in interest receivable
            
            
            417,515
            
            
            
            (932,456
            )Increase
                in interest payable
            
            
            183,047
            
            
            
            526,936Net
                increase in prepaid expenses and other assets
            
            
            (155,142
            )
            
            
            (609,897
            )Net
                increase (decrease) in accrued expenses and other
                liabilities
            
            
            (543,570
            )
            
            
            43,870Net
                cash provided by operating activities
            
            
            9,772,598
            
            
            
            11,222,135**CASH
                FLOWS FROM INVESTING ACTIVITIES**(Increase)
                decrease in interest-bearing deposits in other banks
            
            
            (64,128
            )
            
            
            2,349,310Decrease
                in federal funds sold
            
            
            7,854,722
            
            
            
            5,812,590Purchase
                of debt securities
            
            
            (27,422,030
            )
            
            
            (52,053,443
            )Proceeds
                from sales and calls of debt securities
            
            
            14,443,245
            
            
            
            18,142,477Proceeds
                from maturities and paydowns of debt securities
            
            
            9,383,771
            
            
            
            8,047,330Purchase
                of equity investments
            
            
            (59,892
            )
            
            
            (670,630
            )Redemption
                of equity investments
            
            
            753,035
            
            
            
            338,600Net
                increase in loans
            
            
            (88,079,363
            )
            
            
            (61,214,405
            )Purchase
                of premises and equipment
            
            
            (938,660
            )
            
            
            (3,105,429
            )Proceeds
                from disposal of assets
            
            
            1,524,370
            
            
            
            6,382,771Net
                cash used in investing activities
            
            
            (82,604,930
            )
            
            
            (75,970,829
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Net
                increase in deposits
            
            
            71,308,608
            
            
            
            68,019,981Net
                increase (decrease) in federal funds purchased and securities sold
                under
                repurchase agreements
            
            
            6,015,076
            
            
            
            (286,303
            )Advances
                from the Federal Home Loan Bank
            
            
            47,500,000
            
            
            
            45,000,000Payments
                on Federal Home Loan Bank advances
            
            
            (51,251,292
            )
            
            
            (44,704,718
            )Dividends
                paid
            
            
            (4,085,142
            )
            
            
            (3,655,023
            )Proceeds
                from the exercise of stock options
            
            
            594,784
            
            
            
            1,546,804Acquisition
                of stock under stock repurchase plans
            
            
            (4,654,611
            )
            
            
            (2,493,171
            )Purchase
                of cash flow hedge derivative instrument
            
            
            -
            
            
            
            (451,250
            )Net
                cash provided by financing activities
            
            
            65,427,423
            
            
            
            62,976,320




5
 *TABLE
          OF CONTENTS*


**PAB
                BANKSHARES, INC. AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF CASH FLOWS (CONTINUED)****NINE
                MONTHS ENDED SEPTEMBER 30, 2007 AND 2006****(UNAUDITED)****Nine
                Months Ended September 30,****2007**
            
            
            **2006**Net
                decrease in cash and due from banks
            
            $
            (7,404,909
            )
            
            $
            (1,772,374
            )Cash
                and due from banks at beginning of period
            
            
            26,712,252
            
            
            
            21,196,183Cash
                and due from banks at end of period
            
            $
            19,307,343
            
            
            $
            19,423,809**SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION**Cash
                paid during the period for:Interest
            
            $
            31,070,433
            
            
            $
            23,370,849Taxes
            
            $
            4,503,001
            
            
            $
            5,981,705**NONCASH
                INVESTING AND FINANCING TRANSACTIONS**Increase
                (decrease) in unrealized losses on securities available for
                sale
            
            $
            (25,306
            )
            
            $
            438,993Increase
                in unrealized gain on cash flow hedge
            
            $
            343,164
            
            
            $
            363,118Transfer
                of loans to foreclosed assets
            
            $
            4,192,307
            
            
            $
            7,122,857


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”).  Founded in 1956 in Valdosta, Lowndes
      County, Georgia, the Bank is a state-chartered, member bank of the Federal
      Reserve System.  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 Banking Offices****South
                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
            1**North
                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 and nine
      months ended September 30, 2007 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, 2006.




7
 *TABLE
          OF CONTENTS*




**PAB
      BANKSHARES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





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 and nine months ended September 30, 2007 and 2006 follow:





**Three
                Months Ended**
              **September
                30,**
            
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Basic
                earnings per share:Net
                income
            
            $
            2,857,927
            
            
            $
            3,533,498
            
            
            $
            9,144,733
            
            
            $
            10,436,959Weighted
                average common shares outstanding
            
            
            9,410,321
            
            
            
            9,500,742
            
            
            
            9,474,568
            
            
            
            9,498,962Earnings
                per common share
            
            $
            0.30
            
            
            $
            0.37
            
            
            $
            0.96
            
            
            $
            1.10Diluted
                earnings per share:Net
                income
            
            $
            2,857,927
            
            
            $
            3,533,498
            
            
            $
            9,144,733
            
            
            $
            10,436,959Weighted
                average common shares outstanding
            
            
            9,410,321
            
            
            
            9,500,742
            
            
            
            9,474,568
            
            
            
            9,498,962Effect
                of dilutive stock options
            
            
            131,601
            
            
            
            183,709
            
            
            
            156,607
            
            
            
            208,824Weighted
                average diluted common shares outstanding
            
            
            9,541,922
            
            
            
            9,684,451
            
            
            
            9,631,175
            
            
            
            9,707,786Earnings
                per common share
            
            $
            0.30
            
            
            $
            0.36
            
            
            $
            0.95
            
            
            $
            1.07




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
      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 its derivative financial instruments is included in other assets in the
      Consolidated Statement of Condition.





In
      June
      2006, the Company entered into a $50 million notional amount, 3-year, 8.25%
      Prime rate floor contract to hedge against interest rate risk in a declining
      rate environment.  The premium paid for this contract was
      $451,250.  The contract is classified as a hedge of an exposure to
      changes in the cash flows of a recognized asset (“cash flow
      hedge”).  As a cash flow hedge, the portion of a change in the fair
      value of the derivative that has been deemed highly effective is recognized
      in
      other comprehensive income until the related cash flows from the hedged item
      are
      recognized in earnings.  The initial fair value of the premium paid is
      allocated and recognized in the same future period that the hedged forecasted
      transaction impacts earnings.  At September 30, 2007, the Company
      reported a $217,000 gain, net of a $126,000 tax effect, in other comprehensive
      income related to cash flow hedges.  Included in this tax effect is
      $5,700 from a prior period deferred tax adjustment.  For the three and
      nine month periods ended September 30, 2007, the Company recorded $9,000 of
      interest income on this derivative instrument.  The Company documents,
      both at inception and periodically over the life of the hedge, its analysis
      of
      actual and expected hedge effectiveness.  To the extent that the hedge
      of future cash flows is deemed ineffective, changes in the fair value of the
      derivative are recognized in earnings as a component of other non-interest
      expense.  For the three and nine month periods ended September 30,
      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 September 30, 2007 is shown in the following
      table:





**Notional**
              **amount**
            
            
            **Floor
                rate**
            
            
            **Maturity
                in**
              **months**
            
            
            **Estimated
                fair value at**
              **September
                30, 2007**
            
            
            **Net
                unrealized**
              **gains
                (losses)****Derivatives
                Designated as Cash Flow Hedges:**Hedging
                cash flows on prime-based
                floating rate loans
            
            $
            50,000,000
            
            
            
            8.25
            %
            
            
            21
            
            
            $
            903,000
            
            
            $
            533,000**Total
                Derivative Instruments**
            
            $
            50,000,000
            
            
            
            8.25
            %
            
            
            21
            
            
            $
            903,000
            
            
            $
            533,000




9
 *TABLE
          OF CONTENTS*





**PAB
      BANKSHARES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**








NOTE
                **5.**
            **STOCK
                PLANS AND STOCK-BASED EMPLOYEE
                COMPENSATION**





At
      September 30, 2007, 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 price 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 September 30, 2007, there were
      75,400 options outstanding that were granted under the 1994 Employee Stock
      Option Plan.





Under
      the
      1999 Stock Option Plan, the Board of Directors can grant up to 600,000 stock
      options to directors, employees, consultants and advisors of the
      Company.  On February 28, 2006, the Company’s Board of Directors
      adopted an amendment to the 1999 Plan to increase the maximum aggregate number
      of shares of common stock for which options may be granted from 600,000 shares
      to 1,400,000 shares and to extend the term of the Plan for ten years from the
      date of the adoption of these amendments.  This amendment was
      subsequently approved at the Company’s annual meeting of shareholders on May 23,
      2006.  At September 30, 2007, there were 691,866 shares available for
      grant and there were 559,948 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
      September 30, 2007, there was approximately $843,000 of unrecognized
      compensation cost related to stock-based payments that is expected to be
      recognized over a weighted-average period of 3.45 years.





10
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          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 page 11, are “forward-looking statements” within the meaning of the
      federal securities laws, including, without limitation, statements regarding
      our
      outlook on asset quality, credit losses, loan and deposit growth, interest
      rates, economic conditions, the effects of our de novo branch expansion, and
      the
      anticipated repricing of our deposits and other liabilities, and are based
      upon
      management’s beliefs as well as assumptions made based on data currently
      available to management.  In this Report, the terms “PAB”, “the
      Company”, “we”, “us” or “our” refer to PAB Bankshares, Inc.  When
      words like “anticipate”, “believe”, “intend”, “plan”,  “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 hinder our ability to attract and retain core deposits; (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) legislative or regulatory changes,
      including changes in accounting standards and compliance requirements, may
      adversely affect the businesses in which we are engaged; (5) competitors may
      have greater financial resources and develop products that enable such
      competitors to compete more successfully than we can; (6) our ability to attract
      and retain key personnel can be affected by the increased competition for
      experienced employees in the banking industry; (7) adverse changes may occur
      in
      the bond and equity markets that may impair our ability to liquidate our assets
      or obtain financing; (8) war or terrorist activities may cause further
      deterioration in the economy or cause instability in credit markets; (9)
      restrictions or conditions imposed by our regulators on our operations may
      make
      it more difficult for us to achieve our goals; (10) economic, environmental,
      governmental or other factors may prevent the projected population, residential
      and commercial growth in the markets in which we operate; and (11) the risk
      factors discussed from time to time in the Company’s periodic reports filed with
      the Securities and Exchange Commission (the “SEC”), including but not limited
      to, the Company’s Annual Report on Form 10-K for the year ended December 31,
      2006.  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
                OPERATIONS**




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 2006 Annual Report on Form 10-K, and is qualified in
      its entirety by the foregoing and other more detailed financial information
      appearing elsewhere herein.  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, liquidity
      risk and interest rate risk are the primary factors that we must manage in
      order to be successful.





11
 *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, Gwinnett and Forsyth counties are collectively
      referred to as our “North Georgia” market.  Our offices in Marion, St.
      Johns and Duval 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.”





Over
      the
      next five years, we plan to expand our presence in the Atlanta MSA and other
      North Georgia markets and to build a  franchise in the Jacksonville,
      Florida MSA.  Thus far in 2007, we have opened a full-service branch
      in Snellville (Gwinnett County), Georgia and a loan production office in Cumming
      (Forsyth County), Georgia.  Both of these locations extend our
      presence to the northeast quadrant of the Atlanta MSA from Henry County in
      the
      southeast quadrant of the Atlanta MSA.  We intend to continue to add
      experienced bankers and grow our market share in and around the Atlanta and
      Jacksonville MSAs.





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





**Market/**
            
            Total
            
            Population
            
            Projected
                      Population
            
            Median
                      2007 Household
            
            Household
                      Income
            
            Projected
                      Household IncomeCounty
            
            Population1
            
            Change
                (%)2
            
            Change
                (%)3
            
            Income
                ($)1
            
            Change
                (%)2
            
            Change3**Selected
                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
            
            15.44**North
                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
            
            16.79**State
                of Georgia**
            
            9,654,958
            
            17.94
            
            11.69
            
            55,102
            
            29.09
            
            19.57**Selected
                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
            
            18.69**State
                of Florida**
            
            18,893,813
            
            18.22
            
            12.80
            
            48,591
            
            25.10
            
            17.12**National
                Total**
            
            306,348,230
            
            8.86
            
            6.26
            
            53,154
            
            26.06
            
            17.59











1Based
                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.




12
 *TABLE
          OF CONTENTS*




**FINANCIAL
      CONDITION**





During
      the nine months ended September 30, 2007, our total assets increased $74.9
      million, or 6.7%, to $1.2 billion, due primarily to an increase in total
      deposits of $71.3 million, or 7.9%, to $979.8 million.  Time deposits
      increased $47.9 million, or 10.0%; interest-bearing demand deposits increased
      $33.3 million, or 10.1%; while non-interest bearing demand deposits decreased
      $9.9 million, or 9.8%, on period-end withdrawals and transfers into other
      interest-bearing accounts from several of our larger commercial
      customers.  Over the past year, we have increased our efforts to
      promote retail banking and commercial banking deposit products and
      services.  The introduction of a remote deposit product for commercial
      accounts late in 2006 has been well received in our markets.  Core
      deposit accounts are an important aspect in our long-term strategic plan, and
      we
      have begun an incentive program for our retail branch personnel and our
      commercial lenders to grow deposits, especially noninterest-bearing
      deposits.





Our
      loan
      portfolio increased $83.8 million, or 10.2%, to $904.1 million at September
      30,
      2007 from $820.3 million at December 31, 2006.  We funded the majority
      of this loan growth with the $71.3 million increase in deposits and by reducing
      our balances in federal funds sold by $7.9 million.  Our loan growth
      can be attributed to our presence in some of the fastest growing markets in
      the
      Southeastern United States and strong production from our seasoned
      bankers.  However, there has been a reduction in residential
      construction activity in certain sections of the Atlanta and Jacksonville
      markets.  We expect that this reduction will negatively affect our
      growth over the next year.  Our total loans decreased $1.1 million in
      the third quarter of 2007 due to our response to market conditions.





Approximately
      22% of our loan portfolio is in residential construction and development lending
      and an additional 18% of our loan portfolio is in mortgages on residential
      real
      estate in our markets.  We understand the risks involved in lending on
      residential real estate, and we have underwriting criteria and internal controls
      to manage our risks.  However, we are not immune to credit risk and we
      expect to incur some losses as a result of this real estate
      slowdown.  We are proactive in recognizing our problems, and we intend
      to minimize our losses whenever possible as these problems
      arise.  Additional information on our asset quality is included under
      the heading “Provision for Loan Losses” in our “RESULTS OF OPERATIONS”
discussion below.





The
      following table summarizes our loan and deposit portfolios classified by type
      and market as of September 30, 2007.





**South**
            
            
            **North****As
                of September  30, 2007**
            
            **Georgia**
            
            
            **Georgia**
            
            
            **Florida**
            
            
            **Treasury**
            
            
            **Total**(Dollars
                in Thousands)**Loans**Commercial
                and financial
            
            $
            34,697
            
            
            $
            42,769
            
            
            $
            1,051
            
            
            $
            39
            
            
            $
            78,556Agricultural
                (including loans secured by farmland)
            
            
            34,597
            
            
            
            4,743
            
            
            
            3,268
            
            
            
            -
            
            
            
            42,608Real
                estate – construction
            
            
            73,119
            
            
            
            219,109
            
            
            
            46,346
            
            
            
            445
            
            
            
            339,019Real
                estate - commercial
            
            
            88,313
            
            
            
            141,969
            
            
            
            22,852
            
            
            
            4,707
            
            
            
            257,841Real
                estate - residential
            
            
            126,756
            
            
            
            26,560
            
            
            
            8,681
            
            
            
            2,970
            
            
            
            164,967Installment
                loans to individuals and other loans
            
            
            14,840
            
            
            
            5,030
            
            
            
            73
            
            
            
            1,748
            
            
            
            21,691372,322
            
            
            
            440,180
            
            
            
            82,271
            
            
            
            9,909
            
            
            
            904,682Deferred
                loan fees and unearned interest, net
            
            
            278
            
            
            
            (501
            )
            
            
            (388
            )
            
            
            11
            
            
            
            (600
            )Total
                loans
            
            $
            372,600
            
            
            $
            439,679
            
            
            $
            81,883
            
            
            $
            9,920
            
            
            $
            904,082Percentage
                of total
            
            
            41.2
            %
            
            
            48.5
            %
            
            
            9.1
            %
            
            
            1.2
            %
            
            
            100.0
            %**Deposits**Noninterest-bearing
                demand
            
            $
            64,384
            
            
            $
            15,269
            
            
            $
            5,407
            
            
            $
            5,993
            
            
            $
            91,053Interest-bearing
                demand and savings
            
            
            274,021
            
            
            
            51,515
            
            
            
            36,088
            
            
            
            455
            
            
            
            362,079Time
                less than $100,000
            
            
            166,805
            
            
            
            52,401
            
            
            
            95,632
            
            
            
            694
            
            
            
            315,532Time
                greater than or equal to $100,000
            
            
            86,618
            
            
            
            42,495
            
            
            
            43,216
            
            
            
            200
            
            
            
            172,529Brokered
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            38,599
            
            
            
            38,599Total
                deposits
            
            $
            591,828
            
            
            $
            161,680
            
            
            $
            180,343
            
            
            $
            45,941
            
            
            $
            979,792Percentage
                of total
            
            
            60.4
            %
            
            
            16.5
            %
            
            
            18.4
            %
            
            
            4.7
            %
            
            
            100.0
            %




13
 *TABLE
          OF CONTENTS*




In
      addition to the geographic concentrations noted in the tables above, we had
      approximately $82.3 million in loans secured by real estate in Florida to
      customers of our South Georgia, North Georgia and Treasury offices.





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
            
            Sep-07
            
            
            Jun-07
            
            
            Mar-07
            
            
            Dec-06
            
            
            Sep-06(Dollars
                in Thousands)Commercial
                and financial
            
            $
            78,556
            
            
            $
            78,048
            
            
            $
            69,347
            
            
            $
            66,376
            
            
            $
            60,413Agricultural
                (including loans securedby
                farmland)
            
            
            42,608
            
            
            
            46,973
            
            
            
            38,102
            
            
            
            43,302
            
            
            
            44,716Real
                estate - construction
            
            
            339,019
            
            
            
            328,347
            
            
            
            323,837
            
            
            
            295,246
            
            
            
            297,026Real
                estate – commercial
            
            
            257,841
            
            
            
            270,978
            
            
            
            252,654
            
            
            
            255,462
            
            
            
            253,586Real
                estate – residential
            
            
            164,967
            
            
            
            161,404
            
            
            
            153,025
            
            
            
            142,501
            
            
            
            133,983Installment
                loans to individuals andother
                loans
            
            
            21,691
            
            
            
            20,246
            
            
            
            17,958
            
            
            
            18,414
            
            
            
            18,211904,682
            
            
            
            905,996
            
            
            
            854,923
            
            
            
            821,301
            
            
            
            807,935Deferred
                  loan fees and unearnedinterest, net
            
            
            (600
            )
            
            
            (839
            )
            
            
            (847
            )
            
            
            (997
            )
            
            
            (1,299
            )904,082
            
            
            
            905,157
            
            
            
            854,076
            
            
            
            820,304
            
            
            
            806,636Allowance
                for loan losses
            
            
            (11,497
            )
            
            
            (11,342
            )
            
            
            (11,085
            )
            
            
            (11,006
            )
            
            
            (10,686
            )$
            892,585
            
            
            $
            893,815
            
            
            $
            842,991
            
            
            $
            809,298
            
            
            $
            795,950








The
      percentage of loans outstanding by loan type at the indicated dates is presented
      in the following table:





As
                of Quarter End
            
            Sep-07
            
            
            Jun-07
            
            
            Mar-07
            
            
            Dec-06
            
            
            Sep-06Commercial
                and financial
            
            
            8.69
            %
            
            
            8.62
            %
            
            
            8.12
            %
            
            
            8.09
            %
            
            
            7.49
            %Agricultural
                (including loans secured by
                farmland)
            
            
            4.71
            %
            
            
            5.19
            %
            
            
            4.46
            %
            
            
            5.28
            %
            
            
            5.54
            %Real
                estate - construction
            
            
            37.50
            %
            
            
            36.27
            %
            
            
            37.92
            %
            
            
            35.99
            %
            
            
            36.82
            %Real
                estate - commercial
            
            
            28.52
            %
            
            
            29.94
            %
            
            
            29.58
            %
            
            
            31.14
            %
            
            
            31.44
            %Real
                estate - residential
            
            
            18.25
            %
            
            
            17.83
            %
            
            
            17.92
            %
            
            
            17.37
            %
            
            
            16.61
            %Installment
                loans to individuals andother
                loans
            
            
            2.40
            %
            
            
            2.24
            %
            
            
            2.10
            %
            
            
            2.25
            %
            
            
            2.26
            %100.07
            %
            
            
            100.09
            %
            
            
            100.10
            %
            
            
            100.12
            %
            
            
            100.16
            %Deferred
                loan fees and unearnedinterest,
                net
            
            
            -0.07
            %
            
            
            -0.09
            %
            
            
            -0.10
            %
            
            
            -0.12
            %
            
            
            -0.16
            %Total
                loans
            
            
            100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %Allowance
                for loan losses
            
            
            -1.27
            %
            
            
            -1.25
            %
            
            
            -1.30
            %
            
            
            -1.34
            %
            
            
            -1.32
            %Net
                loans
            
            
            98.73
            %
            
            
            98.75
            %
            
            
            98.70
            %
            
            
            98.66
            %
            
            
            98.68
            %




14
 *TABLE
          OF CONTENTS*





With
      a
      total of 66.0% of our loan portfolio concentrated in construction and
      development and commercial real estate loans, we carefully monitor and evaluate
      trends in our residential real estate markets and periodically adjust our
      strategies and underwriting requirements to manage the risks associated with
      these types of loans.   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.





For
                the Quarter Ended
            
            Sep-07
            
            
            Sep-06
            
            
            Sep-05
            
            
            Sep-04(#
                of Months Supply)**Housing
                Inventory:**Henry
                County
            
            
            10.8
            
            
            
            8.8
            
            
            
            8.2
            
            
            
            8.0Clayton
                County
            
            
            11.7
            
            
            
            11.5
            
            
            
            5.9
            
            
            
            7.4Newton
                County
            
            
            9.8
            
            
            
            9.1
            
            
            
            7.6
            
            
            
            8.2South
                Fulton County
            
            
            8.0
            
            
            
            8.2
            
            
            
            8.5
            
            
            
            10.1**Vacant
                Developed Lots Inventory:**Henry
                County
            
            
            60.0
            
            
            
            26.0
            
            
            
            25.0
            
            
            
            22.0Clayton
                County
            
            
            39.0
            
            
            
            25.0
            
            
            
            20.0
            
            
            
            12.0Newton
                County
            
            
            45.0
            
            
            
            21.0
            
            
            
            25.0
            
            
            
            20.0South
                Fulton County
            
            
            43.0
            
            
            
            22.0
            
            
            
            22.0
            
            
            
            19.0








Below
      is
      a table showing the collateral distribution of our construction and development
      and commercial real estate loan portfolios as of September 30,
      2007.





Construction
                and Development
            
            
            %
                of Total
            
            
            
            Commercial
                Real Estate
            
            
            %
                of Total(Dollars
                in
                Thousands)Acquisition
                and Development:
            
            
            
            
            
            
            Owner-occupied:1-4
                family residential
            
            $
            132,263
            
            
            
            39.01
            %
            Office
            
            $
            33,993
            
            
            
            13.18
            %Commercial
                and multi-family
            
            
            95,447
            
            
            
            28.15
            %
            Retail
            
            
            21,907
            
            
            
            8.50
            %Construction:
            
            
            
            
            
            
            
            
            Other
            
            
            33,240
            
            
            
            12.89
            %1-4
                family residential spec
            
            
            41,916
            
            
            
            12.37
            %
            Not
                owner-occupied:1-4
                family residential pre-sold
            
            
            1,681
            
            
            
            0.50
            %
            Office
            
            
            29,626
            
            
            
            11.49
            %1-4
                family residential other
            
            
            21,160
            
            
            
            6.24
            %
            Retail
            
            
            36,136
            
            
            
            14.01
            %Commercial
                owner-occupied
            
            
            6,512
            
            
            
            1.92
            %
            Other
            
            
            27,070
            
            
            
            10.50
            %Commercial
                not owner-occupied
            
            
            16,942
            
            
            
            5.00
            %
            Other:Hotel/motel
            
            
            12,552
            
            
            
            3.70
            %
            Hotel/motel
            
            
            12,624
            
            
            
            4.90
            %Multi-family
                properties
            
            
            8,810
            
            
            
            2.60
            %
            Industrial
            
            
            2,679
            
            
            
            1.04
            %Special
                purpose property
            
            
            1,353
            
            
            
            0.40
            %
            Multi-family
                properties
            
            
            17,261
            
            
            
            6.69
            %Other
            
            
            383
            
            
            
            0.11
            %
            Special
                purpose property
            
            
            43,305
            
            
            
            16.80
            %Total
                Construction and Development
            
            $
            339,019
            
            
            
            100.00
            %
            Total
                Commercial Real Estate
            
            $
            257,841
            
            
            
            100.00
            %








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
            
            Sep-07
            
            
            Jun-07
            
            
            Mar-07
            
            
            Dec-06
            
            
            Sep-06(Dollars
                In Thousands)Noninterest-bearing
                demand
            
            $
            91,053
            
            
            $
            98,862
            
            
            $
            107,917
            
            
            $
            100,911
            
            
            $
            100,703Interest-bearing
                demand and savings
            
            
            362,079
            
            
            
            349,720
            
            
            
            371,484
            
            
            
            328,828
            
            
            
            316,385Time
                less than $100,000
            
            
            315,532
            
            
            
            300,856
            
            
            
            287,982
            
            
            
            279,936
            
            
            
            273,697Time
                greater than or equal to $100,000
            
            
            172,529
            
            
            
            163,973
            
            
            
            158,464
            
            
            
            161,054
            
            
            
            151,075Brokered
            
            
            38,599
            
            
            
            32,436
            
            
            
            28,569
            
            
            
            37,754
            
            
            
            41,841Total
                deposits
            
            $
            979,792
            
            
            $
            945,847
            
            
            $
            954,416
            
            
            $
            908,483
            
            
            $
            883,701





15
 *TABLE
          OF CONTENTS*




The
      percentage of deposits outstanding by deposit type at the indicated dates is
      presented in the following table:





As
                of Quarter End
            
            Sep-07
            
            
            Jun-07
            
            
            Mar-07
            
            
            Dec-06
            
            
            Sep-06Noninterest-bearing
                demand
            
            
            9.29
            %
            
            
            10.45
            %
            
            
            11.31
            %
            
            
            11.11
            %
            
            
            11.40
            %Interest-bearing
                demand and savings
            
            
            36.96
            %
            
            
            36.98
            %
            
            
            38.92
            %
            
            
            36.19
            %
            
            
            35.80
            %Time
                less than $100,000
            
            
            32.20
            %
            
            
            31.78
            %
            
            
            30.18
            %
            
            
            30.81
            %
            
            
            30.97
            %Time
                greater than or equal to $100,000
            
            
            17.61
            %
            
            
            17.36
            %
            
            
            16.60
            %
            
            
            17.73
            %
            
            
            17.10
            %Brokered
            
            
            3.94
            %
            
            
            3.43
            %
            
            
            2.99
            %
            
            
            4.16
            %
            
            
            4.73
            %Total
                deposits
            
            
            100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %








Stockholders’
      equity represented 8.1% of total assets at quarter end, a decrease compared
      to
      8.5% at December 31, 2006.  Total stockholders’ equity has increased
      $1.5 million, or 1.6%, since December 31, 2006.  This increase is
      primarily the net result of  $9.1 million in earnings, less $4.1
      million in dividends and $4.7 million in stock repurchased and cancelled through
      our stock buyback program.  For the first three quarters of 2007, we
      paid $0.435 per common share in dividends, compared to $0.40 paid in the first
      three quarters of 2006.  Our dividend payout ratios for the third
      quarter and the first nine months of 2007 were 47.1% and 44.9%, respectively,
      compared to 37.6% and 36.4% for the third quarter and the first nine months
      of
      2006.








**RESULTS
      OF OPERATIONS**





Net
      income for the three months ended September 30, 2007 was $2.9 million, or $0.30
      per diluted share, as compared to $3.5 million, or $0.36 per diluted share,
      during the same period in 2006.  The $676,000, or 19.1%, decrease in
      net income is the net result of a $456,000 decrease in net interest income
      (or
      $430,000 on a taxable-equivalent basis), a $400,000 increase in the provision
      for loan losses and a $472,000 increase in other expenses, offset by a $267,000
      increase in other income and a $385,000 decrease in income tax
      expense.  The impact on our quarterly earnings from our three de novo
      branches and the loan production office opened between October 2006 and February
      2007 was approximately $385,000, or approximately $0.04 per diluted
      share.  Our return on average assets (“ROA”) and return on average
      equity (“ROE”) for the three months ended September 30, 2007 were 0.96% and
      11.63%, respectively, compared to a 1.31% ROA and a 15.27% ROE for the same
      period in 2006.





Net
      income for the nine months ended September 30, 2007 was $9.1 million, or $0.95
      per diluted share, as compared to $10.4 million, or $1.07 per diluted share,
      during the same period in 2006.  The $1.3 million, or 12.4%, decrease
      in net income is the net result of a $1.0 million decrease in net interest
      income (or $886,000 on a taxable-equivalent basis), a $600,000 increase in
      the
      provision for loan losses and a $1.2 million increase in other expenses, offset
      by a $507,000 increase in other income and a $1.0 million decrease in income
      tax
      expense.  The impact on our year to date earnings from our three de
      novo branches and the loan production office opened between October 2006 and
      February 2007 was approximately $1.1 million, or approximately $0.12 per diluted
      share.  Our ROA and ROE for the nine months ended September 30, 2007
      were 1.06% and 12.49%, respectively, compared to a 1.32% ROA and a 15.43% ROE
      for the same period in 2006.





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





*Net
      Interest Income*


The
      primary component of our profitability is net interest income, or the difference
      between the interest income earned on assets, primarily loans and investments,
      and interest paid on liabilities, primarily deposits and other borrowed
      funds.  For the three months ended September 30, 2007, our net
      interest income on a taxable-equivalent basis was $10.9 million, a 3.8% decrease
      from the $11.4 million in net interest income for the third quarter of
      2006.  The decrease in net interest income is due to a 24.1% increase
      in interest expense offset in part by a 8.4% increase in interest
      income.  During the third quarter of 2007, our average earning assets
      were 10.9% higher compared to the same period in 2006.  The average
      balances of our interest-bearing liabilities increased by 12.6% to fund the
      asset growth.  The average yield on our earning assets decreased 18
      basis points from 8.00% for the third quarter of 2006, to 7.82% for the third
      quarter of 2007.  However, the average rates paid for our funds
      increased 41 basis points from 4.06% for the third quarter of 2006, to 4.48%
      for
      the third quarter of 2007.





16
 *TABLE
          OF CONTENTS*




Our
      net
      interest spread, or the difference between our average yield on earning assets
      and the average rate paid on our interest-bearing liabilities, declined by
      59
      basis points from 3.94% in the third quarter of 2006, to 3.34% for the same
      period in 2007.  Although market conditions had an impact, the decline
      on our net interest spread is primarily the result of a conscious effort on
      our
      part to compete and grow market share in our de novo markets and to more
      actively manage our interest rate risk.  Our plan has been to leverage
      our strong capital position through growth in our de novo
      markets.  However, a slowdown in the real estate markets has tempered
      that growth thus far in 2007.  To reduce our sensitivity to changes in
      interest rates and in anticipation of a decline in short term interest rates
      and
      a return to a more positively-sloped interest rate curve, we lengthened the
      duration on our loans and investments and shortened the duration of our
      liabilities.  Refer to Item 3 “Quantitative and Qualitative
      Disclosures About Market Risk” in this report for further discussion regarding
      our management of interest rate risk.





For
      the
      nine months ended September 30, 2007, our net interest income on a
      taxable-equivalent basis was $32.9 million, a 2.6% decrease from the $33.8
      million in net interest income for the same period in 2006.  The
      decrease in net interest income is due primarily to the same factors described
      above for the quarterly results.





The
      net
      interest margin is net interest income expressed as a percentage of average
      earning assets.   Our net interest margin for the third quarter
      of 2007 was 3.89%, 59 basis points lower than the 4.48% recorded for the third
      quarter of 2006.  The reduction in short-term interest rates during
      the third quarter caused our earning assets to re-price downwards, while our
      interest-bearing liabilities continued to re-price
      upwards.   Improvement of our net interest margin for the
      remainder of 2007 is not expected considering the interest rate environment
      and
      narrowing spreads on our earning assets.





The
      following tables detail 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 and nine months ended September
      30, 2007 and 2006.  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 September 30,
            
            
            
            
            2007
            
            
            
            
            
            
            
            
            2006Interest
            
            
            Average
            
            
            
            
            
            Interest
            
            
            AverageAverage
            
            
            Income/
            
            
            Yield/
            
            
            Average
            
            
            Income/
            
            
            Yield/Balance
            
            
            Expense
            
            
            Rate
            
            
            Balance
            
            
            Expense
            
            
            Rate(Dollars
                In Thousands)Interest-earning
                assets:Loans
            
            $
            905,931
            
            
            $
            19,243
            
            
            
            8.43
            %
            
            $
            805,732
            
            
            $
            17,717
            
            
            
            8.72
            %Investment
                securities:Taxable
            
            
            159,089
            
            
            
            2,052
            
            
            
            5.12
            %
            
            
            155,807
            
            
            
            1,949
            
            
            
            4.96
            %Nontaxable
            
            
            31,503
            
            
            
            476
            
            
            
            5.99
            %
            
            
            27,050
            
            
            
            402
            
            
            
            5.90
            %Other
                short-term investments
            
            
            21,329
            
            
            
            261
            
            
            
            4.86
            %
            
            
            19,327
            
            
            
            246
            
            
            
            5.06
            %Total
                interest-earning assets
            
            $
            1,117,852
            
            
            $
            22,032
            
            
            
            7.82
            %
            
            $
            1,007,916
            
            
            $
            20,314
            
            
            
            8.00
            %Interest-bearing
                liabilities:Demand
                deposits
            
            $
            317,651
            
            
            $
            2,983
            
            
            
            3.73
            %
            
            $
            271,228
            
            
            $
            2,281
            
            
            
            3.34
            %Savings
                deposits
            
            
            37,494
            
            
            
            146
            
            
            
            1.55
            %
            
            
            38,701
            
            
            
            143
            
            
            
            1.47
            %Time
                deposits
            
            
            516,895
            
            
            
            6,627
            
            
            
            5.09
            %
            
            
            454,902
            
            
            
            5,125
            
            
            
            4.47
            %FHLB
                advances
            
            
            87,333
            
            
            
            1,005
            
            
            
            4.57
            %
            
            
            90,423
            
            
            
            1,074
            
            
            
            4.71
            %Notes
                payable
            
            
            10,310
            
            
            
            184
            
            
            
            7.09
            %
            
            
            10,310
            
            
            
            240
            
            
            
            9.25
            %Other
                short-term borrowings
            
            
            12,826
            
            
            
            139
            
            
            
            4.31
            %
            
            
            7,240
            
            
            
            73
            
            
            
            3.99
            %Total
                interest-bearing liabilities
            
            $
            982,509
            
            
            $
            11,084
            
            
            
            4.48
            %
            
            $
            872,804
            
            
            $
            8,936
            
            
            
            4.06
            %Interest
                rate spread
            
            
            
            
            
            
            
            
            
            
            3.34
            %
            
            
            
            
            
            
            
            
            
            
            3.94
            %Net
                interest income
            
            
            
            
            
            $
            10,948
            
            
            
            
            
            
            
            
            
            
            $
            11,378Net
                interest margin
            
            
            
            
            
            
            
            
            
            
            3.89
            %
            
            
            
            
            
            
            
            
            
            
            4.48
            %




17
 *TABLE
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For
                the Nine Months Ended September 30,
            
            
            
            
            2007
            
            
            
            
            
            
            
            
            2006Interest
            
            
            Average
            
            
            
            
            
            Interest
            
            
            AverageAverage
            
            
            Income/
            
            
            Yield/
            
            
            Average
            
            
            Income/
            
            
            Yield/Balance
            
            
            Expense
            
            
            Rate
            
            
            Balance
            
            
            Expense
            
            
            Rate(Dollars
                In Thousands)Interest-earning
                assets:Loans
            
            $
            872,591
            
            
            $
            55,640
            
            
            
            8.53
            %
            
            $
            785,148
            
            
            $
            49,941
            
            
            
            8.50
            %Investment
                securities:Taxable
            
            
            159,758
            
            
            
            6,150
            
            
            
            5.15
            %
            
            
            153,208
            
            
            
            5,621
            
            
            
            4.91
            %Nontaxable
            
            
            30,410
            
            
            
            1,371
            
            
            
            6.03
            %
            
            
            22,481
            
            
            
            989
            
            
            
            5.88
            %Other
                short-term investments
            
            
            25,096
            
            
            
            981
            
            
            
            5.23
            %
            
            
            31,882
            
            
            
            1,122
            
            
            
            4.71
            %Total
                interest-earning assets
            
            $
            1,087,855
            
            
            $
            64,142
            
            
            
            7.88
            %
            
            $
            992,719
            
            
            $
            57,673
            
            
            
            7.77
            %Interest-bearing
                liabilities:Demand
                deposits
            
            $
            308,984
            
            
            $
            8,393
            
            
            
            3.63
            %
            
            $
            264,187
            
            
            $
            5,912
            
            
            
            2.99
            %Savings
                deposits
            
            
            37,689
            
            
            
            444
            
            
            
            1.57
            %
            
            
            39,991
            
            
            
            384
            
            
            
            1.29
            %Time
                deposits
            
            
            491,710
            
            
            
            18,399
            
            
            
            5.00
            %
            
            
            444,502
            
            
            
            13,998
            
            
            
            4.21
            %FHLB
                advances
            
            
            89,309
            
            
            
            3,094
            
            
            
            4.63
            %
            
            
            90,062
            
            
            
            2,767
            
            
            
            4.11
            %Notes
                payable
            
            
            10,310
            
            
            
            546
            
            
            
            7.08
            %
            
            
            10,310
            
            
            
            686
            
            
            
            8.90
            %Other
                short-term borrowings
            
            
            11,727
            
            
            
            377
            
            
            
            4.30
            %
            
            
            6,445
            
            
            
            151
            
            
            
            3.12
            %Total
                interest-bearing liabilities
            
            $
            949,729
            
            
            $
            31,253
            
            
            
            4.40
            %
            
            $
            855,497
            
            
            $
            23,898
            
            
            
            3.74
            %Interest
                rate spread
            
            
            
            
            
            
            
            
            
            
            3.48
            %
            
            
            
            
            
            
            
            
            
            
            4.03
            %Net
                interest income
            
            
            
            
            
            $
            32,889
            
            
            
            
            
            
            
            
            
            
            $
            33,775Net
                interest margin
            
            
            
            
            
            
            
            
            
            
            4.04
            %
            
            
            
            
            
            
            
            
            
            
            4.55
            %





*Provision
      for Loan Losses*





During
      the third quarter of 2007, we provided $400,000 to our allowance for loan losses
      due to an increase in nonperforming loans and concerns over real estate
      market conditions.  Additional provisions for loan losses in the
      fourth quarter of 2007 may be warranted if, among other factors, further
      weakness in real estate is observed in our markets or if our asset quality
      deteriorates from current levels.





For
      the
      year to date, we have charged-off $426,000 in bad debts and recovered $317,000
      in previously charged-off loans.  The $109,000 in net charge-offs for
      the year to date results in an annualized 0.02% ratio of net charge-offs to
      average loans.  In 2006, we had a net charge-off ratio of
      0.01%.  Including the 2007 annualized results, we have a five-year
      average net charge-off ratio of 0.09%.  Given the noted slowdown in
      real estate activity in our markets and an expected increase in nonperforming
      assets over the next few quarters, we expect our net charge-offs over the
      next year to increase to a level that more closely resembles our five-year
      average net charge-off ratio.





18
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Our
      nonperforming loans increased by 9 basis points to 0.58% of total loans at
      September 30, 2007 from 0.49% of total loans at December 31, 2006, due primarily
      to the delinquency of four relationships totaling $4.3 million in construction
      and development loans in our Atlanta and Athens, Georgia
      markets.  During the first week of October 2007, we foreclosed on $1.6
      million of these loans.  The table below summarizes our levels of
      nonperforming loans over the past five quarters.





As
                of Quarter End
            
            Sep-07
            
            
            Jun-07
            
            
            Mar-07
            
            
            Dec-06
            
            
            Sep-06(Dollars
                In Thousands)Loans
                accounted for on a nonaccrual basis
            
            $
            5,185
            
            
            $
            1,986
            
            
            $
            4,192
            
            
            $
            4,013
            
            
            $
            1,928Accruing
                loans which are contractually past due 90 days or more as to principal
                or
                interest payments
            
            
            34
            
            
            
            27
            
            
            
            69
            
            
            
            34
            
            
            
            40Total
                nonperforming loans
            
            $
            5,219
            
            
            $
            2,013
            
            
            $
            4,261
            
            
            $
            4,047
            
            
            $
            1,968Total
                nonperforming loans as a percentage of total loans
            
            
            0.58
            %
            
            
            0.22
            %
            
            
            0.50
            %
            
            
            0.49
            %
            
            
            0.24
            %





Total
      loans past due 30-89 days and not categorized as a nonperforming loan amounted
      to $3.8 million, or 0.42% of total loans at September 30, 2007, a 46 basis
      point
      decrease compared to a 0.88% ratio at June 30, 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.





At
      September 30, 2007, the allowance for loan losses as a percentage of total
      loans
      was 1.27%, compared to 1.34% at December 31, 2006.   The decrease
      in this ratio is due to the increase in outstanding loans of $83.8 million
      and
      the $109,000 recorded in net charge-offs, offset by a $600,000 provision for
      loan losses in the first nine months of 2007.





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 loan lines 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:


·
            levels
                of and trends in delinquencies and impaired
                loans;


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


·
            trends
                in volume and terms of loans;


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


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


·
            national
                and local economic trends and
                conditions;


·
            industry
                conditions; and


·
            effects
                of changes in credit
                concentrations.





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.




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*Other
      Income*


A
      summary
      of noninterest income follows:





Three
                Months Ended
              September
                30,
            
            
            
            
            
            Nine
                Months Ended
              September
                30,2007
            
            
            2006
            
            
            Pct.
                Chg.
            
            
            2007
            
            
            2006
            
            
            Pct.
                Chg.(Dollars
                in Thousands)Noninterest
                income:Service
                charges on deposit accounts
            
            $
            917
            
            
            $
            983
            
            
            
            -6.7
            %
            
            $
            2,658
            
            
            $
            2,923
            
            
            
            -9.1
            %Mortgage
                origination fees
            
            
            90
            
            
            
            111
            
            
            
            -18.9
            %
            
            
            262
            
            
            
            388
            
            
            
            -32.5
            %ATM/debit
                card fee income
            
            
            161
            
            
            
            141
            
            
            
            14.2
            %
            
            
            475
            
            
            
            421
            
            
            
            12.8
            %Securities
                transactions, net
            
            
            49
            
            
            
            (278
            )
            
            
            117.6
            %
            
            
            184
            
            
            
            (708
            )
            
            
            126.0
            %Earnings
                on bank-owned life insurance
            
            
            103
            
            
            
            105
            
            
            
            -1.9
            %
            
            
            304
            
            
            
            295
            
            
            
            3.1
            %Gain
                (loss) on disposal of assets
            
            
            28
            
            
            
            17
            
            
            
            64.7
            %
            
            
            21
            
            
            
            27
            
            
            
            -22.2
            %Other
                noninterest income
            
            
            123
            
            
            
            125
            
            
            
            -1.6
            %
            
            
            405
            
            
            
            456
            
            
            
            -11.2
            %Total
                noninterest income
            
            $
            1,471
            
            
            $
            1,204
            
            
            
            22.2
            %
            
            $
            4,309
            
            
            $
            3,802
            
            
            
            13.3
            %Noninterest
                income (annualized) as a percentage of average assets
            
            
            0.49
            %
            
            
            0.45
            %
            
            
            
            
            
            
            0.50
            %
            
            
            0.48
            %





We
      have
      continued to see a decline in our service charges on deposit accounts due to
      competitive pricing and the continuing promotion of a free checking product
      with
      no monthly service fees.  Mortgage origination fees decreased as
      refinancing activity has slowed and due to unexpected turnover in mortgage
      originators.





Fee
      income from ATM and debit cards increased as the volume of point-of-sale
      transactions continues to increase.  We have also placed five
      additional ATMs in service over the past year.  However, we have begun
      to offer a no-fee ATM deposit product in select markets for competitive reasons,
      which may reduce our ATM fee income opportunities going forward.





During
      the first quarter of 2006, we sold $12.0 million in lower-yielding, cash flow
      bonds and replaced them with higher-yielding, call protected bonds to protect
      us
      in a declining interest rate environment.  During the third quarter of
      2006, we sold a $5.0 million 4% Agency bond and replaced it with a 6% Agency
      bond.  We incurred a net loss of $707,000 on these securities
      transactions that we expect to recover in the form of an increase in interest
      income over the next few years.  This is compared to a $184,000 gain
      on the sale of securities recorded in the first nine months of
      2007.  Excluding the net gain/loss on securities transactions, total
      noninterest income would have decreased $385,000, or 8.5%, for the first nine
      months of 2007 compared to the same period in 2006.




20
 *TABLE
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*Other
      Expenses*


A
      summary
      of noninterest expense follows:





Three
                Months Ended
              September
                30,
            
            
            
            
            
            Nine
                Months Ended
              September
                30,2007
            
            
            2006
            
            
            Pct.
                Chg.
            
            
            2007
            
            
            2006
            
            
            Pct.
                Chg.(Dollars
                in Thousands)Noninterest
                expenses:Salaries
                and wages
            
            $
            4,057
            
            
            $
            3,831
            
            
            
            5.9
            %
            
            $
            12,322
            
            
            $
            11,471
            
            
            
            7.4
            %Deferred
                loan cost
            
            
            (508
            )
            
            
            (445
            )
            
            
            14.2
            %
            
            
            (1,513
            )
            
            
            (1,323
            )
            
            
            14.4
            %Employee
                benefits
            
            
            1,150
            
            
            
            1,073
            
            
            
            7.2
            %
            
            
            3,240
            
            
            
            3,248
            
            
            
            -0.2
            %Net
                occupancy expense of premises
            
            
            621
            
            
            
            509
            
            
            
            22.0
            %
            
            
            1,720
            
            
            
            1,472
            
            
            
            16.8
            %Furniture
                and equipment expense
            
            
            588
            
            
            
            595
            
            
            
            -1.2
            %
            
            
            1,752
            
            
            
            1,617
            
            
            
            8.3
            %Advertising
                and business development
            
            
            145
            
            
            
            117
            
            
            
            23.9
            %
            
            
            471
            
            
            
            419
            
            
            
            12.4
            %Supplies
                and printing
            
            
            101
            
            
            
            111
            
            
            
            -9.0
            %
            
            
            354
            
            
            
            378
            
            
            
            -6.3
            %Telephone
                and internet charges
            
            
            160
            
            
            
            117
            
            
            
            36.8
            %
            
            
            455
            
            
            
            337
            
            
            
            35.0
            %Postage
                and courier
            
            
            158
            
            
            
            150
            
            
            
            5.3
            %
            
            
            462
            
            
            
            427
            
            
            
            8.2
            %Legal
                and accounting fees
            
            
            149
            
            
            
            101
            
            
            
            47.5
            %
            
            
            390
            
            
            
            321
            
            
            
            21.5
            %Director
                fees and expenses
            
            
            78
            
            
            
            93
            
            
            
            -16.1
            %
            
            
            288
            
            
            
            327
            
            
            
            -11.9
            %Service
                charges and fees
            
            
            152
            
            
            
            125
            
            
            
            21.6
            %
            
            
            432
            
            
            
            374
            
            
            
            15.5
            %Other
                noninterest expense
            
            
            620
            
            
            
            623
            
            
            
            -0.5
            %
            
            
            1,777
            
            
            
            1,869
            
            
            
            -4.9
            %Total
                noninterest expense
            
            $
            7,471
            
            
            $
            7,000
            
            
            
            6.7
            %
            
            $
            22,150
            
            
            $
            20,937
            
            
            
            5.8
            %Noninterest
                expense (annualized) as a percentage of average assets
            
            
            2.50
            %
            
            
            2.59
            %
            
            
            
            
            
            
            2.56
            %
            
            
            2.66
            %





Salaries
      and wages expense and employee benefits were up for the first nine months of
      2007 due to annual raises and a 6% increase in the number of full-time
      equivalents from 309 in September of 2006 to 328 in September of
      2007.  We have staffed and opened two full service branches and a loan
      production office between September 30, 2006 and September 30,
      2007.  We also converted our Athens, Georgia loan production office to
      a full service branch in October 2006.  Deferred loan cost, which is a
      credit against salaries and wages, increased due to an increase in standard
      costs and an increase in loan volume.





The
      additional facilities (three full service branches and one loan production
      office) are the primary cause for the increase in occupancy expense, furniture
      and equipment expense and telephone charges between September 30, 2006 and
      September 30, 2007.  Service charges and fees increased due to
      increased ATM network fees paid during the quarter.  We also have five
      additional ATMs in service during the first nine months of 2007, compared to
      the
      first nine months of 2006.





Advertising
      and business development expense increased for the first nine months of 2007
      due
      to our focus on marketing and growing our franchise.  Legal fees
      increased 21.5% for the first nine months of 2007, compared to 2006, due to
      increased foreclosure activity on nonperforming loans.  Director fees
      and expenses have decreased in the first nine months of 2007, compared to 2006,
      as we have one less director and have had fewer committee meetings during 2007,
      and we also incurred expenses for an off-site director strategic planning
      session in March 2006.





*Income
      Tax Expense*


As
      a
      percentage of net income before taxes, income tax expense was 34.8% and 35.1%
      for the three-month periods ended September 30, 2007 and 2006,
      respectively.  For the nine-month periods ended September 30, 2007 and
      2006, income tax expense as a percentage of net income before taxes was 34.5%
      and 35.9%, respectively.  Since the first quarter of 2006, we invested
      in additional affordable housing projects to receive State of Georgia low income
      housing tax credits that helped to reduce our state income tax
      expense.





21
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          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 continues to be enhanced by a relatively stable core deposit base
      and
      the availability of additional funding sources.





At
      September 30, 2007, 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 20.2%, compared to 22.6%
      at
      December 31, 2006.  It is our policy to maintain a ratio of liquid
      assets to total assets of at least 15%.





During
      the first nine months of 2007, we funded the $83.8 million growth in loans,
      the
      $3.6 million increase in investments and the $9.9 million decrease in
      noninterest-bearing demand deposits by utilizing the $81.2 million increase
      in
      interest-bearing demand, savings and time deposits, increasing securities sold
      under repurchase agreements by $6.0 million and decreasing our federal funds
      sold by $7.9 million.





*Contractual
      Obligations*


Summarized
      below are our contractual obligations as of September 30, 2007.





Less
                than
            
            
            1
                to 3
            
            
            3
                to 5
            
            
            More
                thanContractual
                Obligations
            
            Total
            
            
            1
                year
            
            
            years
            
            
            years
            
            
            5
                years(Dollars
                In Thousands)Federal
                Home Loan Bank of Atlanta Advances
            
            $
            86,439
            
            
            $
            7,587
            
            
            $
            20,206
            
            
            $
            35,635
            
            
            $
            23,011Operating
                Lease Obligations
            
            
            1,685
            
            
            
            375
            
            
            
            521
            
            
            
            358
            
            
            
            431Guaranteed
                Preferred Beneficial Interests in Debentures
            
            
            10,310
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            10,310$
            98,434
            
            
            $
            7,962
            
            
            $
            20,727
            
            
            $
            35,993
            
            
            $
            33,752





*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 September 30,
      2007
      and December 31, 2006 are as follows:





Sep-07
            
            
            Dec-06Commitments
                to extend credit
            
            $
            152,721,000
            
            
            $
            154,450,000Standby
                letters of credit
            
            $
            4,575,000
            
            
            $
            7,316,000








In
      June
      2006, we entered into a $50 million notional amount, 3-year, 8.25% Prime rate
      floor contract to hedge against interest rate risk in a declining rate
      environment.  Notional amounts provide the basis for calculating
      payments between counterparties and do not represent amounts to be exchanged
      between parties, and are not a measure of financial risk.  The risk of
      loss with our counterparty is limited to a small fraction of the notional
      amount.  We only deal with counterparties that have strong credit
      ratings and are approved by our Board.  Due to these factors, we
      believe our off balance sheet credit risk exposure at September 30, 2007 was
      not
      material.





22
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          OF CONTENTS*




*Stockholders’
      Equity*


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 September 30, 2007, 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 September 30, 2007.





MinimumCompany
            
            
            
            
            
            RegulatoryConsolidated
            
            
            Bank
            
            
            RequirementTotal
                Capital to Risk Weighted Assets
            
            
            11.4
            %
            
            
            11.2
            %
            
            
            8.0
            %Tier
                1 Capital to Risk Weighted Assets
            
            
            10.2
            %
            
            
            10.0
            %
            
            
            4.0
            %Tier
                1 Capital to Average Assets (Leverage Ratio)
            
            
            8.6
            %
            
            
            8.4
            %
            
            
            4.0
            %





On
      May
      22, 2007, the Company’s Board of Directors renewed its annual plan to repurchase
      up to 300,000 shares of the Company’s common stock over the next twelve-month
      period.  The Company plans to use cash on hand and dividends from the
      Bank to repurchase its shares on the open market and through private
      transactions.  During the third quarter of 2007, the Company
      repurchased 209,450 shares, at a total cost of $3,561,000.  Although
      the Company may not repurchase all 300,000 shares within the allotted time
      period, the program will allow the Company to repurchase its shares as
      opportunities arise through either the open market or privately negotiated
      transactions at prices deemed appropriate by management.  At September
      30, 2007, there were 90,350 shares available to be repurchased under the
      plan.  The expiration date for the plan is May 22, 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
      significant accounting policies are described in detail in Note 1 of our
      Consolidated Financial Statements provided in Item 8 of our 2006 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.





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.





23
 *TABLE
          OF CONTENTS*




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 September 30, 2007.








**ITEM3.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**





We
      are
      subject to exposure to U.S. dollar interest rate changes and accordingly, we
      manage our exposure by considering the possible changes in the net interest
      margin.  We do not engage in trading activity nor do we classify any
      portion of the investment portfolio as held for trading.  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 September 30, 2007, our
      one-year management-adjusted gap ratio of 0.85 was within our policy
      guidelines.  Although we are now showing a liability-sensitive balance
      sheet gap position in the one-year time horizon, we still consider ourselves
      asset-sensitive relative to the impact on our earnings in a changing rate
      environment as evidenced by our three-month gap ratio of 1.13 at September
      30,
      2007.





At
      December 31, 2005, our balance sheet gap position in the one-year time horizon
      was outside of policy limits at 1.37.  Furthermore, our three-month
      gap position was 2.24 at the end of 2005.  In early 2006, we began to
      reduce the level of asset-sensitivity on the Company’s balance sheet in
      anticipation of an eventual downturn in interest rates.  We
      accomplished this by consciously lengthening the duration of our earning assets
      and shortening the duration of our deposits and other borrowings.  In
      June 2006, we entered into a $50 million 3-year 8.25% Prime rate floor contract
      in an additional effort to hedge our interest rate risk in a declining interest
      rate environment.




24
 *TABLE
          OF CONTENTS*




The
      table
      below has two gap ratio measurements: regulatory and
      management-adjusted.  The regulatory gap ratio 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
                Defined*Rate
                Sensitive Assets (RSA)
            
            $
            584,550
            
            
            $
            612,827
            
            
            $
            682,942Rate
                Sensitive Liabilities (RSL)
            
            
            515,379
            
            
            
            636,126
            
            
            
            806,310RSA
                minus RSL (Gap)
            
            $
            69,171
            
            
            $
            (23,299
            )
            
            $
            (123,368
            )Gap
                Ratio (RSA/RSL)
            
            
            1.13
            
            
            
            0.96
            
            
            
            0.85*Management-Adjusted*Rate
                Sensitive Assets (RSA)
            
            $
            591,656
            
            
            $
            625,506
            
            
            $
            706,040Rate
                Sensitive Liabilities (RSL)
            
            
            522,734
            
            
            
            650,199
            
            
            
            832,127RSA
                minus RSL (Gap)
            
            $
            68,922
            
            
            $
            (24,693
            )
            
            $
            (126,087
            )Gap
                Ratio (RSA/RSL)
            
            
            1.13
            
            
            
            0.96
            
            
            
            0.85





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 our 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
      September 30, 2007, the simulation model projected net interest income would
      increase 4.5% over the next year if market rates immediately rose by 200 basis
      points and the model projected net interest income to decrease 5.2% over the
      next year if market rates immediately fell by 200 basis points.  These
      projections are a significant change from the 13.5% increase projected at
      December 31, 2005 if market rates increased by 200 basis points and the 15.4%
      decrease projected at December 31, 2005 if market rates fell by 200 basis
      points.  The lower volatility in our results is due primarily to our
      efforts to neutralize our asset-sensitive balance sheet mix, to improve our
      A/L
      modeling with updated behavioral assumptions for repricing and prepayment speeds
      and to implement an off-balance sheet derivative hedging program.





The
      following table shows the results of our 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
            5.78%
            6.91%+200
                bps
            4.71%
            4.51%+100
                bps
            2.31%
            2.20%-100
                bps
            -2.02%
            -2.29%-200
                bps
            -3.71%
            -5.15%-300
                bps
            -4.70%
            -10.20%





25
 *TABLE
          OF CONTENTS*





**ITEM
                4.**
            **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**





**ITEM1.**
            **LEGAL
                PROCEEDINGS**





None





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





There
      has
      not been any material change in the risk factors disclosure from that contained
      in the Company’s 2006 Annual Report on Form 10-K for the fiscal year ended
      December 31, 2006.





**ITEM2.**
              **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
                programs1July
            
            
            5,836
            
            
            $
            18.47
            
            
            
            5,836
            
            
            
            293,964August
            
            
            94,800
            
            
            
            17.59
            
            
            
            94,800
            
            
            
            199,164September
            
            
            108,814
            
            
            
            16.42
            
            
            
            108,814
            
            
            
            90,350Total
            
            
            209,450
            
            
            $
            17.00
            
            
            
            209,450
            
            
            
            90,3501
                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.





**ITEM
                3.**
            **DEFAULTS
                UPON SENIOR SECURITIES**





None





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





None





**ITEM5.**
            **OTHER
                INFORMATION**





None




26
 *TABLE
          OF CONTENTS*




**ITEM
                6.**
            **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





**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:
            ***November
                9, 2007***
            By:
            ***/s/
                M. Burke Welsh, Jr.***M.
                Burke Welsh, Jr.President
                and Chief Executive Officer(principal
                executive officer of the registrant)Date:
            ***November
                9, 2007***
            By:
            ***/s/
                Donald J. Torbert, Jr.***Donald
                J. Torbert, Jr.Executive
                Vice President and Chief Financial Officer(principal
                financial officer of the registrant)





27