PAB BANKSHARES INC - 10-K Annual Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the Fiscal Year Ended December 31, 2004

Commission File Number 1-11823

PAB BANKSHARES, INC.

(A Georgia Corporation)

IRS Employer Identification Number: 58-1473302

3250 North Valdosta Road, Valdosta, Georgia 31602

Telephone Number: (229) 241-2775

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

Title of each class		Name of each exchange on which registered
Common Stock, no par value		American Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None.

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes [X] No [_] The aggregate market value of voting common stock held by non-affiliates on June 30, 2004 was approximately $87.3 million (based on shares held by non-affiliates at $12.14 per share, the closing stock price on the American Stock Exchange on June 30, 2004).

As of February 28, 2005 (the latest practicable date), the registrant had 9,495,320 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement for the 2005 Annual Meeting of Shareholders to be held on May 24, 2005 are incorporated by reference in answer to Part III of this Form 10-K.

TABLE OF CONTENTS

Item			Page

PART I
Cautionary Notice Regarding Forward-Looking Statements			3
	1.	BUSINESS
		General	3
		Supervision and Regulation	7
	2.	PROPERTIES	12
	3.	LEGAL PROCEEDINGS	13
	4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	13

PART II
	5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
		MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	13
	6.	SELECTED FINANCIAL DATA	14
	7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
		AND RESULTS OF OPERATIONS
		Overview of Key Financial, Strategic and Performance Factors	15
		Statistical Disclosures	18
		Liquidity and Capital Resources	26
		Results of Operations	28
	7A.	QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	32
	8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
		Quarterly Financial Summary for 2004 and 2003	34
		Management's Report On Internal Control Over Financial Reporting	35
		Auditor's Attestation Report	36
		Reports of Independent Public Accountants	38
		Consolidated Balance Sheets at December 31, 2004 and 2003	39
		Consolidated Statements of Income for the Three Years Ended December 31, 2004	40
		Consolidated Statements of Comprehensive Income for the Three Years Ended
		December 31, 2004	41
		Consolidated Statements of Stockholders' Equity for the Three Years Ended
		December 31, 2004	42
		Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2004	43
		Notes to Consolidated Financial Statements	45
	9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
		AND FINANCIAL DISCLOSURE	68
	9A.	CONTROLS AND PROCEDURES	68
	9B.	OTHER INFORMATION	68

PART III
	10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	68
	11.	EXECUTIVE CONPENSATION	68
	12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
		AND RELATED STOCKHOLDER MATTERS	69
	13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	69
	14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	69

PART IV
	15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	70

SIGNATURES			72

PART I

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements in this Report, including, without limitation, matters discussed under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operation", as well as oral statements made by PAB Bankshares, Inc. ("PAB", and also referred to in this Report as either "the Company", "we", "us", or "our") or the officers, directors, or employees of PAB may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"). Forward-looking statements include statements about the competitiveness of the banking industry, potential regulatory obligations, our entrance and expansion into higher growth markets, our other business strategies and other statements that are not historical facts. When we use words like "anticipate", "believe", "intend", "plan", "expect", "estimate", "could", "should", "will", and similar expressions, you should consider them as identifying forward-looking statements. These forward-looking statements involve risks and uncertainties and are based on our beliefs and assumptions, and on the information available to us at the time that these disclosures were prepared. Factors that may cause actual results to differ materially from those expressed or implied by such forward-looking statements include, among others, the following possibilities: (1) competitive pressures among depository and other financial institutions may increase significantly; (2) changes in the interest rate environment may reduce margins; (3) general economic conditions may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduction in demand for credit; (4) legislative or regulatory changes, including changes in accounting standards and compliance requirements, may adversely affect the businesses in which we are engaged; (5) competitors may have greater financial resources and develop products that enable such competitors to compete more successfully than us; (6) adverse changes may occur in the bond and equity markets; (7) war or terrorist activities may cause further deterioration in the economy or cause instability in credit markets; and (8) restrictions or conditions imposed by our regulators on our operations may make it more difficult for us to achieve our goals. Many of such factors are beyond our ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. We disclaim any obligation to update or revise any forward-looking statements contained in this Report, whether as a result of new information, future events or otherwise.

ITEM 1. BUSINESS

General

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

The history of the Bank is a true American success story. In 1956, using his personal savings of $3,000, Mr. James L. Dewar, Sr. and his wife, Dorothy, opened a private bank in a small office on the corner of Park Avenue and North Ashley Street in Valdosta. As a former teacher and school superintendent, Mr. Dewar's bank initially catered to the financial needs of teachers and educational administrators in the community. From these humble beginnings and our Founder's pledge to provide exceptional customer service, grew the nearly $900 million, publicly-traded, multi-state financial institution of today.

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

Markets and Competition

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

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

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

South Georgia

The Bank has a proud tradition of community banking in South Georgia spanning decades, and we have developed a large market share in many of these communities. As previously mentioned, we have been in Valdosta since 1956, but our roots run deeper in some of the financial institutions we acquired in other South Georgia communities. We have been in Adel (Cook County) since 1948, and we have been in both Bainbridge (Decatur County) and Baxley (Appling County) since 1934. We are also located in Statesboro (Bulloch County), Hazlehurst (Jeff Davis County), and Cairo (Grady County). Collectively, we refer to all of these seven communities as our "South Georgia" market in this Report. In 2001, we began consolidating the separate charters of our banks into one charter, The Park Avenue Bank. The charter consolidation was completed in April 2002, and all of our banking offices now operate under the "PAB" logo. Overall, we have a 2.5% market share¹of the total deposits in the state's southern tier². Our branch network in South Georgia has allowed us to deliver retail banking services in these communities more effectively. Therefore, our focus in South Georgia is on providing traditional community banking products and services to consumers, businesses, and municipalities.

Valdosta and Adel are located off Interstate 75 in the middle of South Georgia. Valdosta is the county seat of Lowndes County and is 18 miles north of the Florida state line. The Valdosta Metropolitan Statistical Area ("MSA") is comprised of Lowndes, Brooks, Berrien, and Echols Counties. Adel is in Cook County and is 21 miles north of Valdosta. We have 67 employees, five branches, and four ATM's serving our customers in these communities. The Company's administrative and operational facilities and 92 additional employees are also located in Valdosta. Prior to its merger with the Bank in 2001, the Adel office operated under a separate bank charter called Farmers and Merchants Bank. Moody Air Force Base, Valdosta State University, and several transportation and distribution centers of regional and national firms are major economic factors to the area. As with most of South Georgia, the timber and farming industries and those agricultural-related businesses are also vital to the local economy.

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

________________________

1	Based on the FDIC/OTS Summary of Deposits report as of June 30, 2004.

2	Regions 9-12 as defined by the Georgia Department of Community Affairs and is comprised of 58 counties.

Statesboro, 161 miles northeast of Valdosta, sits at the intersection of U.S. Highway 80 and U.S. Highway 301, off of Interstate 16, in Southeast Georgia. Statesboro is also 53 miles west of the Savannah MSA. We have 21 employees, two branches, and three ATM's serving our customers in this community. Prior to its merger with the Bank in 2002, the Statesboro offices had operated under the Eagle Bank and Trust charter. Georgia Southern University is located in Statesboro. The timber industry, the farming community, and those agricultural-related businesses are also vital to the local economy.

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

North Georgia

During the fourth quarter of 2000, we adopted an expansion strategy to enter into higher growth metropolitan markets that would complement our South Georgia market. This expansion began with the opening of an office in McDonough, Henry County, Georgia in October 2000. In October 2001, we opened an office in Oakwood, Hall County, Georgia. Both the Henry County and Hall County offices initially began as loan production offices and were subsequently developed into full service branches. In October 2003, we opened a loan production office in Athens, Clarke County, Georgia. In July 2004, we opened a branch office in Stockbridge, Henry County, Georgia. Our offices in Henry, Hall, and Clarke counties are also referred to collectively as our "North Georgia" market in this Report. Due to our relative newness and the lack of a branch network, we do not have a significant retail presence or market share in the North Georgia market. We have primarily catered to residential and commercial developers and small- to medium-sized commercial operations in the North Georgia market.

McDonough and Stockbridge are located along Interstate 75 in Henry County. Henry County is the southern-most county of the Atlanta MSA. McDonough is 30 miles south of Downtown Atlanta. Henry County has consistently been ranked among the fastest growing counties in the nation over the past several years. According to estimates provided by the Atlanta Regional Commission, a planning agency for the Atlanta MSA, the population in Henry County has grown nearly 31% from 2000 to 2004. We have been actively involved in financing several residential and commercial construction and development projects in Henry County since our McDonough office opened in 2000. The opening of our second location in Stockbridge in 2004 has allowed us to also develop a more retail presence in the county.

Oakwood is 8 miles south of Gainesville along Interstate 985 in Hall County. Oakwood is 50 miles northeast of Downtown Atlanta and 12 miles north of the Mall of Georgia retail complex in Gwinnett County. Oakwood is part of the Gainesville MSA. The poultry industry has been a significant economic factor for the region over the past several decades. As the Atlanta region continues its urban sprawl, Hall County has experienced significant growth in recent years. Our focus in Hall County has been in commercial lending. As we expand our presence in North Georgia, we will focus on retail banking as well.

Athens is 70 miles east of Downtown Atlanta. Athens is part of a consolidated city/county government with Clarke County. The University of Georgia is located in Athens and is the single largest economic factor in the Athens-Clarke County MSA. With only a loan production office in the area, our focus has been on commercial lending. We are currently evaluating the possibility of establishing a full service branch in Athens as part of our expansion plans for North Georgia.

** In April 2005, we intend to open a loan production office near Vinings in Cobb County, Georgia, on the northwest side of the Atlanta MSA. At December 31, 2004, we had $11.1 million in loans outstanding that were originated by a lender that will operate from this office. These loans are included in the Henry County totals in this Report.

Florida

In December 2000, we acquired Friendship Community Bank in Ocala, Marion County, Florida. The acquired bank was merged into the Bank in 2001. In September 2003, we opened a loan production office in St. Augustine, St. Johns County, Florida. Our offices in Ocala and St. Augustine are collectively referred to as our "Florida" market.

Our Ocala office is near several retirement communities and has served primarily as a deposit gathering facility for the Bank. Ocala is in Central Florida, 130 miles south of Valdosta along Interstate 75. With over $3.5 billion in deposits³, Marion County is the largest deposit market in which we have a branch office. Ocala is known for its equestrian training facilities and retirement communities due to its mild year-round climate.

Our loan production office in St. Augustine serves as the base for a lender who calls on commercial customers along Interstate 95 between Jacksonville (40 miles to the North) and Palm Coast (25 miles to the South). This office is responsible for financing several construction and development loans in these coastal communities from this office.

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

Market/	# of		Total		Total		Market				Population		Employment		Unemployment
County	Offices		Loans⁴		Deposits⁴		Share (%)⁵		Population⁶		Growth (%)⁷		Growth (%)⁸		Rate (%)⁹

South Georgia
Lowndes		4	$	134,138	$	200,034		15.3		94,579		2.7		0.8		2.7
Cook		1		10,321		35,497		21.2		15,951		1.1		0.6		4.7
Decatur		3		48,697		96,644		34.3		28,212		-0.1		0.2		5.7
Grady		1		13,867		11,231		4.2		24,185		2.2		0.2		4.4
Appling		1		29,950		42,979		20.8		17,797		2.2		-0.1		5.9
Jeff Davis		1		8,453		35,747		22.4		12,888		1.6		0.0		8.8
Bulloch		2		40,995		57,514		8.5		58,360		4.2		0.6		2.7
			$	286,421	$	479,646
North Georgia
Henry		2	$	186,628	$	28,311		2.2		150,003		25.7		0.9		4.0
Hall		1		75,773		11,983		0.2		156,101		12.1		1.0		2.9
Clarke		1		16,826		-		-		103,691		2.2		-0.7		3.0
			$	279,227	$	40,294
Florida
Marion		1	$	14,751	$	79,503		1.6		280,288		8.3		3.0		3.7
St. Johns		1		39,564		4,704		-		142,869		16.0		3.7		3.2
			$	54,315	$	84,207

Employees

On January 31, 2005, we had a total of 266 full-time and 26 part-time employees. We consider our relationship with our employees to be excellent. We offer a competitive compensation and benefits package to our employees.

Availability of Information

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

_______________________________

³	Based on the FDIC/OTS Summary of Deposits report as of June 30, 2004.

⁴

Dollar amounts are presented in thousands as of December 31, 2004. Amounts exclude $26.2 million in loans and $53.4 million in deposits assigned to the "Treasury" that are not allocated to any particular market (i.e. participation loans, employee and director accounts, brokered deposits, official checks, etc.).

⁵	Based on the FDIC/OTS Summary of Deposits report as of June 30, 2004.

⁶	Estimated July 1, 2003 population provided by the U.S. Census Bureau.

⁷	Estimated percentage population change from April 1, 2000 to July 1, 2003 provided by the U.S. Census Bureau.

⁸	Total employment growth (not seasonally adjusted) for the Fourth Quarter 2004 Year-To-Date % change from the prior year's YTD data provided by the Bureau of Labor Statistics Household Survey.

⁹	Unemployment rate (not seasonally adjusted) for the Fourth Quarter 2004 provided by the Bureau of Labor Statistics.

Supervision and Regulation

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

How, when and where we may expand geographically;

Into what product or service market we may enter;

How we must manage our assets; and

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

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

General

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

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

On May 20, 2002, the Company's Board of Directors adopted a Resolution required by the Federal Reserve (the "Resolution"), which, among other things, restricted us from redeeming our capital stock, paying dividends, modifying existing debt agreements, or incurring additional debt without the prior approval of our banking regulators. The Resolution was the result of an examination that found the Bank to be in less than satisfactory condition due primarily to serious weaknesses identified in the asset quality of the Bank's loan portfolio. The Resolution was terminated by the Federal Reserve on August 25, 2003, after the regulators determined that the Bank's condition had improved.

Acquisitions

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

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

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

Activities

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

Gramm-Leach-Bliley Act

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

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

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

Payment of Dividends

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

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

As previously mentioned, pursuant to a Resolution entered into with our federal and state regulatory agencies on May 20, 2002, neither the Bank nor PAB could declare a dividend without obtaining prior governmental approvals. While under the Resolution, in March 2003, we requested and received approval from the Federal Reserve for the payment of a First Quarter 2003 dividend in the amount of $.03 per share to stockholders of record on March 31, 2003. Again, in May 2003, we requested and received approval from the Federal Reserve for the payment of a Second Quarter 2003 dividend in the amount of $.03 per share to stockholders of record on June 30, 2003. The Resolution was terminated by the regulators on August 25, 2003, and the dividend restrictions were removed. During 2004, PAB paid $.34 per share in aggregate dividends to its stockholders. On December 31, 2004, the Bank was able to pay $10,319,000 in dividends to its parent holding company, PAB, without further regulatory approval.

Capital Adequacy

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

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

The minimum guideline for the ratio of Total Capital to risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit) is 8.0%. Total Capital consists of Tier 1 Capital, which is comprised of common stock, undivided profits, minority interests in the equity accounts of consolidated subsidiaries and non-cumulative perpetual preferred stock, less goodwill and certain other intangible assets, and Tier 2 Capital, which consists of subordinated debt, other preferred stock, and a limited amount of loan loss reserves. At December 31, 2004, our consolidated Total Capital Ratio and our Tier 1 Capital Ratio were 13.5% and 12.2%, respectively.

In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill and certain other intangible assets, of 3.0% for bank holding companies that meet certain specified criteria, including those having the highest regulatory rating. All other bank holding companies generally are required to maintain a Leverage Ratio of at least 3.0%, plus an additional cushion of 100 to 200 basis points. Our Leverage Ratio at December 31, 2004 was 10.4%. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Federal Reserve has indicated that it will consider a "tangible Tier 1 Capital Leverage Ratio" (deducting all intangibles) and other indicators of capital strength in evaluating proposals for expansion or new activities.

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

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

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

Support of Subsidiary Institutions

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

Prompt Corrective Action

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

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

At December 31, 2004, the Bank had the requisite capital level to qualify as "well capitalized" under the regulatory framework for prompt corrective action.

FDIC Insurance Assessments

The FDIC has adopted a risk-based assessment system for insured depository institutions that takes into account the risks attributable to different categories and concentrations of assets and liabilities. The system assigns an institution to one of three capital categories: (i) well capitalized; (ii) adequately capitalized; and (iii) undercapitalized. These three categories are substantially similar to the prompt corrective action categories described above, with the "undercapitalized" category including institutions that are undercapitalized, significantly undercapitalized, and critically undercapitalized for prompt corrective action purposes. The FDIC also assigns an institution to one of three supervisory subgroups within each capital group. The supervisory subgroup to which an institution is assigned is based on a supervisory evaluation that the institution's primary federal regulator provides to the FDIC and information that the FDIC determines to be relevant to the institution's financial condition and the risk posed to the deposit insurance funds. The FDIC then determines an institution's insurance assessment rate based on the institution's capital category and supervisory category. Under the risk-based assessment system, there are nine combinations of capital groups and supervisory subgroups to which different assessment rates are applied. Assessments range from 0 to 27 cents per $100 of deposits, depending on the institution's capital group and supervisory subgroup.

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

Safety and Soundness Standards

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

Community Reinvestment Act

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

Privacy

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

Monetary Policy

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

USA Patriot Act of 2001

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

Georgia Fair Lending Act

The Georgia Fair Lending Act (the "GFLA") became initially effective on October 1, 2002 and establishes a number of prohibitions for loans that are "covered" by the statute. Generally, a loan is "covered" by the GFLA if it has an annual interest rate that exceeds the prime rate or comparable yield on treasury securities by an amount specified by the statute or if its points and fees exceed a specified percentage of the total loan amount. The GFLA has a broad definition of points and fees. Any creditor who violates the GFLA may be liable to the borrower for actual damages; statutory damages equal to two times the interest paid under the loan; forfeiture of interest; punitive damages; costs; and/or reasonable attorney's fees. For any violation for which statutory damages may be awarded, the GFLA provides the borrower with a right of rescission.

The GFLA is a controversial law because of provisions such as those creating potential liability for assignees and holders of "covered" loans. As a result, the GFLA was amended, effective March 7, 2003, by the Georgia legislature in an effort to address a number of those provisions. On July 31, 2003, the Office of the Comptroller of the Currency issued a Preemption Determination and Order declaring most of the GFLA preempted by federal law and, therefore, inapplicable to nationally chartered banks. The Georgia Department issued a complying Declaratory Ruling on August 5, 2003. The order purported to preempt all of the GFLA, and even though there may be several parts of the GFLA that remain effective as to national banks, those non-preempted parts are likely inapplicable or moot due to the articulated preemption of most other operative parts of the GFLA. The preemption-parity provisions of the GFLA level the playing field for state-chartered banks in that aspects of GFLA preempted by federal law become inapplicable to state-chartered as well as nationally-chartered banks.

Check 21

On October 28, 2003, President Bush signed into law the Check Clearing for the 21st Century Act, also known as Check 21. Check 21 gives "substitute checks," such as a digital image of a check and copies made from that image, the same legal standing as the original paper check. Some of the major provisions of Check 21 include:

allowing check truncation without making it mandatory;

demanding that every financial institution communicate to accountholders in writing a description of its substitute check processing program and their rights under the law;

legalizing substitutions for and replacements of paper checks without agreement from consumers;

retaining in place the previously mandated electronic collection and return of checks between financial institutions only when individual agreements are in place;

requiring that when accountholders request verification, financial institutions produce the original check (or a copy that accurately represents the original) and demonstrate that the account debit was accurate and valid; and

requiring recrediting of funds to an individual's account on the next business day after a consumer proves that the financial institution has erred.

This legislation will likely affect bank capital spending as many financial institutions assess whether technological or operational changes are necessary to stay competitive and take advantage of the new opportunities presented by Check 21.

ITEM 2. PROPERTIES

We currently operate 17 bank branches, two loan production offices, an operations center, and an administrative building. With the exception of one branch office in Ocala, Florida and one branch office in Stockbridge, Georgia, we own all of the real property and/or buildings in which our bank branch offices are located. The Ocala office is under a five-year operating lease that expires in December 2008. The Stockbridge office is under a five-year operating lease that expires in May 2009. The loan production offices operate out of leased office space in those markets. In addition, we own a three-story administrative building, which houses our corporate offices, and a 12,000 square-foot operations center in Valdosta, Georgia. All of the properties are in a good state of repair and are appropriately designed for the purposes for which they are used.

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

ITEM 3. LEGAL PROCEEDINGS

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

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

No matters were submitted to a vote of our stockholders during the fourth quarter of 2004.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS

AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock has been listed for quotation on the American Stock Exchange ("AMEX") under the symbol "PAB" since July 9, 1996. On February 28, 2005, there were 2,305 holders of record of our common stock.

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

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

	Sales Price
Calendar Period	High		Low		Dividends		Earnings
2003
First Quarter	$	9.48	$	8.10	$	0.03	$	0.19
Second Quarter		13.95		9.07		0.03		0.18
Third Quarter		13.81		12.70		0.05		0.18
Fourth Quarter		15.75		13.69		0.07		0.19
2004
First Quarter	$	15.80	$	12.65	$	0.07	$	0.22
Second Quarter		14.15		11.44		0.07		0.22
Third Quarter		13.00		11.83		0.10		0.21
Fourth Quarter		13.75		12.90		0.10		0.23

Stock Buyback Plan

A summary of our purchases of PAB common stock during the fourth quarter ended December 31, 2004 follows.

	Total number of shares purchased		Average price paid per share		Number of shares purchased as part of publicly announced plans or programs		Maximum number of shares that may yet be purchased under the plans or programs¹
October		11,000	$	13.05		11,000		353,700
November		-		-		-		-
December		-		-		-		-
Total		11,000	$	13.05		11,000		353,700

¹	On May 25, 2004, the Board of Directors authorized the purchase of 400,000 shares of the Company's common stock. The plan will expire May 25, 2005.

ITEM 6. SELECTED FINANCIAL DATA

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

(In thousands, except per share and other data)	2004			2003			2002			2001			2000
Summary of Operations:
Interest income	$	40,597		$	40,040		$	48,079		$	62,715		$	57,526
Interest expense		10,624			12,467			19,989			35,600			28,674
Net interest income		29,973			27,573			28,090			27,115			28,852
Provision for loan losses		600			-			2,575			12,220			4,099
Other income		6,344			8,616			8,013			11,923			5,756
Other expense		23,055			25,702			24,368			26,921			21,874
Income (loss) before income tax expense		12,662			10,487			9,160			(103	)		8,635
Income tax expense (benefit)		4,144			3,361			2,813			(251	)		2,909
Net income	$	8,518		$	7,126		$	6,347		$	148		$	5,726
Net interest income on a taxable-equivalent basis	$	30,148		$	27,759		$	28,225		$	27,216		$	28,968
Selected Average Balances:
Total assets	$	765,016		$	736,367		$	779,958		$	847,100		$	694,674
Earnings assets		704,345			676,372			719,352			780,120			640,889
Loans		569,858			537,223			586,712			616,156			534,340
Deposits		575,767			576,871			641,448			694,219			548,276
Stockholders' equity		79,499			75,906			67,975			72,268			70,706
Selected Year End Balances:
Total assets	$	868,975		$	730,741		$	747,911		$	859,143		$	794,907
Earnings assets		808,886			666,488			683,456			790,546			722,490
Loans		646,149			538,644			555,238			637,825			580,737
Allowance for loan losses		9,066			10,139			12,097			15,765			8,185
Deposits		657,550			556,917			606,730			720,398			637,180
Stockholders' equity		81,000			76,062			71,265			65,372			70,780
Common Share Data:
Outstanding at year end		9,495,320			9,484,660			9,430,413			9,409,913			9,501,947
Weighted average outstanding		9,499,709			9,476,158			9,426,761			9,482,709			9,528,387
Diluted weighted average outstanding		9,642,065			9,686,617			9,459,768			9,550,080			9,598,790
Per Share Ratios:
Net income - basic	$	0.89		$	0.75		$	0.67		$	0.02		$	0.60
Net income - diluted		0.88			0.74			0.67			0.02			0.60
Dividends declared		0.34			0.18			0.11			0.44			0.43
Book value		8.53			8.02			7.56			6.95			7.45
Profitability Ratios:
Return on average assets		1.11	%		0.97	%		0.81	%		0.02	%		0.82	%
Return on average equity		10.71	%		9.60	%		9.34	%		0.20	%		8.10	%
Net interest margin		4.28	%		4.11	%		3.92	%		3.49	%		4.52	%
Efficiency ratio		63.18	%		68.90	%		67.04	%		74.02	%		60.39	%
Liquidity Ratios:
Total loans to total deposits		98.27	%		96.72	%		91.51	%		88.54	%		91.14	%
Average loans to average earning assets		80.91	%		80.03	%		81.56	%		78.98	%		83.37	%
Noninterest-bearing deposits to total deposits		15.15	%		17.04	%		14.45	%		11.31	%		11.09	%
Capital Adequacy Ratios:
Average equity to average assets		10.39	%		10.08	%		8.72	%		8.53	%		10.18	%
Dividend payout ratio		37.93	%		23.89	%		16.39	%		2855.42	%		72.08	%
Asset Quality Ratios:
Net charge-offs to average loans		0.29	%		0.36	%		1.06	%		0.75	%		0.26	%
Nonperforming loans to total loans		0.54	%		1.53	%		2.09	%		1.91	%		1.27	%
Nonperforming assets to total assets		0.40	%		1.75	%		1.72	%		1.57	%		0.99	%
Allowance for loan losses to total loans		1.40	%		1.88	%		2.18	%		2.47	%		1.41	%
Allowance for loan losses to nonperforming loans		261.04	%		123.41	%		104.33	%		129.44	%		111.03	%

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

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

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

OVERVIEW OF KEY FINANCIAL, STRATEGIC AND PERFORMANCE FACTORS

Our operating subsidiary, The Park Avenue Bank, is an $868 million community bank with 17 branches and two loan production offices in Georgia and Florida. We have offices in both smaller, rural communities as well as larger, metropolitan communities. We provide traditional banking products and services to both commercial and individual customers in our markets. For additional information on our markets, see the "Markets and Competition" section in Part I of this Report. As a bank, we operate in a highly regulated and competitive environment. Our primary objective is to accept deposits and borrow additional funds as needed at low costs and invest those funds in a safe and sound manner in loans and investments at a higher yield in order to increase the return on our stockholders' investment. Competition, regulation, credit risk, and interest rate risk are the primary factors that we must manage in order to be successful.

In terms of profitability, our return on average assets ("ROA") and return on average equity ("ROE") for 2004 was 1.11% and 10.71%, respectively. The table below summarizes our net income, diluted earnings per share ("EPS"), ROA and ROE for the past five years.

Year	Net Income		EPS		ROA			ROE
	(In Thousands)
2000	$	5,726	$	0.60		0.82	%		8.10	%
2001		148		0.02		0.02	%		0.20	%
2002		6,347		0.67		0.81	%		9.34	%
2003		7,126		0.74		0.97	%		9.60	%
2004		8,518		0.88		1.11	%		10.71	%

2004 was a benchmark year for the Company in terms of growth and profitability. For the first time in five years, the Company posted a double-digit asset growth rate, an ROA greater than 1.0%, and a double-digit ROE. Our plan is to continue to deliver these results to our shareholders. We want to continue to expand our presence in the higher growth markets in North Georgia and Florida, seek opportunities to enter new growth markets, and recapture lost market share in our South Georgia markets. A recap of what happened in 2001 and our subsequent progression follows.

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

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

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

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

The table below shows our total loans and deposits at the end of each quarter since the end of the third quarter of 2001 as well as our net interest income and net interest margin for each of those quarters.

Quarter Ended	Loans		Deposits		Net Interest Income*		Net Interest Margin*
	(Dollars In Thousands)
09/30/01	$	644,101	$	709,130	$	6,602		3.36	%
12/31/01		637,825		720,398		6,686		3.32	%
03/31/02		607,707		672,337		6,946		3.67	%
06/30/02		590,344		628,927		6,993		3.89	%
09/30/02		553,458		615,415		7,032		3.98	%
12/31/02		555,238		606,730		7,254		4.18	%
03/31/03		547,785		587,719		6,867		4.15	%
06/30/03		529,230		573,230		6,866		4.13	%
09/30/03		531,551		563,412		6,968		4.02	%
12/31/03		538,644		556,917		7,058		4.14	%
03/31/04		549,149		556,853		7,202		4.34	%
06/30/04		554,524		565,613		7,214		4.28	%
09/30/04		600,450		575,775		7,760		4.35	%
12/31/04		646,149		657,550		7,971		4.15	%

* shown on a taxable-equivalent basis

In 2004, our total loans increased $107.5 million, or 20.0%, on the strength of our North Georgia market. The majority of our loan growth was in commercial real estate lending, which is comprised of residential and commercial construction and development loans as well as owner-occupied and income-producing commercial real estate mortgages.

Our construction and development loan portfolio increased $66.7 million, or 66.6%, from $100.2 million at December 31, 2003 to $166.9 million at December 31, 2004. As a percentage of total loans, this portfolio increased from 18.6% at the end of 2003 to 25.8% at the end of 2004. The increase in this type of lending is representative of the overall economic growth and development of our North Georgia and Florida markets.

Our commercial real estate mortgage portfolio increased $38.7 million, or 20.5%, from $188.6 million at December 31, 2003 to $227.3 million at December 31, 2004. As a percentage of total loans, this portfolio increased only fractionally from 35.0% at the end of 2003 to 35.2% at the end of 2004.

The return of loan demand generated the need to grow deposits and employ other funding sources. While we eased back into a more competitive mode on our deposit pricing, we utilized third-party brokered deposits, FHLB advances, Fed Funds purchased, and repurchase agreements to meet our interim funding needs. The total increase in deposits for 2004 was $100.6 million, or 18.1%, and brokered deposits accounted for $47.0 million of that increase. We also added $54.3 million in net additional advances with the FHLB in 2004.

Total stockholders' equity increased $4.9 million, or 6.5%, during 2004. Equity was increased primarily from the contribution of $8.5 million from 2004 earnings net of $3.2 million in dividends paid. As a percentage of total assets, equity represented 9.3% at end of 2004, compared to 10.4% at the beginning of 2004, with the decrease resulting from an increase in assets during the year.

A breakdown of loans and deposits as of December 31, 2004 and 2003 and the percentage of net growth (or contraction) in 2004 for each market is provided in the table below.

Market/	# of		Total Loans							Total Deposits
County	Offices		2004		2003		% Chg			2004		2003		% Chg
			(Dollars in Thousands)
South Georgia
Lowndes		4	$	134,138	$	117,462		14.2		$	200,034	$	189,473		5.6
Cook		1		10,321		11,934		(13.5	)		35,497		33,256		6.7
Decatur		3		48,697		53,246		(8.5	)		96,644		100,190		(3.5	)
Grady		1		13,867		12,289		12.8			11,231		10,610		5.9
Appling		1		29,950		36,522		(18.0	)		42,979		42,614		0.9
Jeff Davis		1		8,453		8,975		(5.8	)		35,747		33,644		6.3
Bulloch		2		40,995		45,981		(10.8	)		57,514		58,709		(2.0	)
			$	286,421	$	286,409		0.0		$	479,646	$	468,496		2.4
North Georgia
Henry		2	$	186,628	$	118,140		58.0		$	28,311	$	23,301		21.5
Hall		1		75,773		54,824		38.2			11,983		4,447		169.5
Clarke		1		16,826		6,270		168.4			-		-		-
			$	279,227	$	179,234		55.8		$	40,294	$	27,748		45.2
Florida
Marion		1	$	14,751	$	24,670		(40.2	)	$	79,503	$	54,299		46.4
St. Johns		1		39,564		17,319		128.4			4,704		-		-
			$	54,315	$	41,989		29.4		$	84,207	$	54,299		55.1
Treasury		-	$	26,186	$	31,012		(15.6	)	$	53,403	$	6,374		737.8

Total			$	646,149	$	538,644		20.0		$	657,550	$	556,917		18.1

STATISTICAL DISCLOSURES

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

During 2004, the Federal Reserve raised the federal funds rate five times, in 25 basis point increments, from 1.00% to 2.25%, with the first increase in June. Being in an asset-sensitive interest rate position on our balance sheet (our earning assets reprice more frequently than our rate-sensitive liabilities), we expect to benefit during a period of rising interest rates. However, if interest rates continue to rise and we continue to grow our balance sheet, we expect the incremental cost of those additional funds needed for such growth to be higher than our current cost of funds, which would offset some of the expected benefit in earnings. This occurred during the fourth quarter of 2004, as we increased deposits to fund loan growth.

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

Rate / Volume Analysis

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

For the Years Ended December 31,	2004 vs. 2003									2003 vs. 2002
	Increase			Changes Due To						Increase			Changes Due To
	(Decrease)			Rate			Volume			(Decrease)			Rate			Volume
	(Dollars In Thousands)
Increase (decrease) in
income from earning assets:
Loans	$	79		$	(1,803	)	$	1,882		$	(7,628	)	$	(4,290	)	$	(3,338	)
Taxable securities		489			432			57			(104	)		(1,172	)		1,068
Nontaxable securities		(32	)		(18	)		(14	)		148			(28	)		176
Other short-term investments		10			28			(18	)		(404	)		(57	)		(347	)
Total interest income		546			(1,361	)		1,907			(7,988	)		(5,547	)		(2,441	)

Increase (decrease) in
expense from interest-bearing liabilities:
Demand deposits		(204	)		(257	)		53			(926	)		(915	)		(11	)
Savings deposits		(47	)		(66	)		19			(149	)		(162	)		13
Time deposits		(1,766	)		(1,293	)		(473	)		(5,791	)		(2,897	)		(2,894	)
FHLB advances		64			(678	)		742			(543	)		(954	)		411
Notes payable		62			46			16			(103	)		(103	)		-
Other short-term borrowings		48			23			25			(10	)		(158	)		148
Total interest expense		(1,843	)		(2,225	)		382			(7,522	)		(5,189	)		(2,333	)

Net interest income	$	2,389		$	864		$	1,525		$	(466	)	$	(358	)	$	(108	)

Average Balances, Interest and Yields

The following table details the average balance of interest-earning assets and interest-bearing liabilities, the amount of interest earned and paid, and the average yields and rates realized for each of the last three years. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 34% Federal tax rate. Loan average balances include loans on nonaccrual status.

For the Years Ended
December 31,	2004								2003								2002
				Interest		Average						Interest		Average						Interest		Average
	Average			Income/		Yield/			Average			Income/		Yield/			Average			Income/		Yield/
	Balance			Expense		Rate			Balance			Expense		Rate			Balance			Expense		Rate
	(Dollars In Thousands)
ASSETS
Interest-earning assets:
Loans	$	569,858		$	35,096		6.16	%	$	540,787		$	35,017		6.48	%	$	586,712		$	42,645		7.27	%
Investment securities:
Taxable		115,781			5,023		4.34	%		114,343			4,534		3.96	%		92,942			4,638		4.99	%
Nontaxable		8,645			514		5.95	%		8,875			546		6.15	%		6,157			398		6.46	%
Other short-term
investments		10,061			139		1.38	%		11,713			129		1.10	%		33,541			533		1.59	%
Total interest-
earning assets		704,345			40,772		5.79	%		675,718			40,226		5.95	%		719,352			48,214		6.70	%

Noninterest-earning assets:
Cash		20,258								20,629								22,541
Allowance for loan losses		(9,586	)							(11,146	)							(14,903	)
Unrealized gain (loss)
on securities
available for sale		(352	)							675								1,095
Other assets		50,351								50,491								51,873
Total assets	$	765,016							$	736,367							$	779,958

LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits	$	173,555		$	1,200		0.69	%	$	167,215		$	1,404		0.84	%	$	167,986		$	2,223		1.39	%
Savings deposits		42,137			234		0.56	%		39,445			281		0.71	%		38,289			537		1.12	%
Time deposits		264,216			6,752		2.56	%		279,767			8,518		3.04	%		350,697			14,309		4.08	%
FHLB advances		66,787			1,535		2.30	%		44,387			1,471		3.31	%		36,863			2,014		5.46	%
Notes payable		10,310			567		5.50	%		10,000			505		5.05	%		10,000			608		6.08	%
Other short-term
borrowings		27,408			336		1.23	%		25,243			288		1.14	%		16,870			298		1.77	%
Total interest-
bearing liabilities		584,413			10,624		1.82	%		566,057			12,467		2.20	%		620,705			19,989		3.22	%

Noninterest-bearing liabilities
and stockholders' equity:
Demand deposits		95,859								90,444								84,476
Other liabilities		5,245								5,637								6,802
Stockholders' equity		79,499								74,229								67,975
Total liabilities and
stockholders'	$	765,016							$	736,367							$	779,958
equity

Interest rate spread							3.97	%							3.75	%							3.48	%

Net interest income				$	30,148							$	27,759							$	28,225

Net interest margin							4.28	%							4.11	%							3.92	%

Investment Portfolio

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

As of December 31,	2004		2003		2002
	(Dollars in Thousands)
U. S. Government agency securities	$	52,519	$	57,328	$	25,622
State and municipal securities		8,738		9,400		8,614
Mortgage-backed securities		54,997		50,296		32,066
Corporate debt securities		4,318		4,354		12,397
Equity securities		8,112		5,447		19,327
	$	128,684	$	126,825	$	98,026

At December 31, 2004, the estimated fair market value of our investment portfolio was approximately $452,000, or 0.35%, below our amortized cost; however, market values may fluctuate significantly as interest rates change.

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

The following table shows the maturities of non-equity investment securities at December 31, 2004 and the weighted-average yields (on a fully taxable basis assuming a 34% tax rate) on such securities. The maturities presented for mortgage-backed securities are based on the average lives of those bonds at the then projected prepayment speeds. Actual maturities usually differ from contractual maturities because certain security issuers have the right to call or prepay obligations with or without call or prepayment penalties. Of the investments in U.S. Government agency securities maturing after one year, approximately $31.0 million, or 59%, are potentially callable at par value within one year.

	U.S. Government					State and Municipal					Mortgage-Backed					Corporate Debt
	Agency Securities					Securities					Securities					Securities
As of December 31, 2004	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	(Dollars in Thousands)
Due in one year or less	$	2,219		4.40	%	$	747		5.70	%	$	-		-		$	-		-
Due after one year through five years		9,061		4.72	%		2,792		5.25	%		48,155		4.05	%		2,127		3.96	%
Due after five years through ten years		23,374		4.47	%		2,182		5.44	%		6,842		4.71	%		2,191		6.04	%
Due after ten years		17,865		5.57	%		3,017		6.50	%		-		-			-		-
Total	$	52,519		4.88	%	$	8,738		5.77	%	$	54,997		4.13	%	$	4,318		5.02	%

Loan Portfolio

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

Types of Loans

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

As of December 31,	2004			2003			2002			2001			2000
	(Dollars in Thousands)
Commercial and financial	$	59,703		$	53,849		$	62,653		$	80,493		$	72,942
Agricultural (including loans secured by farmland)		26,704			24,071			21,777			26,428			23,064
Real estate - construction		166,854			100,150			83,836			63,486			40,130
Real estate - mortgage (commercial and residential)		375,222			332,004			338,261			402,988			376,000
Installment loans to individuals and other		19,552			29,366			48,934			64,806			68,880
		648,035			539,440			555,461			638,201			581,016
Deferred loan fees and unearned interest, net		(1,886	)		(796	)		(223	)		(376	)		(279	)
		646,149			538,644			555,238			637,825			580,737
Allowance for loans losses		(9,066	)		(10,139	)		(12,097	)		(15,765	)		(8,185	)
Loans, net	$	637,083		$	528,505		$	543,141		$	622,060		$	572,552

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

As of December 31,	2004			2003			2002			2001			2000

Commercial and financial		9.24	%		10.00	%		11.28	%		12.62	%		12.56	%
Agricultural (including loans secured by farmland)		4.13	%		4.47	%		3.92	%		4.15	%		3.97	%
Real estate - construction		25.82	%		18.59	%		15.10	%		9.95	%		6.91	%
Real estate - mortgage (commercial and residential)		58.07	%		61.64	%		60.93	%		63.18	%		64.75	%
Installment loans to individuals and other		3.03	%		5.45	%		8.81	%		10.16	%		11.86	%
		100.29	%		100.15	%		100.04	%		100.06	%		100.05	%
Deferred loan fees and unearned interest, net		-0.29	%		-0.15	%		-0.04	%		-0.06	%		-0.05	%
		100.00	%		100.00	%		100.00	%		100.00	%		100.00	%
Allowance for loans losses		-1.40	%		-1.88	%		-2.18	%		-2.47	%		-1.41	%
Loans, net		98.60	%		98.12	%		97.82	%		97.53	%		98.59	%

In 2004, the makeup of the loan portfolio continued to shift as loans secured by real estate increased to represent 86.76% of the total portfolio at the end of 2004 from 82.99% at the end of 2003 and 78.46% at the end of 2002. Installment loans to individuals and other loans decreased to 3.03% of the portfolio at the end of 2004 from 5.45% at the end of 2003 and 8.81% at the end of 2002. Overall, the loan portfolio increased $107.5 million, or 20%, from $538.6 million at the beginning of the year to $646.1 million at year end. The largest category of the total portfolio, commercial and residential real estate mortgages, increased $43.2 million in total, while the percentage of the total portfolio dropped slightly at the end of 2004 to 58.07% from 61.64% at the end of 2003. The makeup of this category has continued to shift from residential real estate loans, 39% of the total, to a larger commercial real estate portfolio, 61% of the total. Commercial real estate loans increased $38.7 million during 2004 while residential real estate loans increased $4.5 million.

The second largest category of the portfolio, real estate - construction, represented 25.82% of the category at the end of 2004 compared to 18.59% at the end of 2003. Our growth in residential construction lending in Henry County and its surrounding counties was the primary reason for the $66.7 million increase in real estate construction loans. Of the $166.9 million in construction loans outstanding at the end of 2004, $107.7 million were originated from our Henry County offices.

A summary of loans from each market outstanding at December 31, 2004 is presented in the following table.

	South Georgia			North Georgia			Florida
	Market			Market			Market			Treasury			Total
	(Dollars in Thousands)
Commercial and financial	$	41,375		$	16,508		$	1,523		$	297		$	59,703
Agricultural (including loans secured by farmland)		23,394			2,897			413			-			26,704
Real estate - construction		16,216			119,832			30,481			325			166,854
Real estate - mortgage (commercial and residential)		189,018			139,311			22,885			24,008			375,222
Installment loans to individuals and others		16,465			1,260			267			1,560			19,552
		286,468			279,808			55,569			26,190			648,035
Deferred loan fees and unearned interest, net		(47	)		(581	)		(1,254	)		(4	)		(1,886	)
		286,421			279,227			54,315			26,186			646,149
Allowance for loan losses		(4,066	)		(3,780	)		(747	)		(473	)		(9,066	)
	$	282,355		$	275,447		$	53,568		$	25,713		$	637,083

In addition to the geographic concentrations noted in the tables above, we had approximately $35.8 million in loans secured by real estate in Florida to customers of our South Georgia, North Georgia and Treasury offices.

In 2004, loans in our North Georgia market increased 55.8% and loans in our Florida market increased 29.4%. While these are relatively new markets for us and some level of growth is expected, the growth that we have experienced from these markets can be attributed to the addition of experienced lenders with contacts in these markets, and strong local economic activity. Our ability to continue to grow in these markets is dependent upon a continuation of these favorable attributes.

Maturities and Sensitivities of Loans to Changes in Interest Rates

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

	Commercial				Real Estate -		Real Estate -		All Other
As of December 31, 2004	& Financial		Agricultural		Construction		Mortgage		Loans		Total
	(Dollars in Thousands)
Due in one year or less	$	40,209	$	10,993	$	130,080	$	97,034	$	9,129	$	287,445
Due after one year through five years		18,699		12,627		35,958		210,371		8,739		286,394
Due after five years		795		3,084		816		67,817		1,684		74,196
Total	$	59,703	$	26,704	$	166,854	$	375,222	$	19,552	$	648,035

Of the above loans maturing after one year,
those with predetermined fixed rates	$	3,753	$	2,657	$	159	$	93,744	$	8,330	$	108,643
those with floating or adjustable rates		15,741		13,054		36,615		184,444		2,093		251,947
Total maturing after one year	$	19,494	$	15,711	$	36,774	$	278,188	$	10,423	$	360,590

While we do make some long-term, fixed rate commercial real estate loans, with interest rates near forty year lows, we have a preference to offer loans to our commercial customers on a floating rate basis usually tied to a prime interest rate. This preference has contributed to our asset-sensitive interest rate risk position. At December 31, 2004, approximately 83% of our loan portfolio will either mature or reprice within the next twelve months.

Nonaccrual, Past Due and Restructured Loans

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

As of December 31,	2004		2003		2002		2001		2000
	(Dollars in Thousands)
Loans accounted for on a nonaccrual basis	$	1,417	$	7,048	$	10,378	$	10,581	$	2,430
Accruing loans which are contractually past due
90 days or more as to principal or interest payments		11		-		-		1,598		509
Troubled debt restructurings not included above		2,045		1,168		1,217		-		-
Other impaired loans		-		-		-		-		4,433
Total nonperforming loans	$	3,473	$	8,216	$	11,595	$	12,179	$	7,372

Ratio of nonperforming loans to total loans (%)		0.54		1.53		2.09		1.91		1.27

Allowance for loan losses to nonperforming loans (%)		261.04		123.41		104.33		129.44		111.03

We have continued to improve our asset quality by working down our levels of nonperforming loans and monitoring our portfolio for potential problem loans to promptly resolve any material issues that might arise.

In December 2004, we discovered that a $5.2 million commercial real estate loan originated from our Hall County office was not as it was represented for approval in October 2004. With the help of counsel, we have investigated the situation to minimize our potential risk exposure, but we still have not reached a final conclusion on this credit. We engaged another appraiser to provide "As Is" values for the property to support our loans, and we are working with the borrower, the contractors, and the tenants to ensure completion of the project. We believe that we have sufficient reserves ($792,000) allocated to these loans as of December 31, 2004. These loans were not considered impaired as of year end, however, in February 2005, we placed this loan and a related $517,000 loan on nonaccrual status as it became evident that the borrower would be unable to perform under the terms of the notes. Obviously, these loans will increase our level of nonperforming loans for the first quarter of 2005.

At December 31, 2004, we had $4.10 million in total delinquent loans (loans past due 30 days or more), or 0.63% of total loans. This is an improvement from 1.04% one year ago and a recent high of 4.33% at March 31, 2002.

The accrual of interest on loans is discontinued when, in our judgment, the borrower may be unable to meet payments as they become due, unless the loan is well secured. All interest accrued but not collected for loans that are placed on nonaccrual status is reversed against interest income. Interest income on nonaccrual loans is subsequently recognized only to the extent cash payments are received until the loan is returned to accrual status. For the year ended December 31, 2004, the gross interest income that would have been recorded if our nonperforming loans had been current in accordance with their original terms was approximately $357,000. The amount of interest income on the above nonperforming loans that was included in net income for the year ended December 31, 2004 was approximately $315,000. The allowance for loan losses related to our nonperforming loans amounted to approximately $510,000 and $2,351,000 at December 31, 2004 and 2003, respectively, due to a decline in specific reserves on loans individually evaluated for impairment.

Allowance For Loan Losses

At December 31, 2004, the allowance as a percent of total loans was 1.40%, compared to 1.88% at December 31, 2003. We consider the current level of the allowance for loan losses adequate to absorb losses from loans in the portfolio. As an integral part of our credit risk management process, we regularly review loans in our portfolio for credit quality and documentation of collateral. The lenders are primarily responsible for assigning a risk grade to each loan in their portfolio. Their assessments are supplemented with independent reviews conducted by our internal audit department and external loan review consultants. All loans in excess of $150,000 that have been identified for potential credit weakness are reviewed quarterly by a management committee to further enhance the process for timely recognition of losses and for determining appropriate reserves.

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

The first component of the allowance for loan loss methodology covers the measurement of specific allowances for individual impaired loans as required by Financial Accounting Standards Board ("FASB") Statement No. 114, Accounting by Creditors for Impairment of a Loan. Each loan relationship with amounts due in excess of $500,000 that has been identified for potential credit weakness is evaluated for impairment. A loan is impaired when, based on current information and events, it is probable that the borrower will be unable to pay all amounts due according to the contractual terms of the loan agreement. By definition, we consider all loans on nonaccrual status and all loans whose terms have been modified in a troubled debt restructuring as impaired. If impairment is determined, a specific valuation is assessed on that loan based on realizable collateral values (if collateral dependent), discounted cash flows, or observable market values. At December 31, 2004, we had $1.08 million in specific reserves on $7.46 million in individually evaluated impaired and other significant potential problem loans. This is a decrease from the $1.58 million in specific reserves on $4.75 million in individually evaluated loans at December 31, 2003.

The second component of the allowance for loan loss methodology addresses all loans not individually evaluated for impairment but are either internally rated, criticized by our banking examiners, or past due 30 day or more. The allowance factors are based on industry standards and supported by our own historical loss analysis. At December 31, 2004, we had $2.79 million in general reserves allocated to $67.5 million rated and delinquent loans. This is a decrease from the $4.03 million reserved on $73.3 million rated and delinquent loans at December 31, 2003. The decrease is due to continued improvement in the more severe rating categories over the past 12 months.

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

levels of and trends in delinquencies and impaired loans;

levels of and trends in charge-offs and recoveries;

trends in volume and terms of loans;

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

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

national and local economic trends and conditions;

industry conditions; and

effects of changes in credit concentrations.

The quantitative risk factors used in determining these general reserves require a high degree of management judgment. At December 31, 2004, we had $5.19 million in general reserves compared to $4.53 million one year ago. While we have seen improving trends in may of the environmental factors, the general reserve increased slightly over last year primarily due to additional caution taken into consideration for our increased concentration in residential construction lending and our entering into new markets.

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

Allocation of the Allowance for Loan Losses

We have allocated the allowance for credit losses according to the amount deemed to be reasonably necessary at each year end to provide for the possibility of losses being incurred within the categories of loans set forth in the table below. The allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any other category. The components of the allowance for credit losses for each of the past five years are presented below.

As of December 31,	2004					2003					2002					2001					2000
			Percent of					Percent of					Percent of					Percent of					Percent of
			Loans in					Loans in					Loans in					Loans in					Loans in
			Category					Category					Category					Category					Category
			to Total					to Total					to Total					to Total					to Total
	Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans
	(Dollars in Thousands)
Commercial, financial
and agricultural	$	1,657		13.3	%	$	2,312		14.4	%	$	2,422		15.2	%	$	2,823		16.7	%	$	1,203		16.5	%
Real estate - construction		2,211		25.8	%		1,168		18.6	%		1,293		15.1	%		1,572		9.9	%		973		6.9	%
Real estate - mortgage		4,851		57.9	%		5,349		61.6	%		7,660		60.9	%		9,244		63.2	%		4,779		64.7	%
Consumer and other loans		335		3.0	%		549		5.4	%		722		8.8	%		2,126		10.2	%		1,230		11.9	%
Unallocated		12					761					-					-					-
Total	$	9,066		100.0	%	$	10,139		100.0	%	$	12,097		100.0	%	$	15,765		100.0	%	$	8,185		100.0	%

Summary of Loan Loss Experience

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

For the Years Ended December 31,	2004		2003		2002		2001		2000
	(Dollars in Thousands)
Balance at beginning of year	$	10,139	$	12,097	$	15,765	$	8,185	$	5,037
Charge-offs:
Commercial, financial and agricultural		511		365		3,771		1,619		680
Real estate - construction		-		9		-		2,001		110
Real estate - mortgage (commercial and residential)		1,673		1,167		1,752		538		393
Installment loans to individuals and other loans		389		1,578		1,079		675		401
		2,573		3,119		6,602		4,833		1,584
Recoveries:
Commercial, financial and agricultural		117		673		89		55		59
Real estate - construction		-		-		-		-		-
Real estate - mortgage (commercial and residential)		330		180		119		72		72
Installment loans to individuals and other loans		453		308		151		66		51
		900		1,161		359		193		182
Net charge-offs		1,673		1,958		6,243		4,640		1,402
Additions provided to the allowance
charged to operations		600		-		2,575		12,220		4,099
Allowance for loan losses of acquired bank		-		-		-		-		451
Balance at end of year	$	9,066	$	10,139	$	12,097	$	15,765	$	8,185

Average balance of loans outstanding	$	569,858	$	540,787	$	586,712	$	616,156	$	534,340

Ratio of net charge-offs during the year to average
loans outstanding during the year (%)		0.29		0.36		1.06		0.75		0.26

Deposits

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

	2004					2003					2002
For the Year Ended December 31,	Average Balance		Rate			Average Balance		Rate			Average Balance		Rate
	(Dollars in Thousands)
Noninterest-bearing demand	$	95,859		-		$	90,444		-		$	84,476		-
Interest-bearing demand		173,555		0.69	%		167,215		0.84	%		167,986		1.39	%
Savings		42,137		0.56	%		39,445		0.71	%		38,289		1.12	%
Time		264,216		2.56	%		279,767		3.04	%		350,697		4.08	%
Total	$	575,767		1.42	%	$	576,871		1.77	%	$	641,448		2.66	%

Our total deposit portfolio grew $100.6 million, or 18.1%, in 2004. Of this increase, $47.0 million is from the purchase of brokered deposits. The average rate paid on time deposits dropped 48 basis points from 3.04% in 2003 to 2.56% in 2004. The decrease in rate on these deposits allowed us to improve our net interest margin and keep our net interest income from falling to a less profitable level. While we have historically enjoyed a relatively low cost of funds from our core deposits, with the current rising rate environment and our plan to grow the balance sheet, we do not expect to be able to sustain these low levels of interest rates on deposits.

The maturities of time deposits of $100,000 or more as of December 31, 2004 are summarized below.

	Amount (in thousands)
Three months or less	$	23,818
Over three through six months		25,487
Over six months through one year		57,591
Over one year		38,982
Total	$	145,878

LIQUIDITY AND CAPITAL RESOURCES

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

At December 31, 2004, our liquidity ratio was 20.42% and our net noncore funding dependency ratio was 29.18%. Our liquidity and funding policy provides that we should maintain a liquidity position of greater than or equal to 15% and a net noncore funding dependency ratio of less than or equal to 25%. Due to our reliance on brokered deposits and FHLB advances for funding during the fourth quarter, we exceeded our policy limit in the net noncore funding dependency ratio at year end. Since year end we are aware of no trends or events likely to result in a material change in our ability to meet the borrowing needs and deposit withdrawal requirements of our customers.

Investment Portfolio

The Bank's investment portfolio is another primary source of liquidity. Maturities of securities provide a constant flow of funds that are available for cash needs. Contractual investment securities that mature within one year totaled $998,000 at December 31, 2004. However, mortgage-backed securities and securities with call provisions create cash flows earlier than the contractual maturities. Estimates of prepayments on mortgage-backed securities and call provisions on Federal agency and state and municipals increase the forecasted cash flows from the investment portfolio.

Our liquidity from investments is somewhat limited since we pledge certain investments to secure public deposits, certain borrowing arrangements, and for other purposes. At December 31, 2004, approximately 82.4% of our $128.7 million investment portfolio was pledged as collateral to others.

Borrowings

As with most community banks, loan volume is the driver for the remainder of our balance sheet. Since our loan volume has grown $107.5 million this past year, we have become more aggressive in retaining time deposits. As a result, total time deposits have increased $73.8 million, or 28.5%, since December 31, 2003. Of this $73.8 million in time deposit growth, $47.0 million are in the form of brokered deposits. To further fund this loan growth, we borrowed $54.7 million in advances from the Federal Home Loan Bank of Atlanta (the "FHLB") during 2004.

During 2003, we incurred a $1.44 million prepayment penalty to repay $14.5 million in FHLB advances that had a remaining average life to maturity of over five years. The average rate on these advances was 434 basis points higher than the federal funds rate (at that time) that we purchased to retire the advances.

On November 28, 2001, PAB Bankshares Capital Trust I ("PAB Trust") issued $10 million of Floating Rate Capital Securities, also referred to as "trust preferred securities". We formed PAB Trust, a statutory business trust created under the laws of the State of Delaware, for the sole purpose of issuing the trust preferred securities and investing the proceeds in Floating Rate Junior Subordinated Debentures issued by us. The interest rates on both the trust preferred securities and the debentures are reset semi-annually at LIBOR plus 3.75% (currently 6.44%) with a rate cap of 11.0% through December 8, 2006. We entered into agreements which, taken collectively, fully, irrevocably and unconditionally guarantee, on a subordinated basis, all of PAB Trust's obligations under the trust preferred securities. PAB Trust's sole asset is the debentures issued by us. The debentures will mature on December 8, 2031, but are callable at par at our option in whole or in part anytime after December 8, 2006. The proceeds from the issuance of the trust preferred securities qualify as Tier 1 Capital under the risk-based capital guidelines established by the Federal Reserve.

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

At December 31, 2004, we had $11.7 million in an available secured credit line with the FHLB and an additional $40.0 million in unsecured Fed Funds lines of credit available with correspondent banks.

Contractual Obligations

Summarized below are our contractual obligations as of December 31, 2004.

			1 year		Over 1		Over 3		More than
Contractual Obligations	Total		or less		to 3 years		to 5 years		5 years
	(Dollars in Thousands)
FHLB Advances	$	99,001	$	11,181	$	21,216	$	15,202	$	51,402
Operating Lease Obligations		598		166		281		151		-
Guaranteed Preferred Beneficial Interests in Debentures		10,310		-		-		-		10,310
	$	109,909	$	11,347	$	21,497	$	15,353	$	61,712

Off-Balance-Sheet Financing

Our financial statements do not reflect various commitments and contingent liabilities that arise in the normal course of business. These off-balance-sheet financial instruments include commitments to extend credit and standby letters of credit. These financial instruments are included in the financial statements when funds are distributed or the instruments become payable. We use the same credit policies in making commitments as we do for on-balance-sheet instruments. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit and credit card commitments is represented by the contractual amount of those instruments. At December 31, 2004, we had outstanding commitments to extend credit through open lines of credit of approximately $118.2 million and outstanding standby letters of credit of approximately $5.7 million.

Commitments of Capital

At December 31, 2004, we had accepted a bid to replace eight of our ATM's for approximately $220,000 and to add two additional ATM's for a cost of approximately $100,000. Although we have no commitments, locations identified, or regulatory approval applications in process, we have budgeted to add up to two branches during 2005. In April 2005, we intend to open a loan production office in Cobb County. We expect to enter into a lease agreement for the planned space and we have budgeted up to $25,000 to furnish and equip the office to meet our needs.

Stockholders' Equity

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

The following table summarizes our consolidated regulatory capital ratios at December 31, 2004, 2003 and 2002.

										Minimum
										Regulatory
	2004			2003			2002			Requirement
Total Capital to Risk Weighted Assets		13.5	%		15.1	%		14.0	%		8.0	%
Tier 1 Capital to Risk Weighted Assets		12.2	%		13.9	%		12.7	%		4.0	%
Tier 1 Capital to Average Assets (Leverage Ratio)		10.4	%		11.0	%		10.0	%		4.0	%

RESULTS OF OPERATIONS

Net Interest Income

The primary component of a financial institution's profitability is net interest income, or the difference between the interest income earned on assets, primarily loans and investments, and interest paid on liabilities, primarily deposits and other borrowed funds. Our net interest income for 2004, on a tax equivalent basis, increased by $2,389,000, or 8.61%, over 2003. Interest income increased $546,000, or 1.4%, while interest expense decreased by $1,843,000, or 14.8%, during 2004. The increase in interest income is the net result of an increase of $28.6 million in our average earning assets and a 16 basis point drop in the average yield on earning assets during the year, from 5.95% in 2003 to 5.79% in 2004. The majority of the decrease in interest expense is the result of a decline in rates. The average rates paid on interest-bearing liabilities decreased 38 basis points, from 2.20% in 2003 to 1.82% in 2004.

Net interest income, on a tax equivalent basis, for 2003 decreased by $466,000, or 1.7%, over 2002. The $8.0 million decrease in interest income was primarily the result of a 75 basis point drop in the average yield on earning assets during the year from 2002 to 2003. The majority of the $7.5 million decrease in interest expense was the result of a 102 basis point drop in the average yield on interest-bearing liabilities during the year from 2002 to 2003.

The net interest margin is net interest income expressed as a percentage of average earning assets. Our net interest margin increased from 4.11% in 2003 to 4.28% in 2004, a 17 basis point improvement. Although our net interest margin improved during 2004, our ability to continue to improve our net interest margin in 2005 will be a challenge considering the current flattening of the interest rate curve and our rising incremental cost of funds.

Provision for Loan Losses

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

For the year ended December 31, 2004, we recorded $600,000 as a provision for loan losses, compared to no provision recorded for the same period in 2003. The increase is due to a growing loan portfolio, balanced by continued improvement in the level of total nonperforming loans, and an improvement in several environmental factors previously discussed.

Noninterest Income

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

For the Year Ended December 31,	2004					2003						2002
			Percent						Percent
			Change						Change
	Amount		2004 vs. 2003			Amount			2003 vs. 2002			Amount
	(Dollars In Thousands)
Service charges on deposit accounts	$	4,417		-10.3	%	$	4,926			-7.0	%	$	5,295
Mortgage origination fees		522		-27.0	%		715			-14.7	%		838
Brokerage commissions and fees		121		-74.2	%		469			-3.3	%		485
ATM / debit card fee income		419		17.4	%		357			8.5	%		329
Other commissions and fees		225		-11.1	%		253			8.6	%		233
Securities transactions, net *		5		-99.6	%		1,416			442.5	%		261
Earnings of bank-owned life insurance		315		-33.3	%		472			-1.3	%		478
Gain (loss) on disposal / write-down of assets *		119		-146.1	%		(258	)		-5.1	%		(272	)
Other noninterest income		201		-24.4	%		266			-27.3	%		366
Total Noninterest Income	$	6,344		-26.4	%	$	8,616			7.5	%	$	8,013

* Non-recurring items for discussion purposes

Noninterest income decreased 26.4% in 2004. As a percentage of average assets, noninterest income, excluding securities transactions and other non-recurring gains and losses, has been 0.81%, 1.01%, and 1.03% for each of the last three years ended December 31, 2004, 2003 and 2002, respectively.

Service charges on deposit accounts have declined over the past three years as we continued to promote a free checking product, thus reducing the monthly service fees. In addition, the fee income generated from an overdraft privilege product that was launched in March 2001 and resulted in an increase in revenues in 2001 and 2002 has continued to decline since then.

Mortgage origination fees continued to decline in 2004 due to a decrease in the refinancing activity during the year.

Brokerage income declined due to the sale of that unit in February 2004. We will continue to receive a small portion of the commissions earned on a select list of accounts held by employees and directors of the Bank going forward. In addition to the decline in commission revenue, we have had a greater decline in brokerage-related expenses. Included in noninterest expense for the years ended December 31, 2004, 2003, and 2002, were brokerage expenses totaling $96,799, $430,136, and $640,954, respectively.

Fee income from ATM and debit cards increased in 2004 as the volume of point-of-sale transactions has continued to increase from previous years.

Gains on securities transactions decreased $1.4 million in 2004. There was a non-recurring $1.0 million gain on the sale of stock in Community Financial Services, Inc. (a correspondent bank's holding company) recorded in 2003.

Earnings on bank-owned life insurance was down in 2004. This is due to the lower earnings credit on the policies resulting from the low interest rate environment.

Included in gain (loss) on disposal / write-down of assets for 2004 was a $200,000 gain on the sale of our brokerage services unit in February. Also in January 2004, we sold a former branch office in Ocala, Florida for $800,000, recording a gain of $27,000. This branch was closed in November of 2003, with our main branch in Ocala assuming the deposit and loan relationships at that time.

Noninterest Expense

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

For the Year Ended December 31,	2004						2003						2002
				Percent						Percent
				Change						Change
	Amount			2004 vs. 2003			Amount			2003 vs. 2002			Amount
	(Dollars In Thousands)
Salaries and wages	$	12,201			0.5	%	$	12,136			0.3	%	$	12,097
Deferred loan cost		(990	)		127.1	%		(436	)		-62.9	%		(1,176	)
Employee benefits		2,862			-10.5	%		3,196			8.0	%		2,958
Net occupancy expense of premises		1,878			4.4	%		1,799			4.8	%		1,716
Furniture and equipment expense		2,091			-11.2	%		2,355			-1.7	%		2,396
Advertising and business development		496			14.5	%		433			-15.4	%		512
Supplies and printing		424			-22.1	%		544			-14.7	%		638
Telephone and internet charges		342			-24.8	%		455			-28.7	%		638
Postage and courier		546			-3.0	%		563			-12.6	%		644
Legal and accounting fees		304			-42.4	%		528			-40.2	%		883
Service charges and fees		433			-10.5	%		484			-19.7	%		603
Loss on early retirement of debt		-			-			1,438			-			-
Other noninterest expense		2,468			11.8	%		2,207			-10.2	%		2,459
Total Noninterest Expense	$	23,055			-10.3	%	$	25,702			5.5	%	$	24,368

As a percentage of average assets, noninterest expense was 3.01%, 3.49%, and 3.12% in 2004, 2003 and 2002, respectively. During 2003, we incurred a $1.44 million loss on the early retirement of debt with the FHLB, saving significant interest expense over the next several years. Excluding this loss, noninterest expense would have totaled $24.3 million, or 3.30% of average assets for 2003.

The 0.5% increase in salaries and wages is the result of several factors. Included in salaries and wages for 2004 was a nonrecurring $685,645 CEO severance contract charge. The sale of our brokerage services unit in 2004 resulted in a decreased in salary and wage expense of $77,834 for 2004 compared to $335,623 and $458,868 for 2003 and 2002 respectively. Also, as our mortgage origination income declined, mortgage commissions paid decreased; $77,801, $135,156 and $231,253 for 2004, 2003 and 2002 respectively.

Deferred loan cost, a credit against salaries and wages, increased 127.1%, from 2003 and resulted in a decrease in expense reported during 2004, compared to 2003. The increase in the deferral of loan costs is due to the growth in loan volume.

Employee benefits decreased due primarily to a 14.0% decrease in health insurance premiums as we switched insurance plans, providers and administrators during the year.

Occupancy expense increased 4.4% in 2004 due to the addition of new facilities and the typical increases in property taxes, insurance, and utilities. Furniture and equipment expense decreased 11.2% in 2004 due primarily to a $209,000 decrease in depreciation expense.

Legal and accounting fees decreased by 42.4% in 2004. This decrease is due primarily to the drop in legal expense associated with the collection and recovery of problem loans.

The cost of acquiring, maintaining, and repairing foreclosed other real estate owned and other repossessed property included in other noninterest expense increased $292,277, or 117%, to $543,828 in 2004, from $251,551 in 2003 and $181,372 in 2002, due to an increase in activity in 2003 and 2004.

All other major expense categories have decreased due to efficiencies gained from the charter consolidation process, the utilization of technology, and tighter budgeting and cost control measures.

Income Taxes

The provision for income tax expense as a percentage of pre-tax income was 32.7%, 32.1%, and 30.7% for 2004, 2003 and 2002, respectively. The difference between the effective rate and the statutory federal rate of 34% is due primarily to income earned on our investments in and loans to tax-exempt municipalities and earnings on the cash value of our bank-owned life insurance.

Fourth Quarter Results

For the fourth quarter of 2004, our net income was $2.2 million, or $0.23 per diluted share, compared to net income of $1.9 million, or $0.19 per share, in the fourth quarter of 2003. In the fourth quarter of 2004, we provided $600,000 to the allowance for loan losses, compared to no provision in 2003. Our net interest margin for the fourth quarter of 2004 was 4.15% compared to 4.14% in 2003. The average yield on earning assets grew 13 basis points to 5.82% in the fourth quarter of 2004 from 5.69% in 2003. Correspondingly, the average rate paid on interest-bearing liabilities also increased, from 1.87% in 2003 to 1.99% in 2004, or 12 basis points.

Impact of Inflation

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

Critical Accounting Policies

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

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.

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

Estimates of Fair Value

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

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

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

Recent Accounting Pronouncements

In management's opinion, there are no recent accounting pronouncements that have had a material impact on PAB's earnings or financial position as of or for the year ended December 31, 2004. For more detailed disclosure on recent accounting developments, see Note 1 to the Consolidated Financial Statements included in Item 8 of this Report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to exposure from U.S. dollar interest rate changes and accordingly, we manage our exposure by considering the possible changes in the net interest margin. We do not engage in trading activity nor do we classify any portion of the investment portfolio as held for trading. We do not engage in any hedging activities or enter into any derivative instruments with a higher degree of risk than mortgage-backed securities, which are commonly held pass through securities. 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. However, with interest rates at historic lows and the shape of the interest rate curve, the Company has exceeded policy limits by adjusting the balance sheet to a more asset-sensitive position. At December 31, 2004, our one-year management-adjusted gap ratio of 1.57 was outside of our policy guidelines due to our preference to offer floating rate loans over fixed rate loans at this time. This exception to policy, while monitored closely, is an acceptable risk that positions our financial condition to benefit from an increase in interest rates.

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

Cumulative Repricing Gap Analysis
	3-Month		6-Month		1-Year
	(Dollars in Thousands)
Regulatory Defined
Rate Sensitive Assets (RSA)	$	489,459	$	509,328	$	561,826
Rate Sensitive Liabilities (RSL)		325,674		382,000		496,875
RSA minus RSL (Gap)	$	163,785	$	127,328	$	64,951

Gap Ratio (RSA/RSL)		1.50		1.33		1.13

Management-Adjusted
Rate Sensitive Assets (RSA)	$	502,422	$	535,254	$	610,489
Rate Sensitive Liabilities (RSL)		149,847		206,173		389,841
RSA minus RSL (Gap)	$	352,575	$	329,081	$	220,648

Gap Ratio (RSA/RSL)		3.35		2.60		1.57

We use simulation analysis to monitor changes in net interest income due to changes in market interest rates. The simulation of rising, declining, and flat interest rate scenarios allows us to monitor and adjust interest rate sensitivity to minimize the impact of market interest rate swings. The analysis of the impact on net interest income over a twelve-month period is subjected to increases or decreases in market rates on net interest income and is monitored on a quarterly basis. As of year end, the simulation model projected net interest income would increase 12.09% over the next year if market rates immediately rose by 200 basis points. On the other hand, the model projected net interest income to decrease 18.55% over the next year if market rates immediately fell by 200 basis points. The high volatility in our results is due primarily to our asset-sensitive balance sheet mix and our behavioral assumptions for repricing and prepayment speeds. Our policy states that net interest income cannot be reduced by more than 10% using this analysis, and technically, we were outside of policy guidelines at year end. However, this exception was mitigated because a further 200 basis point drop was not realistic given that the federal funds rate stood at 2.25%. If market rates immediately fell by 100 basis points, a more plausible but still unlikely scenario, our model projected net interest income to decrease 7.08% over the next year.

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

Market	Effect on Net Interest Income
Rate Change	Gradual	Immediate
+300 bps	13.72%	18.25%
+200 bps	11.31%	12.09%
+100 bps	6.17%	6.01%
-100 bps	-7.01%	-7.08%

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Quarterly Financial Summary for 2004 and 2003

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

	Quarterly Period Ending
	March 31		June 30		September 30		December 31
Year ended December 31, 2004:
Interest income	$	9,587	$	9,552	$	10,328	$	11,129
Interest expense		2,430		2,381		2,611		3,201
Net interest income		7,157		7,171		7,717		7,928
Provision for loan losses		-		-		-		600
Net interest income
after provision for
loan losses		7,157		7,171		7,717		7,328
Other income		1,806		1,490		1,614		1,434
Other expenses		5,726		5,613		6,287		5,429
Income before
income taxes		3,237		3,048		3,044		3,333
Income tax		1,111		928		983		1,122
Net income	$	2,126	$	2,120	$	2,061	$	2,211

Basic earnings per share	$	0.22	$	0.23	$	0.21	$	0.23
Diluted earnings per share	$	0.22	$	0.22	$	0.21	$	0.23


Year ended December 31, 2003:
Interest income	$	10,416	$	10,075	$	9,892	$	9,657
Interest expense		3,593		3,254		2,972		2,648
Net interest income		6,823		6,821		6,920		7,009
Provision for loan losses		-		-		-		-
Net interest income
after provision for
loan losses		6,823		6,821		6,920		7,009
Other income		2,161		1,887		2,865		1,702
Other expenses		6,305		6,225		7,343		5,829
Income before
income taxes		2,679		2,483		2,442		2,882
Income tax		854		751		760		995
Net income	$	1,825	$	1,732	$	1,682	$	1,887

Basic earnings per share	$	0.19	$	0.18	$	0.19	$	0.19
Diluted earnings per share	$	0.19	$	0.18	$	0.18	$	0.19

MANAGEMENT'S REPORT ON

INTERNAL CONTROL OVER FINANCIAL REPORTING

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

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

The management of the Company has assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2004. To make this assessment, we used the criteria for effective internal control over financial reporting described in "Internal Control - Integrated Framework", issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we believe that, as of December 31, 2004, the Company's internal control over financial reporting was effective.

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

	PAB BANKSHARES, INC.

	/s/ M. Burke Welsh, Jr		/s/ Donald J. Torbert, Jr.
	M. Burke Welsh, Jr.		Donald J. Torbert, Jr.
	President and		Executive Vice President and
	Chief Executive Officer		Chief Financial Officer

	February 22, 2005		February 22, 2005
	Date		Date

CERTIFIED PUBLIC ACCOUNTANTS, LLC

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

PAB Bankshares, Inc.

Valdosta, Georgia

We have audited management's assessment, included in the accompanying management's report on internal control over financial reporting, that PAB Bankshares, Inc. and subsidiaries maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). PAB Bankshares, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment, and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

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

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

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

In our opinion, management's assessment that PAB Bankshares, Inc. and subsidiaries maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, PAB Bankshares, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of PAB Bankshares, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2004, and our report dated, February 22, 2005, expressed an unqualified opinion.

Albany, Georgia

February 22, 2005

CERTIFIED PUBLIC ACCOUNTANTS, LLC

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

PAB Bankshares, Inc.

Valdosta, Georgia

We have audited the accompanying balance sheets of PAB Bankshares, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2004. Our

responsibility is to express an opinion on these financial statements based on our audits

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PAB Bankshares, Inc. and subsidiaries as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America.

Albany, Georgia

February 22, 2005

PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 AND 2003


	2004			2003

ASSETS
Cash and due from banks	$	22,976,924		$	22,920,218
Interest-bearing deposits in other banks		984,737			505,409
Federal funds sold		32,616,121			330,187
Investment securities		128,683,829			126,825,013

Loans		646,149,340			538,643,842
Allowance for loan losses		(9,066,566	)		(10,139,114	)
Net loans		637,082,774			528,504,728

Premises and equipment, net		18,812,209			20,047,375
Goodwill		5,984,604			5,984,604
Cash value of bank-owned life insurance policies		10,737,204			10,422,078
Foreclosed assets		30,216			4,577,824
Other assets		11,066,368			10,623,956

Total assets	$	868,974,986		$	730,741,392

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand	$	99,627,825		$	94,892,871
Interest-bearing demand and savings		224,836,339			202,753,493
Time		333,086,272			259,270,172
Total deposits		657,550,436			556,916,536

Federal funds purchased and securities sold under agreements to repurchase		14,168,098			36,919,790
Advances from the Federal Home Loan Bank of Atlanta		99,001,125			44,714,043
Guaranteed preferred beneficial interests in debentures (trust preferred securities)		10,310,000			10,000,000
Other liabilities		6,945,443			6,128,857
Total liabilities		787,975,102			654,679,226

Commitments and contingencies (See Note 19)

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;
9,495,320 and 9,484,660 shares issued and outstanding		1,217,065			1,217,065
Additional paid-in capital		29,143,017			29,314,700
Retained earnings		50,938,254			45,651,500
Accumulated other comprehensive loss		(298,452	)		(121,099	)
Total stockholders' equity		80,999,884			76,062,166

Total liabilities and stockholders' equity	$	868,974,986		$	730,741,392

See accompanying notes to consolidated financial statements.

PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002


	2004		2003		2002

Interest income:
Interest and fees on loans	$	35,096,225	$	35,017,485	$	42,645,210
Interest and dividends on investment securities:
Taxable		5,022,307		4,533,603		4,637,821
Nontaxable		339,398		360,476		262,446
Other interest income		139,180		128,854		533,048
Total interest income		40,597,110		40,040,418		48,078,525

Interest expense:
Interest on deposits		8,185,878		10,203,408		17,068,902
Interest on Federal Home Loan Bank advances		1,534,732		1,470,649		2,013,671
Interest on other borrowings		903,467		793,234		906,088
Total interest expense		10,624,077		12,467,291		19,988,661

Net interest income		29,973,033		27,573,127		28,089,864

Provision for loan losses		600,000		-		2,575,000
Net interest income after provision for loan losses		29,373,033		27,573,127		25,514,864

Other income:
Service charges on deposit accounts		4,417,464		4,925,500		5,294,753
Other fee income		1,286,544		1,794,684		1,884,885
Securities transactions, net		5,164		1,415,603		261,178
Other noninterest income		634,912		479,750		572,341
Total other income		6,344,084		8,615,537		8,013,157

Other expenses:
Salaries and employee benefits		14,072,903		14,895,502		13,879,438
Occupancy expense of premises		1,878,234		1,799,467		1,716,338
Furniture and equipment expense		2,090,497		2,355,038		2,396,318
Loss on early retirement of debt		-		1,438,085		-
Other noninterest expense		5,013,119		5,214,010		6,376,134
Total other expenses		23,054,753		25,702,102		24,368,228

Income before income tax expense		12,662,364		10,486,562		9,159,793
Income tax expense		4,144,279		3,361,044		2,812,954

Net income	$	8,518,085	$	7,125,518	$	6,346,839

Earnings per common share:
Basic	$	0.89	$	0.75	$	0.67
Diluted	$	0.88	$	0.74	$	0.67

See accompanying notes to consolidated financial statements.

PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002



	2004			2003			2002

Net income	$	8,518,085		$	7,125,518		$	6,346,839

Other comprehensive income (loss):
Unrealized holding gains (losses) arising during the period,
net of tax (benefit) of ($89,608); ($113,679); and $322,761		(173,945	)		(220,671	)		626,678
Reclassification adjustment for gains included in net
income, net of tax of $1,756; $481,305; and $88,801		(3,408	)		(934,298	)		(172,377	)
		(177,353	)		(1,154,969	)		454,301

Comprehensive income	$	8,340,732		$	5,970,549		$	6,801,140

See accompanying notes to consolidated financial statements.

PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002


												Accumulated
						Additional						Other
	Common Stock					Paid-in			Retained			Comprehensive
	Shares			Par Value		Capital			Earnings			Income (Loss)			Total

Balance, December 31, 2001		9,409,913		$	1,217,065	$	28,657,351		$	34,917,898		$	579,569		$	65,371,883
Net income		-			-		-			6,346,839			-			6,346,839
Other comprehensive income		-			-		-			-			454,301			454,301
Cash dividends declared,
$.11 per share		-			-		-			(1,036,410	)		-			(1,036,410	)
Stock options exercised		20,500			-		128,125			-			-			128,125
Balance, December 31, 2002		9,430,413			1,217,065		28,785,476			40,228,327			1,033,870			71,264,738
Net income		-			-		-			7,125,518			-			7,125,518
Other comprehensive loss		-			-		-			-			(1,154,969	)		(1,154,969	)
Cash dividends declared,
$.18 per share		-			-		-			(1,702,345	)		-			(1,702,345	)
Stock options exercised		54,247			-		529,224			-			-			529,224
Balance, December 31, 2003		9,484,660			1,217,065		29,314,700			45,651,500			(121,099	)		76,062,166
Net income		-			-		-			8,518,085			-			8,518,085
Other comprehensive loss		-			-		-			-			(177,353	)		(177,353	)
Cash dividends declared,
$.34 per share		-			-		-			(3,231,331	)		-			(3,231,331	)
Stock acquired and cancelled
under stock repurchase plan		(46,300	)		-		(576,198	)		-			-			(576,198	)
Stock options exercised		56,960			-		404,515			-			-			404,515
Balance, December 31, 2004		9,495,320		$	1,217,065	$	29,143,017		$	50,938,254		$	(298,452	)	$	80,999,884

See accompanying notes to consolidated financial statements.

PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002


	2004			2003			2002

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	8,518,085		$	7,125,518		$	6,346,839
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion, net		2,558,296			3,574,422			3,112,790
Provision for loan losses		600,000			-			2,575,000
Provision for deferred taxes		(17,353	)		879,072			1,180,948
Net realized gain on securities transactions		(5,164	)		(1,415,603	)		(261,178	)
Net loss on disposal or write down of assets		81,314			257,770			271,909
Increase in cash value of bank-owned life insurance		(315,126	)		(471,943	)		(478,199	)
Increase (decrease) in deferred compensation accrual		(3,157	)		138,055			88,063
Increase (decrease) in retirement and severance accruals		225,274			(364,552	)		(402,362	)
(Increase) decrease in interest receivable		(294,422	)		373,253			2,870,401
Increase (decrease) in interest payable		265,438			(475,207	)		(1,981,829	)
(Increase) decrease in taxes receivable		(374,462	)		(151,677	)		628,882
Net change in other assets and other liabilities		(151,006	)		(32,160	)		512,462
Net cash provided by operating activities		11,087,717			9,436,948			14,463,726

CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in interest-bearing deposits in other banks		(479,328	)		469,439			14,965,267
(Increase) decrease in federal funds sold		(32,285,934	)		30,453,813			(6,579,000	)
Purchase of debt securities		(34,315,807	)		(112,848,419	)		(76,717,640	)
Proceeds from sales and calls of debt securities		17,638,840			46,721,110			64,734,595
Proceeds from maturities and paydowns of debt securities		17,569,214			34,350,382			27,114,382
Purchase of equity securities		(3,666,200	)		(1,444,700	)		(980,150	)
Redemption of equity securities		600			2,873,251			1,688,500
Net (increase) decrease in loans		(109,835,353	)		8,879,190			63,295,276
Purchase of premises and equipment		(754,628	)		(903,987	)		(3,203,850	)
Proceeds from disposal of assets		6,047,535			2,078,292			2,218,559
Net proceeds from sale of branch office		-			-			7,748,200
Net cash provided by (used in) investing activities		(140,081,061	)		10,628,371			94,284,139

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits		100,633,900			(49,813,697	)		(109,503,044	)
Net increase (decrease) in federal funds purchased and securities
sold under repurchase agreements		(22,751,692	)		19,399,548			1,811,621
Advances from Federal Home Loan Bank		54,688,400			36,269,500			331,000
Payments on Federal Home Loan Bank advances		(401,318	)		(27,700,367	)		(2,414,568	)
Dividends paid		(2,945,557	)		(1,038,587	)		(2,071,500	)
Proceeds from the exercise of stock options		404,515			529,224			128,125
Issuance of preferred stock in REIT subsidiaries		-			15,000			-
Repurchase of preferred stock in REIT subsidiaries		(2,000	)		(5,000	)		(19,000	)
Acquisition of stock under stock repurchase plans		(576,198	)		-			-
Net cash provided by (used in) financing activities		129,050,050			(22,344,379	)		(111,737,366	)

PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002


	2004			2003			2002



Net increase (decrease) in cash and due from banks	$	56,706		$	(2,279,060	)	$	(2,989,501	)

Cash and due from banks at beginning of period		22,920,218			25,199,278			28,188,779

Cash and due from banks at end of period	$	22,976,924		$	22,920,218		$	25,199,278


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	10,358,639		$	12,942,498		$	21,970,490
Taxes	$	4,536,091		$	2,633,649		$	1,003,124


NONCASH INVESTING AND FINANCING TRANSACTIONS
Increase (decrease) in unrealized gains on securities available for sale	$	(268,717	)	$	(1,749,951	)	$	688,114
Transfer of premises and equipment to other assets	$	-		$	1,323,821		$	-
Transfer of loans to foreclosed assets	$	657,307		$	5,514,057		$	2,280,526

See accompanying notes to consolidated financial statements.

PAB BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

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

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

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

In 1998, the Company formed two real estate investment trusts (each a "REIT") and two intermediate REIT holding companies as subsidiaries of the Bank. The REITs were established to realize state income tax benefits and to provide the Bank with ready access to capital markets if additional capital were needed. The REIT holding companies were established to provide assistance in managing the Company's investment in the REITs. To comply with federal tax law, a minority interest in the non-voting, cumulative preferred stock of the REITs was issued to certain directors, officers and employees of the Company. The $500 par value preferred stock pays an 8% annual dividend. The total minority interest of the REITs included in other liabilities was $115,000 and $117,000 as of December 31, 2004 and December 31, 2003, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Basis Of Presentation and Accounting Estimates

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

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

Cash, Due from Banks and Cash Flows

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

Interest Bearing Deposits in Other Banks

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

Investment Securities

All debt securities are classified as available for sale and recorded at fair value with unrealized gains and losses excluded from earnings and reported in accumulated other comprehensive income (loss), net of the related deferred tax effect. Equity securities are comprised of restricted equity securities and other equity securities without a readily determinable fair value and are recorded at cost and are periodically evaluated for impairment. Restricted equity securities are the Bank's required investments in the Federal Reserve Bank of Atlanta and the Federal Home Loan Bank of Atlanta. Other equity securities are comprised of investments in the common stock of two nonpublic correspondent banks, both of which are well-capitalized institutions. No known events have occurred to require an impairment evaluation for these investments.

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

Loans

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans, continued

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

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

Allowance for Loan Losses

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

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

Premises and Equipment

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

Goodwill

Goodwill represents the excess of cost over the fair value of the net assets purchased in a business combination. Goodwill is required to be tested annually for impairment, or whenever events occur that may indicate that the recoverability of the carrying amount is not probable. In the event of an impairment the amount by which the carrying amount exceeds the fair value would be charged to earnings. The Company performed its annual test of impairment in the fourth quarter and determined that there was no impairment of the carrying value as of November 30, 2004.

There were no changes in the carrying amount of goodwill during the year ended December 31, 2004.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Foreclosed Assets

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

Income Taxes

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

Stock Based Compensation Plans

At December 31, 2004, the Company had options outstanding under two stock-based employee compensation plans, which are described in more detail in Note 17. The Company accounts for those plans under the recognition and measurement principles of Accounting Principles Board "APB" Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying stock on the date of grant.

The following table illustrates the effect on net income and earnings per share for the years ended December 31, 2004, 2003 and 2002 if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

	2004			2003			2002
Net income, as reported	$	8,518,085		$	7,125,518		$	6,346,839
Deduct:
Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects		(216,551	)		(230,257	)		(229,407	)
Pro forma net income	$	8,301,534		$	6,895,261		$	6,117,432
Earnings per share:
Basic - as reported	$	0.89		$	0.75		$	0.67
Basic - pro forma	$	0.87		$	0.73		$	0.65
Diluted - as reported	$	0.88		$	0.74		$	0.67
Diluted - pro forma	$	0.86		$	0.72		$	0.65

Earnings Per Share

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Comprehensive Income (Loss)

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

Recent Accounting Standards

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51 and, on December 24, 2003, the FASB issued Interpretation No. 46R (Revised December 2003), Consolidation of Variable Interest Entities. The interpretation addresses consolidation by business enterprises of variable interest entities. A variable interest entity is defined as an entity subject to consolidation according to the provisions of the interpretation. The Company has determined that the provisions of the interpretation require deconsolidation of the subsidiary trust which issued subordinated debentures (see Note 9). The Company has adopted the provisions under the interpretation as of January 1, 2004.

In December 2004, the FASB issued Statement No. 123R, Share-Based Payment, a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. This Statement supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. Statement 123R establishes standards for accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. The primary focus of this statement is accounting for transactions in which an entity obtains employee services in share-based payment transactions such as the issuance of stock options in exchange for employee services. A public entity must measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period (usually the vesting period). The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available). For public entities, such as the Company, this Statement is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. This Statement applies to all awards granted after the required effective date and to awards outstanding as of the effective date that are vested, modified, repurchased, or cancelled after that date.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2.

RESTRICTIONS ON CASH AND DUE FROM BANKS

The Bank is required to maintain reserve balances in cash or on deposit with correspondent banks and the Federal Reserve Bank of Atlanta, based on a percentage of deposits. The total of those reserve balances was approximately $6,360,000 and $6,374,000 at December 31, 2004 and 2003, respectively.

NOTE 3.

INVESTMENT SECURITIES

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2004
U.S. Government agencies	$	53,025,477	$	140,010	$	(646,483	)	$	52,519,004
State and municipal securities		8,564,881		194,822		(22,039	)		8,737,664
Mortgage-backed securities		55,134,557		253,969		(391,434	)		54,997,092
Corporate debt securities		4,298,816		18,955		-			4,317,771
Equity securities		8,112,298		-		-			8,112,298
	$	129,136,029	$	607,756	$	(1,059,956	)	$	128,683,829

December 31, 2003
U.S. Government agencies	$	57,811,675	$	166,085	$	(649,092	)	$	57,328,668
State and municipal securities		9,144,801		274,842		(19,855	)		9,399,788
Mortgage-backed securities		50,240,697		354,708		(299,442	)		50,295,963
Corporate debt securities		4,364,624		29,012		(39,741	)		4,353,895
Equity securities		5,446,699		-		-			5,446,699
	$	127,008,496	$	824,647	$	(1,008,130	)	$	126,825,013

The amortized cost and fair value of investment securities as of December 31, 2004 by contractual maturity are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties. Equity securities have a perpetual life and no stated maturity, therefore these securities and the mortgage-backed securities are shown separately from the other debt securities in the following maturity summary.

	Amortized Cost		Fair Value
Due in one year or less	$	993,191	$	997,918
Due from one year to five years		8,132,899		8,227,603
Due from five to ten years		28,307,482		28,099,805
Due after ten years		28,455,602		28,249,113
Mortgage-backed securities		55,134,557		54,997,092
Equity securities		8,112,298		8,112,298
	$	129,136,029	$	128,683,829

Securities with a carrying value of $106,015,145 and $71,249,064 at December 31, 2004 and 2003, respectively, were pledged to secure public deposits, certain borrowing arrangements, and for other purposes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3.

INVESTMENT SECURITIES (Continued)

Gains and losses on sales and calls of investment securities for the years ended December 31, 2004, 2003 and 2002 consist of the following:

	2004			2003			2002
Gross gains on securities transactions	$	7,132		$	1,429,011		$	533,742
Gross losses on securities transactions		(1,968	)		(13,408	)		(272,564	)
Net realized gain on securities transactions	$	5,164		$	1,415,603		$	261,178

The following table shows the gross unrealized losses and fair value of securities, aggregated by category, at December 31, 2004 and 2003. At December 31, 2004 there are two U.S. Government agency debt issues and six mortgage-backed securities issued by U.S. Government agencies in the investment portfolio that have been in a continuous unrealized loss position for twelve months or longer. These unrealized losses are due to fluctuations in interest rates and are considered temporary because of acceptable investment grades on each security.

	Less than Twelve Months				Twelve Months or Longer
December 31, 2004	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies	$	13,498,803	$	246,262	$	13,087,800	$	400,221
State and municipal securities		3,022,852		22,039		-		-
Mortgage-backed securities		33,232,400		258,458		9,509,301		132,976
Corporate debt securities		-		-		-		-
Total temporarily impaired securities	$	49,754,055	$	526,759	$	22,597,101	$	533,197

December 31, 2003
U.S. Government agencies	$	27,990,205	$	649,092	$	-	$	-
State and municipal securities		1,742,080		19,855		-		-
Mortgage-backed securities		38,404,930		299,442		-		-
Corporate debt securities		2,169,495		39,741		-		-
Total temporarily impaired securities	$	70,306,710	$	1,008,130	$	-	$	-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.

LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

The composition of the loan portfolio as of December 31, 2004 and 2003 follows.

	2004			2003
Commercial and financial	$	59,703,499		$	53,849,024
Agricultural		26,704,376			24,071,141
Real estate - Construction		166,853,760			100,150,095
Real estate - Mortgage (commercial and residential)		375,221,553			332,003,534
Installment loans to individuals and others		19,381,324			29,189,686
Overdrafts		170,806			176,240
		648,035,318			539,439,720
Deferred loan fees and unearned interest, net		(1,885,978	)		(795,878	)
		646,149,340			538,643,842
Allowance for loan losses		(9,066,566	)		(10,139,114	)
	$	637,082,774		$	528,504,728

Changes in the allowance for loan losses for the years ended December 31, 2004, 2003 and 2002 follows.

	2004			2003			2002
Balance, beginning of year	$	10,139,114		$	12,096,988		$	15,765,373
Provision charged to operations		600,000			-			2,575,000
Loans charged-off		(2,572,845	)		(3,118,821	)		(6,602,334	)
Recoveries		900,297			1,160,947			358,949
Balance, end of year	$	9,066,566		$	10,139,114		$	12,096,988

A summary of information pertaining to impaired loans as of December 31, 2004 and 2003 follows.

	2004		2003
Loans accounted for on a nonaccrual basis	$	1,417,259	$	7,047,676
Troubled debt restructurings not included above		2,045,358		1,167,933
Loans past due 90 days or more and still accruing		10,637		-
Total nonperforming loans	$	3,473,254	$	8,215,609
Valuation allowance related to impaired loans	$	509,505	$	2,350,655

Additional information on impaired loans for the years ended December 31, 2004, 2003 and 2002 follows.

	2004		2003		2002
Average recorded investment in impaired loans	$	6,505,508	$	9,894,628	$	13,206,730
Approximate amount of interest income that would have been recorded if the impaired loans had remained current and on accrual status	$	357,385	$	767,711	$	1,135,894
Interest income recognized on a cash basis on impaired loans	$	314,585	$	143,360	$	198,915

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.

LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

In the ordinary course of business, the Company has granted loans to certain related parties, including executive officers, directors and their affiliates. The interest rates on these loans were substantially the same as rates prevailing at the time of the transaction and repayment terms are customary for the type of loan. Changes in related party loans for the year ended December 31, 2004 follows.

Balance, beginning of year	$	7,758,735
Advances		18,323,785
Repayments		(13,706,511	)
Transactions due to changes in related parties		(962,283	)
Balance, end of year	$	11,413,726

NOTE 5.

PREMISES AND EQUIPMENT

Premises and equipment as of December 31, 2004 and 2003 follows.

	2004			2003
Land	$	4,597,398		$	4,229,408
Buildings and improvements		16,507,046			16,752,623
Furniture, fixtures and equipment		10,025,797			10,775,647
Construction in progress		-			33,454
		31,130,241			31,791,132
Less accumulated depreciation		(12,318,032	)		(11,743,757	)
	$	18,812,209		$	20,047,375

Depreciation expense amounted to $1,838,412, $2,047,623, and $2,110,353, for the years ended December 31, 2004, 2003 and 2002, respectively.

The Company leases office space at five locations. One location is leased on a month-to-month basis. The other locations are under agreements with minimum contractual obligations as of December 31, 2004 as follows:

Year	Amount
2005		166,393
2006		139,866
2007		141,230
2008		134,761
2009		16,208
Later		-
	$	598,458

The Company also has commitments on various short-term operating leases for equipment. Total lease expense amounted to $284,326, $246,360, and $203,984 for the years ended December 31, 2004, 2003 and 2002 respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6.

DEPOSITS

A summary of interest-bearing deposits as of December 31, 2004 and 2003 follows.

	2004		2003
Interest-bearing demand	$	183,608,828	$	162,844,995
Savings		41,227,511		39,908,498
Time, $100,000 and over		145,878,073		82,831,847
Other time		187,208,199		176,438,325
	$	557,922,611	$	462,023,665

The Company had $47,003,000 in brokered time deposits as of December 31, 2004.

Interest expense on deposits for the years ended December 31, 2004, 2003 and 2002 follows.

	2004		2003		2002
Interest-bearing demand	$	1,199,639	$	1,404,086	$	2,330,026
Savings		234,512		281,552		430,179
Time, $100,000 and over		2,373,902		2,673,927		4,730,549
Other time		4,377,825		5,843,843		9,578,148
	$	8,185,878	$	10,203,408	$	17,068,902

The scheduled maturities of time deposits at December 31, 2004 follow.

Year	Amount
2005	$	227,884,195
2006		59,983,013
2007		21,524,825
2008		13,319,873
2009		9,554,720
Later		819,646
	$	333,086,272

NOTE 7.

SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

Securities sold under repurchase agreements, which are secured borrowings, generally mature within one day to 90 days from the transaction date. Securities sold under repurchase agreements are reflected at the amount of cash received in connection with the transactions. The Company may be required to provide additional collateral based on the fair value of the underlying securities. The Company monitors the fair value of the underlying securities on a weekly basis. Securities sold under repurchase agreements at December 31, 2004 and 2003 were $14,168,098 and $35,136,790, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8. ADVANCES FROM THE FEDERAL HOME LOAN BANK

Listed below is a summary of the advances from the Federal Home Loan Bank of Atlanta (the "FHLB") as of December 31, 2004 and 2003.

	2004		2003
Adjustable rate advances due at various dates through September 30, 2009 with a weighted-average rate of 2.34% at December 31, 2004	$	15,441,580	$	3,941,580
Fixed rate advances due at various dates through February 26, 2024 with a weighted-average rate of 3.90% at December 31, 2004		22,959,545		3,172,463
Convertible advances due at various dates through July 15, 2014 with a weighted-average rate of 2.47% at December 31, 2004		60,600,000		37,600,000
	$	99,001,125	$	44,714,043

The Bank has pledged $95,880,257 in qualifying residential and commercial real estate mortgage loans, $43,962,469 in investment securities and $5,912,900 in FHLB stock as collateral on the advances from the FHLB.

Contractual maturities of the advances from the FHLB at December 31, 2004 follow.

Year	Amount

2005		11,181,200
2006		12,733,808
2007		8,482,434
2008		10,486,730
2009		4,715,148
Later		51,401,805
	$	99,001,125

NOTE 9.

GUARANTEED PREFERRED BENEFICIAL INTERESTS IN DEBENTURES

On November 28, 2001, PAB Bankshares Capital Trust I ("PAB Trust") issued $10 million of Floating Rate Capital Securities "trust preferred securities". The Company formed PAB Trust, a statutory business trust created under the laws of the State of Delaware, for the sole purpose of issuing the trust preferred securities and investing the proceeds in Floating Rate Junior Subordinated Debentures (the "Debentures") issued by the Company. The interest rates on both the trust preferred securities and the Debentures are reset semi-annually at LIBOR plus 3.75% (currently 6.44%) with a rate cap of 11.0% through December 8, 2006. The Company entered into agreements which, taken collectively, fully, irrevocably and unconditionally guarantee, on a subordinated basis, all of PAB Trust's obligations under the trust preferred securities. PAB Trust's sole asset is the Debentures issued by the Company. The Debentures will mature on December 8, 2031, but are callable at par by the Company in whole or in part anytime after December 8, 2006. The proceeds from the issuance of these trust preferred securities qualify as Tier 1 capital under the risk-based capital guidelines established by the Federal Reserve.

As discussed in Note 1, the Company adopted FASB Interpretation No. 46R (Revised December 2003), Consolidation of Variable Interest Entities, during the first quarter of 2004. This interpretation addresses consolidation by business entities of variable interest entities and when such entities are subject to consolidation under the provisions of this interpretation. The Company has determined that the revised provisions required deconsolidation of PAB Trust. The adoption of this interpretation did not have a material effect on the Company's financial statements. Prior years' consolidated financial statements have not been restated.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10.

INCOME TAXES

The components of income tax expense for the years ended December 31, 2004, 2003 and 2002 follow.

	2004			2003		2002
Current	$	4,161,632		$	2,481,972	$	1,632,006
Deferred		(17,353	)		879,072		1,180,948
	$	4,144,279		$	3,361,044	$	2,812,954

The Company's income tax expense differs from the amounts computed by applying the Federal income tax statutory rates to income before income taxes. A reconciliation of the differences for the years ended December 31, 2004, 2003 and 2002 follows.

	2004			2003			2002
Tax at statutory rate	$	4,326,730		$	3,565,431		$	3,114,330
Increase (decrease) resulting from:
State income tax, net of Federal tax benefit		30,471			16,172			37,894
Tax exempt interest and dividend exclusion		(152,661	)		(181,127	)		(163,775	)
Increase in cash value of bank- owned life insurance policies		(107,679	)		(160,542	)		(162,053	)
Deferred tax adjustment		111			116,257			(20,897	)
Other items, net		47,307			4,853			7,455
Income tax expense	$	4,144,279		$	3,361,044		$	2,812,954

The components of deferred income taxes at December 31, 2004 and 2003 follow.

	2004			2003
Deferred tax assets and (liabilities):
Accrued severance payable	$	254,914		$	178,321
Allowance for loan losses		3,082,632			3,447,299
Deferred compensation		696,245			697,320
Deferred loan origination cost		(322,622	)		(245,402	)
Deferred loan origination fees		906,751			462,745
Other assets		195,635			362,637
Premises and equipment		(918,691	)		(1,025,409	)
Unrealized loss on securities available for sale		153,748			62,384
Net deferred tax assets	$	4,048,612		$	3,939,895

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11.

EMPLOYEE BENEFIT PLANS

The Company provides an employee 401(k) plan for qualified employees. The 401(k) plan allows participants to defer a portion of their compensation and provides that the Company may match a portion of the participants' deferred compensation. The plan also provides for non-elective and discretionary profit sharing contributions to be made by the Company at the sole discretion of the Board of Directors. Approximately 3.5% of the participants' eligible compensation was accrued as the discretionary profit sharing contributions for 2004, 2003 and 2002. The employer contributions are on a five-year vesting schedule. All full-time and part-time employees are eligible to participate in the plan provided they have met the eligibility requirements. Generally, a participant must have completed one month employment to become eligible, with employer contributions beginning after six months of employment. Aggregate expense under the plan charged to operations during 2004, 2003 and 2002 amounted to $705,747, $711,102, and $675,614, respectively.

NOTE 12.

DEFERRED COMPENSATION AND RETIREMENT PLANS

In years past, the Company entered into separate deferred compensation arrangements with certain officers. The agreements called for the deferred compensation to be payable over a fifteen-year period beginning at the earlier of age 65, death, or disability of each officer. Annual accruals were made based on actuarial assumptions for the present value of the future obligations. In 2001, the Board of Directors elected to terminate these plans. At that time, the Company incurred an expense of approximately $898,000 for the accrual for the net present value of the liability covering two executive officers that were retiring at the end of 2001. The total accrued liability for these deferred compensation plans was $2,047,781 and $2,050,938 at December 31, 2004 and 2003, respectively. Aggregate expense under the deferred compensation plans charged to salaries and employee benefits expense were $85,085, $138,055, and $165,009 during 2004, 2003 and 2002, respectively.

In 2001, the Company entered into separate severance agreements with two retiring executive officers that effectively terminated their then existing employment agreements and committed to pay each officer a three-year severance package beginning in January 2002. The Company accrued $1,291,388 representing the net present value of the severance payments with the expense included in salaries and employee benefits for the year ended December 31, 2001. The remaining liability in the severance plans payable as of December 31, 2004 was $135,891. In 2003, the severance agreement for one of the retired executives was amended to spread the remaining payments due from the Company over an extended period to December 31, 2005.

In August 2004, the Company entered into a severance agreement with a retiring executive officer that effectively terminated his then existing employment agreement and committed to pay a three-year severance package beginning in September 2004. The Company accrued $685,645 representing the net present value of the severance payments with the expense included in salaries and employee benefits for the year ended December 31, 2004. The remaining liability in the severance plan payable as of December 31, 2004 was $613,857.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13.

OTHER INCOME AND EXPENSES

Other fee income for the years ended December 31, 2004, 2003 and 2002 follows.

	2004		2003		2002
Mortgage origination fees	$	521,511	$	715,358	$	838,044
Brokerage commissions and fees		121,017		469,373		485,401
ATM and debit card fee income		419,082		357,235		329,100
Insurance premiums		25,458		773		5,822
Other fee income		199,476		251,945		226,518
Total other fee income	$	1,286,544	$	1,794,684	$	1,884,885

Other noninterest income for the years ended December 31, 2004, 2003 and 2002 follows.

	2004		2003			2002
Earnings on bank-owned life insurance	$	315,126	$	472,183		$	478,199
Gain (loss) on disposal / write-down of assets		118,686		(257,770	)		(271,909	)
Other noninterest income		201,100		265,337			366,051
Total other noninterest income	$	634,912	$	479,750		$	572,341

Other noninterest expense for the years ended December 31, 2004, 2003 and 2002 follows.

	2004		2003		2002
Advertising and business development	$	495,954	$	433,079	$	511,902
Supplies and printing		423,724		543,738		638,240
Telephone and internet charges		342,084		454,670		638,209
Postage and courier		546,286		563,156		644,332
Legal and accounting fees		303,506		528,493		882,765
Service charges and fees		433,471		483,769		603,011
Other noninterest expenses		2,468,094		2,207,105		2,457,675
Total other noninterest expense	$	5,013,119	$	5,214,010	$	6,376,134

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14. EARNINGS PER COMMON SHARE

The components used to calculate basic and diluted earnings per share for the years ended December 31, 2004, 2003 and 2002 follows.

	2004		2003		2002
Basic earnings per share:
Net income	$	8,518,085	$	7,125,518	$	6,346,839

Weighted average common shares outstanding		9,499,709		9,446,142		9,426,761

Earnings per common share	$	0.89	$	0.75	$	0.67

Diluted earnings per share:
Net income	$	8,518,085	$	7,125,518	$	6,346,839

Weighted average common shares outstanding		9,499,709		9,446,142		9,426,761
Effect of dilutive stock options		142,356		141,045		33,007
Weighted average diluted common
shares outstanding		9,642,065		9,587,187		9,459,768

Earnings per common share	$	0.88	$	0.74	$	0.67

For the years ended December 31, 2004, 2003 and 2002, options to purchase 175,639, 171,368, and 592,001, respectively, were outstanding but not included in the computation of earnings per share because they were anti-dilutive.

NOTE 15.

EMPLOYEE AND DIRECTOR STOCK PURCHASE PROGRAM

On July 1, 2002, the Board of Directors established an Employee and Director Stock Purchase Program to enable the Company and its participating subsidiaries to provide to their respective employees and directors a convenient means of purchasing for long term investment, and not for short term speculative gain, common stock of the Company and thereby promote interest in the Company's continuing success, growth and development. The program allows for an employee or director to purchase up to a maximum of $2,000 a year of the Company's stock with the Company matching 50% of the participants purchase. In order to be eligible, an employee must be full-time and have worked a full month. During the years ended December 31, 2004, 2003 and 2002, the Company recorded $105,077, $89,256 and $51,590, respectively, of expense associated with this program.

NOTE 16.

DIVIDEND REINVESTMENT AND COMMON STOCK PURCHASE PLAN

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17.

STOCK OPTION PLANS

The Company has two fixed stock option plans under which it has granted options to its employees and directors to purchase common stock at the fair market price on the date of grant. Both plans provide for "incentive stock options" and "non-qualified stock options". The incentive stock options are intended to qualify under Section 422 of the Internal Revenue Code for favorable tax treatment. Under the 1994 Employee Stock Option Plan, the Board of Directors can grant up to 400,000 stock options to employees of the Company as part of an incentive plan to attract and retain key personnel in the Company. The 1994 Employee Stock Option Plan expired in 2004. Under the 1999 Stock Option Plan, the Board of Directors can grant up to 600,000 stock options to directors, employees, consultants and advisors of the Company. On December 31, 2004, there were 154,616 stock options available for grant under the 1999 Stock Option Plan.

A summary of the status of the two fixed plans at December 31, 2004, 2003 and 2002 and changes during the years ended on those dates follows.

	2004					2003					2002
	Number			Weighted- Average Exercise Price		Number			Weighted- Average Exercise Price		Number			Weighted- Average Exercise Price
Under option, beginning of year		695,367		$	10.60		756,406		$	10.63		731,635		$	11.22
Granted		23,000			14.94		28,500			9.56		168,700			8.08
Exercised		(56,960	)		7.10		(54,247	)		9.76		(20,500	)		6.25
Forfeited		(9,630	)		13.01		(35,292	)		11.59		(123,429	)		11.41
Under option, end of year		651,777		$	11.03		695,367		$	10.60		756,406		$	10.63

Exercisable at end of year		461,013		$	11.45		405,987		$	11.34		366,546		$	11.41

Weighted-average fair value per option of options granted during year				$	5.41				$	3.31				$	3.84

A further summary of the options outstanding at December 31, 2004 follows.

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number		Weighted- Average Contractual Life in Years		Weighted- Average Exercise Price		Number		Weighted- Average Exercise Price
$ 6.25 - 8.10		150,000		5.65	$	7.31		77,000	$	6.85
8.19 - 10.06		161,090		4.35		9.73		123,630		9.80
10.20 - 10.94		130,737		6.46		10.62		85,993		10.62
11.15 - 13.94		93,000		4.79		12.91		75,440		12.90
13.94 - 21.63		116,950		5.23		16.53		98,950		16.71
		651,777		5.29		11.03		461,013		11.45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17.

STOCK OPTION PLANS (Continued)

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	2004			2003			2002

Risk-free interest rate		3.67% - 4.25	%		4.25	%		3.81	%
Expected life of the options		7 - 10 years			10 years			10 years
Expected dividends (as a percent of the fair value of the stock)		2.18% - 3.08	%		1.80	%		-
Expected volatility		33.98% - 35.23	%		27.22	%		28.79	%

NOTE 18.

STOCK REPURCHASE PLAN

In May 2004, the Board of Directors approved a plan to purchase and cancel up to 400,000 shares of the Company's common stock. During 2004, the Company acquired and canceled 46,300 shares of common stock for a total cost of $576,198. A balance of 353,700 remained available from the plan for repurchase at December 31, 2004. The plan will expire in May 2005.

NOTE 19.

COMMITMENTS AND CONTINGENT LIABILITIES

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

The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments as it does for on-balance-sheet instruments. A summary of the Bank's commitments as of December 31, 2004 and 2003 follows.

	2004		2003
Commitments to extend credit	$	118,155,000	$	84,533,000
Standby letters of credit	$	5,735,000	$	2,755,000

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20.

CONCENTRATIONS OF CREDIT

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

As of December 31, 2004, approximately 87% of the Bank's loan portfolio is concentrated in loans secured by real estate. A substantial portion of these loans are in the Bank's primary market areas. In addition, a substantial portion of the other real estate owned is located in those same markets. Accordingly, the ultimate collectibility of the Bank's loan portfolio and the recovery of the carrying amount of other real estate owned are susceptible to changes in market conditions in the Bank's market areas. The other significant concentrations of credit by type of loan are set forth in Note 4.

NOTE 21.

REGULATORY MATTERS

On May 20, 2002, the Company's Board of Directors adopted a Resolution requested by the Federal Reserve Bank of Atlanta, which, among other things, restricted the Company from redeeming its capital stock, paying dividends, modifying existing debt agreements, or incurring additional debt without the prior approval of its banking regulators. The Resolution was the result of an examination that found the Bank to be in less than satisfactory condition due primarily to serious weaknesses identified in the asset quality of the Bank's loan portfolio. On August 25, 2003, the Federal Reserve terminated this Resolution with the Company.

The Bank is subject to certain restrictions on the amount of dividends that may be declared without prior regulatory approval. At December 31, 2004, approximately $10,319,000 of the Bank's retained earnings were available for dividend declaration without regulatory approval.

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets, as defined, and of Tier I capital to average assets, as defined. Management believes, as of December 31, 2004 and 2003, the Company and the Bank met all capital adequacy requirements to which they are subject.

As of December 31, 2004, the most recent notification from the regulatory authorities categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum Total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the Bank's category.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21.

REGULATORY MATTERS (Continued)

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

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of December 31, 2004:
Total Capital to Risk Weighted Assets:
Consolidated	$	94,223,000	13.5	%	$	56,025,000	8.0	%		- N/A -
Bank	$	92,156,000	13.2	%	$	55,918,000	8.0	%	$	69,898,000	10.0	%
Tier 1 Capital to Risk Weighted Assets:
Consolidated	$	85,465,000	12.2	%	$	28,012,000	4.0	%		- N/A -
Bank	$	83,415,000	11.9	%	$	27,959,000	4.0	%	$	41,939,000	6.0	%
Tier 1 Capital to Average Assets:
Consolidated	$	85,465,000	10.4	%	$	32,787,000	4.0	%		- N/A -
Bank	$	83,415,000	10.2	%	$	32,736,000	4.0	%	$	40,920,000	5.0	%

As of December 31, 2003:
Total Capital to Risk Weighted Assets:
Consolidated	$	87,624,000	15.1	%	$	46,311,000	8.0	%		- N/A -
Bank	$	84,477,000	14.7	%	$	46,138,000	8.0	%	$	57,672,000	10.0	%
Tier 1 Capital to Risk Weighted Assets:
Consolidated	$	80,352,000	13.9	%	$	23,155,000	4.0	%		- N/A -
Bank	$	77,232,000	13.4	%	$	23,069,000	4.0	%	$	34,603,000	6.0	%
Tier 1 Capital to Average Assets:
Consolidated	$	80,352,000	11.0	%	$	29,258,000	4.0	%		- N/A -
Bank	$	77,232,000	10.6	%	$	29,200,000	4.0	%	$	36,501,000	5.0	%

NOTE 22.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 22.

FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

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

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

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

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

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

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

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

Off-Balance Sheet Instruments: The carrying amount of commitments to extend credit and standby letters of credit approximates fair value. The carrying amount of the off-balance sheet financial instruments is based on fees charged to enter into such agreements.

The carrying amounts and estimated fair value of the Company's financial instruments as of December 31, 2004 and 2003 are summarized below. All dollar amounts have been rounded to the nearest thousand.

	2004				2003
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and due from banks, interest- bearing deposits with other banks, and federal funds sold	$	56,578,000	$	56,578,000	$	23,756,000	$	23,756,000
Investment securities		128,684,000		128,684,000		126,825,000		126,825,000
Loans, net		637,083,000		638,327,000		528,505,000		530,863,000
Deposits		657,550,000		657,916,000		556,917,000		559,601,000
Federal funds purchased and securities sold under agreements to repurchase		14,168,000		14,168,000		36,920,000		36,920,000
Advances from the FHLB		99,001,000		99,776,000		44,714,000		39,864,000
Beneficial interest in debentures		10,310,000		10,310,000		10,000,000		10,000,000

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23. CONDENSED FINANCIAL INFORMATION OF PAB BANKSHARES, INC.

(PARENT COMPANY ONLY)

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

PAB BANKSHARES, INC.
CONDENSED STATEMENTS OF CONDITION
DECEMBER 31, 2004 AND 2003

	2004		2003
ASSETS
Cash on deposit with subsidiary bank	$	4,207,561	$	4,209,082
Investment securities		349,945		1,349,945
Investment in subsidiary		89,259,106		82,941,976
Other assets		976,817		1,169,493
Total assets	$	94,793,429	$	89,670,496

LIABILITIES AND STOCKHOLDERS' EQUITY
Guaranteed preferred beneficial interests in debentures (trust preferred securities)	$	10,310,000	$	10,000,000
Dividends payable		949,532		663,758
Other liabilities		2,534,013		2,944,572
Total liabilities		13,793,545		13,608,330

Stockholders' equity		80,999,884		76,062,166

Total liabilities and stockholders' equity	$	94,793,429	$	89,670,496

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23.

CONDENSED FINANCIAL INFORMATION OF PAB BANKSHARES, INC.

(PARENT COMPANY ONLY) (Continued)

PAB BANKSHARES, INC.
CONDENSED STATEMENTS OF INCOME
DECEMBER 31, 2004, 2003 AND 2002

	2004		2003			2002

Income
Dividends from subsidiaries	$	3,000,000	$	-		$	1,677,950
Interest income		54,813		90,000			90,000
Management and service fees		-		-			1,171,316
Other income		120		4,541			122
Total income		3,054,933		94,541			2,939,388

Expenses		1,047,898		1,097,335			2,988,293
Income (loss) before income tax benefit
and equity in undistributed earnings
of subsidiaries		2,007,035		(1,002,794	)		(48,905	)
Income tax benefit		326,567		362,370			745,316
Income (loss) before equity in
undistributed earnings of subsidiaries		2,333,602		(640,424	)		696,411
Equity in undistributed earnings of subsidiaries		6,184,483		7,765,942			5,650,428
Net income	$	8,518,085	$	7,125,518		$	6,346,839

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23.

CONDENSED FINANCIAL INFORMATION OF PAB BANKSHARES, INC.

(PARENT COMPANY ONLY) (Continued)

PAB BANKSHARES, INC.
CONDENSED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

	2004			2003			2002

CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	8,518,085		$	7,125,518		$	6,346,839
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		68,899			68,901			376,322
Deferred tax provision		83,668			57,487			(242,454	)
Undistributed earnings of subsidiaries		(6,184,483	)		(7,765,942	)		(5,650,428	)
Increase in deferred compensation accrual		85,085			138,055			141,009
Decrease in retirement accrual		(388,583	)		(364,552	)		(402,362	)
Net change in other assets and liabilities		(66,952	)		(62,763	)		162,271
Net cash provided by (used in) operating activities		2,115,719			(803,296	)		731,197

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from call of equity securities		1,000,000			-			-
Purchase of premises and equipment		-			-			(118,106	)
Proceeds from disposal of assets		-			-			4,025,426
Net cash provided by investing activities		1,000,000			-			3,907,320

CASH FLOWS USED IN FINANCING ACTIVITIES
Dividends paid		(2,945,557	)		(1,038,587	)		(2,071,500	)
Proceeds from the exercise of stock options		404,515			529,224			128,125
Acquisition of stock under stock repurchase plans		(576,198	)		-			-
Net cash used in financing activities		(3,117,240	)		(509,363	)		(1,943,375	)

Net increase (decrease) in cash		(1,521	)		(1,312,659	)		2,695,142

Cash at beginning of period		4,209,082			5,521,741			2,826,599

Cash at end of period	$	4,207,561		$	4,209,082		$	5,521,741

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL DISCLOSURES

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

ITEM 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Management's Report on Internal Control over Financial Reporting

Management's Report on Internal Control Over Financial Reporting appears on page 35. The Report of Independent Registered Accounting Firm appears on page 36. These reports are incorporated by reference herein.

Changes in Internal Control over Financial Reporting

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

ITEM 9B.

OTHER INFORMATION

There was no information required to be disclosed in a report on Form 8-K during the fourth quarter of 2004 that has not been reported.

PART III

ITEM 10.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding our directors and executive officers, board committees, codes of ethics, and compliance with Section 16 of the Exchange Act will be included in our definitive Proxy Statement (the "2005 Proxy Statement") relating to the annual meeting of shareholders of PAB and is incorporated herein by reference.

ITEM 11.

EXECUTIVE COMPENSATION

Information regarding executive compensation will be included in the 2005 Proxy Statement and is incorporated herein by reference.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information regarding beneficial ownership of our common stock will be included in the 2005 Proxy Statement and is incorporated herein by reference.

Equity Compensation Plan Information

The following table summarizes the Company's equity compensation plans as of December 31, 2004.

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans*
Equity Compensation Plans
Approved by Security Holders		461,013	$	11.45		345,380
Equity Compensation Plans Not
Approved by Security Holders		n/a		n/a		n/a

*excluding securities reflected in the first column

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

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding certain relationships and related transactions will be included in the 2005 Proxy Statement and is incorporated herein by reference.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information regarding principal accountant fees and services will be included in the 2005 Proxy Statement and is incorporated herein by reference.

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Financial Statements.

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

Financial Statement Schedules.

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

Exhibits.

Exhibit No.	Description

3.1	Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3(a) to the Registrant's Registration Statement on Form S-4 (No. 333-83907) filed with the Commission on October 14, 1999).

3.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant's Current Report on Form 8-K dated February 22, 2005).

4.1	Indenture Agreement, dated November 28, 2001, by and between the Registrant and Wilmington Trust Company for the issuance of Floating Rate Junior Subordinated Debt Securities due 2031 (incorporated by reference to Exhibit 4.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001).

10.1.1	PAB Bankshares, Inc. First Amendment to First Restated and Amended Dividend Reinvestment and Common Stock Purchase Plan (incorporated by reference to Exhibit 28.2 to the Registrant's Registration Statement on Form S-3 (No. 33-74080) filed with the Commission on April 8, 1997).

10.1.2	PAB Bankshares, Inc. Third Amended and Restated Dividend Reinvestment and Common Stock Purchase Plan (incorporated by reference to Exhibit 28.1 to the Registrant's Registration Statement on Form S-3 (No. 33-74080) filed with the Commission on September 1, 1998).

10.2	PAB Bankshares, Inc. 1994 Employee Stock Option Plan, as amended (incorporated by reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998).

10.3	Form of Executive Salary Continuation Agreement, with attached Schedule of Terms (incorporated by reference to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998).

10.4	PAB Bankshares, Inc. 1999 Stock Option Plan (incorporated by reference to Exhibit 99 to the Registrant's Registration Statement on Form S-8 (No. 333-89527) filed with the Commission on March 22, 1999).

10.5	Employee Contract Termination Agreement, dated September 1, 2001, by and between C. Larry Wilkinson and the Registrant (incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001).

10.6	Rescission Agreement, dated December 31, 2001, by and between R. Bradford Burnette and the Registrant (incorporated by reference to Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001).

10.7	PAB Bankshares, Inc. Employee and Director Stock Purchase Program, dated July 1, 2002 and amended March 25, 2003 (incorporated by reference to Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002).

10.8	Employment Agreement, dated January 1, 2003, by and between Michael E. Ricketson, the Registrant, and the Bank (incorporated by reference to Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002).

10.8.1	First Amendment to Employment Agreement, dated August 25, 2003, by and between Michael E. Ricketson, the Registrant, and the Bank (incorporated by reference to Exhibit 10.14 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2003).

10.9	Employment Agreement, dated January 1, 2003, by and between Milton Burke Welsh and the Bank (incorporated by reference to Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002).

10.10	Employment Agreement, dated January 1, 2003, by and between R. Wesley Fuller and the Bank (incorporated by reference to Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002).

10.11	Employment Agreement, dated January 1, 2003, by and between Donald J. Torbert, Jr. and the Bank (incorporated by reference to Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002).

10.11.1	First Amendment to Employment Agreement, dated August 26, 2003, by and between Donald J. Torbert, Jr. and the Bank (incorporated by reference to Exhibit 10.15 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2003).

10.12	Employment Contract Termination Agreement, dated August 9, 2004, by and between Michael E. Ricketson, the Registrant, and the Bank (incorporated by reference to Exhibit 10.12 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004).

21.1	Subsidiaries of the Registrant.

23.1	Consent of Mauldin & Jenkins, LLC.

31.1	Rule 13a-14(a) Certification of Chief Executive Officer

31.2	Rule 13a-14(a) Certification of Chief Financial Officer

32.1	Section 1350 Certification of Chief Executive Officer

32.2	Section 1350 Certification of Chief Financial Officer

SIGNATURES

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

	PAB BANKSHARES, INC.

Date: March 16, 2005
	By:/s/ M. Burke Welsh, Jr
	M. Burke Welsh, Jr.
	President and Chief Executive Officer

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

Signature	Title	Date

/s/ R. Bradford Burnette	Director	March 16, 2005
R. Bradford Burnette

/s/ Walter W. Carroll II	Director	March 16, 2005
Walter W. Carroll II

/s/ James L. Dewar, Jr.	Director, Chairman	March 16, 2005
James L. Dewar, Jr.

/s/ Michael H. Godwin	Director	March 16, 2005
Michael H. Godwin

/s/ Bill J. Jones	Director	March 16, 2005
Bill J. Jones

/s/ James B. Lanier, Jr.	Director	March 16, 2005
James B. Lanier, Jr.

/s/ John E. Mansfield, Jr.	Director	March 16, 2005
John E. Mansfield, Jr.

/s/ Kennith D. McLeod	Director	March 16, 2005
Kennith D. McLeod, CPA

/s/ Paul E. Parker	Director	March 16, 2005
Paul E. Parker

/s/ F. Ferrell Scruggs, Sr.	Director	March 16, 2005
F. Ferrell Scruggs, Sr.

/s/ John M. Simmons	Director	March 16, 2005
John M. Simmons

/s/ Joe P. Singletary, Jr.	Director	March 16, 2005
Joe P. Singletary, Jr.

/s/ Donald J. Torbert, Jr.	Executive Vice President	March 16, 2005
Donald J. Torbert, Jr., CPA	and Chief Financial Officer
	(Principal Accounting Officer)

/s/ M. Burke Welsh, Jr.	Director, President and	March 16, 2005
M. Burke Welsh, Jr.	Chief Executive Officer