form10-q.htm
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934

 
FOR QUARTER ENDED SEPTEMBER 30, 2007
COMMISSION FILE NUMBER 0-12436


COLONY BANKCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


GEORGIA
  
58-1492391
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
  
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)


115 SOUTH GRANT STREET, FITZGERALD, GEORGIA 31750
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES


229/426-6000
REGISTRANT’S TELEPHONE NUMBER INCLUDING AREA CODE


INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED REPORTS REQUIRED TO BE FILED BY SECTIONS 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.

YES    x                      NO

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A LARGE ACCELERATED FILER, AN ACCELERATED FILER OR A NONACCELERATED FILER.   SEE DEFINITION OF ACCELERATED FILER AND LARGE ACCELERATED FILER IN RULE 12b-2 OF THE EXCHANGE ACT.  (CHECK ONE)

LARGE ACCELERATED FILER
ACCELERATED FILER    x
NON ACCELERATED FILER

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE 12B-2 OF THE ACT).

YES                      NO   x

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER’S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.


CLASS
  
OUTSTANDING AT NOVEMBER 7, 2007
COMMON STOCK, $1 PAR VALUE
  
7,204,775
 

TABLE OF CONTENTS
 
     
Page
PART I – Financial Information
  
       
 
3
       
 
Item 1.
4
 
Item 2.
28
 
Item 3.
48
 
Item 4.
51
       
       
PART II – Other Information
  
       
 
Item 1.
52
 
Item 1A.
52
 
Item 2.
52
 
Item 3.
52
 
Item 4.
52
 
Item 5.
52
 
Item 6.
53
       
  Signatures
54


Forward Looking Statement Disclosure

Statements in this Quarterly Report regarding future events or performance are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the PSLRA) and are made pursuant to the safe harbors of the PSLRA.  Actual results of Colony Bankcorp, Inc. (the Company) could be quite different from those expressed or implied by the forward-looking statements.  Any statements containing the words “could,” “may,” “will,” “should,” “plan,” “believe,” “anticipates,” “estimates,” “predicts,” “expects,” “projections,” “potential,” “continue,” or words of similar import, constitute “forward-looking statements”, as do any other statements that expressly or implicitly predict future events, results, or performance.   Factors that could cause results to differ from results expressed or implied by our forward-looking statements include, among others, risks discussed in the text of this Quarterly Report as well as the following specific items:

 
·
General economic conditions, whether national or regional, that could affect the demand for loans or lead to increased loan losses;

 
·
Competitive factors, including increased competition with community, regional, and national financial institutions, that may lead to pricing pressures that reduce yields the Company achieves on loans and increase rates the Company pays on deposits, loss of the Company’s most valued customers, defection of key employees or groups of employees, or other losses;

 
·
Increasing or decreasing interest rate environments, including the shape and level of the yield curve, that could lead to decreases in net interest margin, lower net interest and fee income, including lower gains on sales of loans, and changes in the value of the Company’s investment securities;

 
·
Changing business or regulatory conditions, or new legislation, affecting the financial services industry that could lead to increased costs, changes in the competitive balance among financial institutions, or revisions to our strategic focus;

 
·
Changes or failures in technology or third party vendor relationships in important revenue production or service areas, or increases in required investments in technology that could reduce our revenue, increase our costs or lead to disruptions in our business.

 
·
Readers are cautioned not to place undue reliance on our forward-looking statements, which reflect management’s analysis only as of the date of the statements.  The Company does not intend to publicly revise or update forward-looking statements to reflect events or circumstances that arise after the date of this report.

Readers should carefully review all disclosures we file from time to time with the Securities and Exchange Commission (SEC).


PART 1.   FINANCIAL INFORMATION
ITEM 1.

FINANCIAL STATEMENTS

THE FOLLOWING FINANCIAL STATEMENTS ARE PROVIDED FOR COLONY BANKCORP, INC. AND SUBSIDIARIES: COLONY BANK OF FITZGERALD, COLONY BANK ASHBURN, COLONY BANK WILCOX, COLONY BANK OF DODGE COUNTY, COLONY BANK WORTH, COLONY BANK SOUTHEAST, COLONY MANAGEMENT SERVICES, INC., AND COLONY BANK QUITMAN, FSB.

 
A.
CONSOLIDATED BALANCE SHEETS – SEPTEMBER 30, 2007 AND DECEMBER 31, 2006.

 
B.
CONSOLIDATED STATEMENTS OF INCOME – FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006.

 
C.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006.

 
D.
CONSOLIDATED STATEMENTS OF CASH FLOWS – FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006.

THE CONSOLIDATED FINANCIAL STATEMENTS FURNISHED HAVE NOT BEEN AUDITED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, BUT REFLECT, IN THE OPINION OF MANAGEMENT, ALL ADJUSTMENTS (CONSISTING SOLELY OF NORMAL RECURRING ADJUSTMENTS) NECESSARY FOR A FAIR PRESENTATION OF THE RESULTS OF OPERATIONS FOR THE PERIODS PRESENTED.

THE RESULTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2007 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS TO BE EXPECTED FOR THE FULL YEAR.


Part I (Continued)
Item 1 (Continued)
 
COLONY BANKCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2007 AND DECEMBER 31, 2006
(DOLLARS IN THOUSANDS)

   
September 30, 2007
    
December 31, 2006
  
ASSETS
  
(Unaudited)
        
             
Cash and Cash Equivalents
            
Cash and Due from Banks
   $
22,405
     $
27,231
  
Federal Funds Sold
    
17,129
      
45,149
  
     
39,534
      
72,380
  
Interest-Bearing Deposits
    
3,616
      
3,076
  
Investment Securities
                
Available for Sale, at Fair Value
    
155,605
      
149,236
  
Held to Maturity, at Cost (Fair Value of $69 and $71, as of September 30, 2007 and December 31, 2006, Respectively)
    
69
      
71
  
     
155,674
      
149,307
  
                 
Federal Home Loan Bank Stock, at Cost
    
5,533
      
5,087
  
Loans
    
968,292
      
942,273
  
Allowance for Loan Losses
     (13,821 )     (11,989 )
Unearned Interest and Fees
     (405 )     (501 )
     
954,066
      
929,783
  
                 
Premises and Equipment
    
27,541
      
27,453
  
Other Real Estate
    
1,240
      
970
  
Goodwill
    
2,412
      
2,412
  
Other Intangible Assets
    
411
      
439
  
Other Assets
    
23,243
      
22,597
  
Total Assets
   $
1,213,270
     $
1,213,504
  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                
Deposits
                
Noninterest-Bearing
   $
74,158
     $
77,336
  
Interest-Bearing
    
944,597
      
965,110
  
     
1,018,755
      
1,042,446
  
Borrowed Money
                
Federal Funds Purchased
    
476
      
1,070
  
Subordinated Debentures
    
29,384
      
24,229
  
Other Borrowed Money
    
73,600
      
61,500
  
     
103,460
      
86,799
  
                 
Other Liabilities
    
8,134
      
7,648
  
Commitments and Contingencies
                
Stockholders' Equity
                
Common Stock, Par Value $1 a Share, Authorized 20,000,000 Shares, Issued 7,204,775 and 7,189,937 Shares as of September 30, 2007 and December 31, 2006, Respectively
    
7,205
      
7,190
  
Paid-In Capital
    
24,503
      
24,257
  
Retained Earnings
    
52,019
      
46,417
  
Restricted Stock - Unearned Compensation
     (343 )     (278 )
Accumulated Other Comprehensive Loss, Net of Tax
     (463 )     (975 )
     
82,921
      
76,611
  
                 
Total Liabilities and Stockholders' Equity
   $
1,213,270
     $
1,213,504
  


The accompanying notes are an integral part of these statements.


Part I (Continued)
Item 1 (Continued)

COLONY BANKCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
(DOLLARS IN THOUSANDS)


   
Three Months Ended
    
Nine Months Ended
  
   
9/30/2007
    
9/30/2006
    
9/30/2007
    
9/30/2006
  
Interest Income
                        
Loans, Including Fees
   $
20,735
     $
19,665
     $
60,923
     $
55,070
  
Federal Funds Sold
    
237
      
462
      
1,204
      
1,458
  
Deposits with Other Banks
    
36
      
38
      
111
      
92
  
Investment Securities
                                
U.S. Government Agencies
    
1,632
      
1,370
      
4,749
      
3,716
  
State, County and Municipal
    
136
      
95
      
407
      
274
  
Corporate Obligations and Asset-Backed Securities
    
79
      
43
      
205
      
116
  
Dividends on Other Investments
    
76
      
75
      
225
      
203
  
     
22,931
      
21,748
      
67,824
      
60,929
  
Interest Expense
                                
Deposits
    
10,853
      
9,762
      
32,133
      
25,938
  
Federal Funds Purchased
    
13
      
12
      
50
      
28
  
Borrowed Money
    
1,272
      
1,180
      
3,572
      
3,556
  
     
12,138
      
10,954
      
35,755
      
29,522
  
                                 
Net Interest Income
    
10,793
      
10,794
      
32,069
      
31,407
  
Provision for Loan Losses
    
850
      
1,021
      
2,678
      
2,990
  
Net Interest Income After Provision for Loan Losses
    
9,943
      
9,773
      
29,391
      
28,417
  
                                 
Noninterest Income
                                
Service Charges on Deposits
    
1,224
      
1,193
      
3,556
      
3,380
  
Other Service Charges, Commissions and Fees
    
218
      
207
      
703
      
625
  
Mortgage Fee Income
    
225
      
180
      
763
      
516
  
Securities Gains (Losses)
     (2 )    
----
      
184
      
-----
  
Other
    
181
      
318
      
806
      
1,003
  
     
1,846
      
1,898
      
6,012
      
5,524
  
Noninterest Expenses
                                
Salaries and Employee Benefits
    
4,464
      
4,350
      
13,693
      
12,676
  
Occupancy and Equipment
    
1,025
      
1,047
      
3,036
      
3,035
  
Other
    
2,267
      
2,283
      
6,901
      
6,655
  
     
7,756
      
7,680
      
23,630
      
22,366
  
                                 
Income Before Income Taxes
    
4,033
      
3,991
      
11,773
      
11,575
  
Income Taxes
    
1,414
      
1,369
      
3,978
      
4,034
  
Net Income
   $
2,619
     $
2,622
     $
7,795
     $
7,541
  
Net Income Per Share of Common Stock
                                
Basic
   $
0.36
     $
0.36
     $
1.08
     $
1.05
  
Diluted
   $
0.36
     $
0.36
     $
1.08
     $
1.05
  
Cash Dividends Declared Per Share of Common Stock
   $
0.09
     $
0.08
     $
0.27
     $
0.24
  
Weighted Average Basic Shares Outstanding
    
7,193,603
      
7,181,894
      
7,187,586
      
7,176,186
  
Weighted Average Diluted Shares Outstanding
    
7,202,424
      
7,181,894
      
7,198,270
      
7,177,042
  


The accompanying notes are an integral part of these statements.


Part I (Continued)
Item 1 (Continued)

COLONY BANKCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
(DOLLARS IN THOUSANDS)


   
Three Months Ended
    
Nine Months Ended
  
   
09/30/07
    
09/30/06
    
09/30/07
    
09/30/06
  
                         
Net Income
   $
2,619
     $
2,622
     $
7,795
     $
7,541
  
                                 
Other Comprehensive Income, Net of Tax
                                
Gains (Losses) on Securities Arising During the Year
    
1,040
      
1,209
      
633
      
242
  
Reclassification Adjustment
    
2
      
0
       (121 )    
0
  
                                 
Unrealized Gains (Losses) on Securities
    
1,042
      
1,209
      
512
      
242
  
                                 
Comprehensive Income
   $
3,661
     $
3,831
     $
8,307
     $
7,783
  


The accompanying notes are an integral part of these statements.


Part I (Continued)
Item 1 (Continued)

COLONY BANKCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
(DOLLARS IN THOUSANDS)


   
2007
    
2006
  
CASH FLOWS FROM OPERATING ACTIVITIES
            
Net Income
   $
7,795
     $
7,541
  
Adjustments to Reconcile Net Income to Net Cash
                
Provided by Operating Activities:
                
Depreciation
    
1,391
      
1,441
  
Provision for Loan Losses
    
2,678
      
2,990
  
Securities Gains
     (184 )    
----
  
Amortization and Accretion
    
428
      
573
  
(Gain) Loss on Sale of Other Real Estate and Repossessions
    
53
       (111 )
Gain on Sale of Equipment
     (6 )    
---
  
Decrease (Increase) in Cash Surrender Value of Life Insurance
    
20
       (106 )
Other Prepaids, Deferrals and Accruals, Net
     (692 )     (732 )
     
11,483
      
11,596
  
CASH FLOWS FROM INVESTING ACTIVITIES
                
Federal Home Loan Bank Stock
     (446 )     (188 )
Purchases of Investment Securities Available for Sale
     (39,256 )     (34,121 )
Proceeds from Maturities, Calls, and Paydowns of
                
Investment Securities:
                
Available for Sale
    
16,786
      
18,545
  
Held to Maturity
    
8
      
9
  
Proceeds from Sale of Investment Securities
                
Available for Sale
    
16,985
      
---
  
Other Investments
    
---
       (200 )
Interest-Bearing Deposits in Other Banks
     (542 )     (1,521 )
Net Loans to Customers
     (29,526 )     (84,190 )
Purchase of Premises and Equipment
     (1,730 )     (3,328 )
Other Real Estate and Repossessions
    
2,209
      
4,590
  
Proceeds from Sale of Premises and Equipment
    
258
      
5
  
Investment in Capital Trust
     (434 )     (155 )
Liquidation of Statutory Trust
    
279
      
---
  
      (35,409 )     (100,554 )
CASH FLOWS FROM FINANCING ACTIVITIES
                
Noninterest-Bearing Customer Deposits
     (3,178 )     (6,745 )
Interest-Bearing Customer Deposits
     (20,513 )    
78,714
  
Federal Funds Purchased
     (594 )    
---
  
Dividends Paid
     (1,890 )     (1,671 )
Proceeds from Other Borrowed Money
    
41,100
      
35,500
  
Principal Payments on Other Borrowed Money
     (29,000 )     (42,226 )
Proceeds from Issuance of Subordinated Debentures
    
14,434
      
5,155
  
Principal Payments on Subordinated Debentures
     (9,279 )    
---
  
      (8,920 )    
68,727
  
                 
Net Increase (Decrease) in Cash and Cash Equivalents
     (32,846 )     (20,231 )
Cash and Cash Equivalents at Beginning of Period
    
72,380
      
79,062
  
Cash and Cash Equivalents at End of Period
   $
39,534
     $
58,831
  


The accompanying notes are an integral part of these statements.


Part I (Continued)
Item 1 (Continued)


COLONY BANKCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)    Summary of Significant Accounting Policies

Principles of Consolidation

Colony Bankcorp, Inc. (the Company) is a multi-bank holding company located in Fitzgerald, Georgia. The consolidated financial statements include the accounts of Colony Bankcorp, Inc. and its wholly-owned subsidiaries, Colony Bank of Fitzgerald, Fitzgerald, Georgia; Colony Bank Ashburn (which includes its wholly-owned subsidiary, Georgia First Mortgage Company), Ashburn, Georgia; Colony Bank Worth, Sylvester, Georgia; Colony Bank of Dodge County, Eastman, Georgia; Colony Bank Wilcox, Rochelle, Georgia; Colony Bank Southeast, Broxton, Georgia; Colony Bank Quitman, FSB, Quitman, Georgia (the Banks); and Colony Management Services, Inc., Fitzgerald, Georgia. All significant intercompany accounts have been eliminated in consolidation. The accounting and reporting policies of Colony Bankcorp, Inc. conform to generally accepted accounting principles and practices utilized in the commercial banking industry.

All dollars in notes to consolidated financial statements are rounded to the nearest thousand.

Nature of Operations

The Banks provide a full range of retail and commercial banking services for consumers and small to medium size businesses located primarily in middle and south Georgia. Lending and investing activities are funded primarily by deposits gathered through its retail branch office network.

Use of Estimates

In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans and the valuation of goodwill and other intangible assets.

Reclassifications

In certain instances, amounts reported in prior years’ consolidated financial statements have been reclassified to conform to statement presentations selected for 2007. Such reclassifications had no effect on previously reported stockholders’ equity or net income.

Concentrations of Credit Risk

Lending is concentrated in commercial and real estate loans to local borrowers. The Company has a high concentration of real estate loans; however, these loans are well collateralized and, in management’s opinion, do not pose an adverse credit risk. In addition, the balance of the loan portfolio is sufficiently diversified to avoid significant concentration of credit risk. Although the Company has a diversified loan portfolio, a substantial portion of borrowers’ ability to honor their contracts is dependent upon the viability of the real estate economic sector.

The success of Colony is dependent, to a certain extent, upon the economic conditions in the geographic markets it serves. No assurance can be given that the current economic conditions will continue. Adverse changes in the economic conditions in these geographic markets would likely have a material adverse effect on the Company’s results of operations and financial condition. The operating results of Colony depend primarily on its net interest income. Accordingly, operations are subject to risks and uncertainties surrounding the exposure to changes in the interest rate environment.

Accounting Policies

The accounting and reporting policies of Colony Bankcorp, Inc. and its subsidiaries are in accordance with accounting principles generally accepted and conform to general practices within the banking industry. The significant accounting policies followed by Colony and the methods of applying those policies are summarized hereafter.


Part I (Continued)
Item 1 (Continued)

(1)    Summary of Significant Accounting Policies (Continued)

Investment Securities

Investment securities are recorded under Statement of Financial Accounting Standards (SFAS) No. 115, whereby the Company classifies its securities as trading, available for sale or held to maturity. Securities that are held principally for resale in the near term are classified as trading. Trading securities are carried at fair value, with realized and unrealized gains and losses included in noninterest income. Securities acquired with both the intent and ability to be held to maturity are classified as held to maturity and reported at amortized cost. All other securities not classified as trading or held to maturity are considered available for sale.

Securities available for sale are reported at estimated fair value. Unrealized gains and losses on securities available for sale are excluded from earnings and are reported, net of deferred taxes, in accumulated other comprehensive income, a component of stockholders’ equity. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating 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. Gains and losses from sales of securities available for sale are computed using the specific identification method. This caption includes securities, which may be sold to meet liquidity needs arising from unanticipated deposit and loan fluctuations, changes in regulatory capital requirements, or unforeseen changes in market conditions.

Federal Home Loan Bank Stock

Investment in stock of a Federal Home Loan Bank (FHLB) is required for every federally insured institution that utilizes its services. FHLB stock is considered restricted, as defined in SFAS No. 115; accordingly, the provisions of SFAS No. 115 are not applicable to this investment. The FHLB stock is reported in the consolidated financial statements at cost. Dividend income is recognized when earned.

Loans

Loans that the Company has the ability and intent to hold for the foreseeable future or until maturity are recorded at their principal amount outstanding, net of unearned interest and fees.  Loan origination fees, net of certain direct origination costs, are deferred and amortized over the estimated terms of the loans using the straight-line method.  Interest income on loans is recognized using the effective interest method.

A loan is considered to be delinquent when payments have not been made according to contractual terms, typically evidenced by nonpayment of a monthly installment by the due date.

When management believes there is sufficient doubt as to the collectibility of principal or interest on any loan or generally when loans are 90 days or more past due, the accrual of applicable interest is discontinued and the loan is designated as nonaccrual, unless the loan is well secured and in the process of collection. Interest payments received on nonaccrual loans are either applied against principal or reported as income, according to management’s judgment as to the collectibility of principal. Loans are returned to an accrual status when factors indicating doubtful collectibility on a timely basis no longer exist.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.


Part I (Continued)
Item 1 (Continued)


(1)    Summary of Significant Accounting Policies (Continued)

Allowance for Loan Losses (Continued)

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 and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revisions as more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as either doubtful or substandard. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that
loan. The general component covers nonclassified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis 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.

Premises and Equipment

Premises and equipment are recorded at acquisition cost net of accumulated depreciation.

Depreciation is charged to operations over the estimated useful lives of the assets. The estimated useful lives and methods of depreciation are as follows:

Description
  
Life in Years
  
Method
         
Banking Premises
  
15-40
  
Straight-Line and Accelerated
Furniture and Equipment
  
5-10
  
Straight-Line and Accelerated
Leasehold Improvements
  
5-20
  
Straight-Line and Accelerated

Expenditures for major renewals and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. When property and equipment are retired or sold, the cost and accumulated depreciation are removed from the respective accounts and any gain or loss is reflected in other income or expense.

Goodwill and Intangible Assets

Goodwill represents the excess of the cost over the fair value of the net assets purchased in a business combination.  Impairment testing of goodwill is performed annually or more frequently if events or circumstances indicate possible impairment.  No impairment has been identified as a result of the testing performed.


Part I (Continued)
Item 1 (Continued)


(1)    Summary of Significant Accounting Policies (Continued)

Goodwill and Intangible Assets (Continued)

Intangible assets consist of core deposit intangibles acquired in connection with a business combination.  The core deposit intangible is initially recognized based on a valuation performed as of the consummation date.  The core deposit intangible is amortized by the straight-line method over the average remaining life of the acquired customer deposits.  Amortization periods are reviewed annually in connection with the annual impairment testing of goodwill.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Statement of Cash Flows

For reporting cash flows, cash and cash equivalents include cash on hand, noninterest-bearing amounts due from banks and federal funds sold. Cash flows from demand deposits, NOW accounts, savings accounts, loans and certificates of deposit are reported net.

Income Taxes

The provision for income taxes is based upon income for financial statement purposes, adjusted for nontaxable income and nondeductible expenses. Deferred income taxes have been provided when different accounting methods have been used in determining income for income tax purposes and for financial reporting purposes. Deferred tax assets and liabilities are recognized based on future tax consequences attributable to differences arising from the financial statement carrying values of assets and liabilities and their tax bases. The differences relate primarily to depreciable assets (use of different depreciation methods for financial statement and income tax purposes) and allowance for loan losses (use of the allowance method for financial statement purposes and
the direct write-off method for tax purposes). In the event of changes in the tax laws, deferred tax assets and liabilities are adjusted in the period of the enactment of those changes, with effects included in the income tax provision. The Company and its subsidiaries file a consolidated federal income tax return. Each subsidiary pays its proportional share of federal income taxes to the Company based on its taxable income.

Other Real Estate

Other real estate generally represents real estate acquired through foreclosure and is initially recorded at the lower of cost or estimated market value at the date of acquisition. Losses from the acquisition of property in full or partial satisfaction of debt are recorded as loan losses. Subsequent declines in value, routine holding costs and gains or losses upon disposition are included in other losses.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, such as unrealized gains and losses on securities available for sale, represent equity changes from economic events of the period other than transactions with owners and are not reported in the consolidated statements of income but as a separate component of the equity section of the consolidated balance sheets. Such items are considered components of other comprehensive income. SFAS No. 130, Reporting Comprehensive Income, requires the presentation in the financial statements of net income and all items of other comprehensive income as total comprehensive income.

Off-Balance Sheet Credit Related Financial Instruments

In the ordinary course of business, the Company has entered into commitments to extend credit, commercial letters of credit and standby letters of credit. Such financial instruments are recorded when they are funded.


Part I (Continued)
Item 1 (Continued)


(1)    Summary of Significant Accounting Policies (Continued)

Changes in Accounting Principles and Effects of New Accounting Pronouncements

In February 2006, the Financial Accounting Standard Board (FASB) issued SFAS No. 155, Accounting for Certain Hybrid FinancialInstruments – an amendment of FASB Statements No. 133 and 140. This statement  provides entities with relief from having to separately determine the fair value of an embedded derivative that would otherwise be required to be bifurcated from its host contract in accordance with the requirements of SFAS 133.  Entities can make an irrevocable election to measure such hybrid financial instruments at fair value in its entirety, with subsequent changes in fair value recognized in earnings.  This election can be made on an instrument-by-instrument basis.  The effective date of this standard is for all financial instruments acquired, issued or subject to a remeasurement event occurring after the beginning of an entity’s first fiscal year that begins after September 15, 2006.  The adoption of this statement did not have an impact on our financial position, results of operations or disclosures.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets.  This statement, which is an amendment to SFAS No. 140, will simplify the accounting for servicing assets and liabilities, such as those common with mortgage securitization activities.  Specifically, SFAS No. 156 addresses the recognition and measurement of separately recognized servicing assets and liabilities and provides an approach to simplify efforts to obtain hedge-like (offset) accounting.  SFAS No. 156 also clarifies when an obligation to service financial assets should be separately recognized as a servicing initially measured at fair value, if practicable, and permits an entity with a separately recognized servicing asset or servicing liability to choose either the amortization or fair value methods for subsequent measurement.  The provisions of SFAS No. 156 are effective as of the beginning of the first fiscal year that begins after September 15, 2006.  The adoption of this statement did not have an impact on our financial position, results of operations or disclosures.

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes: An Interpretation of FASBStatement No. 109 (FIN 48), which clarifies the accounting for uncertainty in tax positions.  This Interpretation requires that the Company recognize in the financial statements, the impact of a tax position, if that position is more likely than not to be sustained on audit, based on the technical merits of the position.  The provisions of FIN 48 are effective as of the beginning of the 2007 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings.  The cumulative change in accounting recorded directly to retained earnings and the effect on 2007 income from operations was not material.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements.  SFAS No. 157 enhances existing guidance for measuring assets and liabilities using fair value.  Before the issuance of SFAS No. 157, guidance for applying fair value was incorporated in several accounting pronouncements.  SFAS No. 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities.  SFAS No. 157 also emphasizes that fair value is market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets.  Under SFAS No. 157, fair value measurements are disclosed by level within that hierarchy.  While SFAS No. 157 does not add any new fair value measurements, it does change current practice.  Changes to practice include: (1) a requirement for an entity to include its own credit standing in the measurement of its liabilities; (2) a modification of the transaction price presumption; (3) a prohibition on the use of block discounts when valuing large blocks of securities for broker-dealers and investment companies; and (4) a requirement to adjust the value of restricted stock for the effect of the restriction even if the restriction lapses within one year.  SFAS No. 157 is effective for financial statement issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years.  The Company does not expect the adoption of this standard to have a material effect on the financial position, results of operations or disclosures.

In September 2006, the FASB issued No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - anAmendment of FASB Statements No. 87, 88, 106 and 123(R) (FASB 158).  This statement requires companies to recognize a net liability or asset to report the funded status of their defined benefit pension and other post retirement plans on the balance sheet.  SFAS 158 requires additional new disclosures to be made in companies’ financial statements.  SFAS 158 is effective for publicly-held companies for fiscal years ending after December 15, 2006, except for the measurement date provisions, which are effective for fiscal years ending after December 15, 2008.  The adoption of this standard did not have an effect on the Company’s results of operations or financial position.

In September 2006, the Emerging Issues Task Force issued EITF Issue No. 06-04, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements (“EITF 06-04”).  EITF 06-04 establishes that for certain split-dollar life insurance arrangements, an employer should recognize a liability for future benefits in accordance with currently existing accounting pronouncements based on the substantive agreement with the employee.  EITF 06-04 will be effective


Part I (Continued)
Item 1 (Continued)

(1)    Summary of Significant Accounting Policies (Continued)

Changes in Accounting Principles and Effects of New Accounting Pronouncements (Continued)

for fiscal years beginning after December 15, 2007.  Colony is currently evaluating the impact of the adoption of EITF 06-04 and has not yet determined the impact EITF 06-04 will have on the Colony’s consolidated financial statements upon adoption.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Includingan Amendment to FASB Statement No. 115.  This statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value.  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  This statement requires a business entity to report
unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.  An entity may decide whether to elect the fair value option for each eligible item on its election date, subject to certain requirements described in the statement.  This statement shall be effective as of the beginning of each reporting entity’s first fiscal year that begins
after November 15, 2007.  The Company is currently assessing the impact of SFAS No. 159 on its financial position, results of operations and disclosures.

(2)    Cash and Due from Banks

Components of cash and balances due from banks are as follows as of September 30, 2007 and December 31, 2006:

   
September 30, 2007
    
December 31, 2006
  
Cash on Hand and Cash Items
   $
8,746
     $
8,308
  
Noninterest-Bearing Deposits with Other Banks
    
13,659
      
18,923
  
    $
22,405
     $
27,231
  

As of  September 30, 2007, the Banks had required deposits  of approximately $3,517 with the Federal Reserve that was
satisfied with cash on hand.

(3)    Investment Securities

Investment securities as of September 30, 2007 are summarized as follows:

   
Amortized
Cost
    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Fair
Value
  
Securities Available for Sale:
                        
U.S. Government Agencies
                        
Mortgage Backed
   $
95,783
     $
186
     $ (715 )   $
95,254
  
Other
    
41,306
      
147
       (177 )    
41,276
  
State, County & Municipal
    
14,438
      
17
       (136 )    
14,319
  
Corporate Obligations
    
3,777
      
--
       (23 )    
3,754
  
Asset-Backed Securities
    
1,000
      
--
      
--
      
1,000
  
Marketable Equity Securities
    
2
      
--
      
--
      
2
  
    $
156,306
     $
350
     $ (1,051 )   $
155,605
  
Securities Held to Maturity:
                                
State, County and Municipal
   $
69
     $
--
     $
--
     $
69
  


The amortized cost and fair value of investment securities as of September 30, 2007, by contractual maturity, are shown hereafter.  Expected maturities will differ from contractual maturities because issuers have the right to call or prepay obligations with or without call or prepayment penalties.


Part I (Continued)
Item 1 (Continued)


   
Securities
  
   
Available for Sale
    
Held to Maturity
  
   
Amortized Cost
 
  
Fair Value
    
Amortized Cost
    
Fair Value
  
                         
Due in One Year or Less
   $
15,909
     $
15,821
              
Due After One Year Through Five Years
    
31,957
      
31,884
              
Due After Five Years Through Ten Years
    
8,628
      
8,623
     $
69
     $
69
  
Due After Ten Years
    
4,027
      
4,021
      
--
      
--
  
     
60,521
      
60,349
      
69
      
69
  
                                 
Mortgage Backed Securities
    
95,783
      
95,254
      
--
      
--
  
Marketable Equity Securities
  
2
    
2
      
--
      
--
  
    $
156,306
     $
155,605
     $
69
     $
69
  

Investment securities as of December 31, 2006 are summarized as follows:

   
Amortized
Cost
    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Fair
Value
  
Securities Available for Sale:
                        
U.S. Government Agencies
                        
Mortgage Backed
   $
80,053
     $
107
     $ (1,124 )   $
79,036
  
Other
    
54,870
      
65
       (569 )    
54,366
  
State, County & Municipal
    
11,840
      
36
       (136 )    
11,740
  
Corporate Obligations
    
3,787
      
--
       (42 )    
3,745
  
Marketable Equity Securities
    
163
      
193
       (7 )    
349
  
    $
150,713
     $
401
     $ (1,878 )   $
149,236
  
                                 
Securities Held to Maturity:
                                
State, County and Municipal
   $
71
     $
--
     $
--
     $
71
  


Proceeds from the sale of investments available for sale during first nine months of 2007 totaled $16,985 compared to $0 for nine months of 2006.  The sale of investments available for sale during 2007 resulted in gross realized gains of $214 and gross realized losses of $30.

Investment securities having a carry value approximating $80,534 and $86,141 as of September 30, 2007 and December 31, 2006, respectively, were pledged to secure public deposits and for other purposes.

Information pertaining to securities with gross unrealized losses at September 30, 2007 and December 31, 2006 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:


Part I (Continued)
Item 1 (Continued)


   
Less Than 12 Months
    
12 Months or Greater
    
Total
  
   
Fair Value
    
Gross Unrealized Losses
    
Fair Value
    
Gross Unrealized Losses
    
Fair Value
    
Gross Unrealized Losses
  
                                     
September 30, 2007
                                    
U.S. Government Agencies
                                    
Mortgage Backed
   $
21,210
     $ (75 )   $
45,367
     $ (640 )   $
66,577
     $ (715 )
Other
    
--
      
--
      
24,941
       (177 )    
24,941
       (177 )
State, County and Municipal
    
6,301
       (83 )    
4,737
       (53 )    
11,038
       (136 )
Corporate Obligations
    
984
       (16 )    
997
       (7 )    
1,981
       (23 )
    $
28,495
     $ (174 )   $
76,042
     $ (877 )   $
104,537
     $ (1,051 )
                                                 
December 31, 2006
                                                
U.S. Government Agencies
                                                
Mortgage Backed
   $
11,989
     $ (55 )   $
52,140
     $ (1,070 )   $
64,129
     $ (1,125 )
Other
    
5,462
       (25 )    
31,033
       (544 )    
36,495
       (569 )
State, County and Municipal
    
2,709
       (69 )    
5,397
       (67 )    
8,106
       (136 )
Corporate Obligations
    
1,750
       (24 )    
995
       (17 )    
2,745
       (41 )
Marketable Equity Securities
    
--
      
--
      
53
       (7 )    
53
       (7 )
    $
21,910
     $ (173 )   $
89,618
     $ (1,705 )   $
111,528
     $ (1,878 )

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.  Consideration is given to (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.

At September 30, 2007, the debt securities with unrealized losses have depreciated 1.00 percent from the Company’s amortized cost basis.  These securities are guaranteed by either U.S. Government or other governments.  These unrealized losses relate principally to current interest rates for similar type of securities.  In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition.  As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other-than-temporary.

(4)    Loans

The composition of loans as of  September 30, 2007 and December 31, 2006 was as follows:

   
September 30, 2007
    
December 31, 2006
  
             
Commercial, Financial and Agricultural
   $
60,742
     $
61,887
  
Real Estate – Construction
    
220,069
      
193,952
  
Real Estate – Farmland
    
44,869
      
40,936
  
Real Estate – Other
    
546,212
      
549,601
  
Installment Loans to Individuals
    
74,358
      
76,930
  
All Other Loans
    
22,042
      
18,967
  
    $
968,292
     $
942,273
  

Nonaccrual loans are loans for which principal and interest are doubtful of collection in accordance with original loan terms and for which accruals of interest have been discontinued due to payment delinquency.  Nonaccrual loans totaled $6,087 and $8,069 as of
September 30, 2007 and December 31, 2006, respectively and total recorded investment in loans past due 90 days or more and still
accruing interest approximated $32 and $9, respectively.


Part I (Continued)
Item 1 (Continued)


(5)    Allowance for Loan Losses

Transactions in the allowance for loan losses are summarized below for nine months ended September 30, 2007 and
September 30, 2006 as follows:

   
September 30, 2007
    
September 30, 2006
  
             
Balance, Beginning
   $
11,989
     $
10,762
  
Provision Charged to Operating Expenses
    
2,678
      
2,990
  
Loans Charged Off
     (1,971 )     (2,021 )
Loan Recoveries
    
1,125
      
577
  
                 
Balance, Ending
   $
13,821
     $
12,308
  


(6)    Premises and Equipment

Premises and equipment are comprised of the following as of September 30, 2007 and December 31, 2006:

   
September 30, 2007
    
December 31, 2006
  
             
Land
   $
7,799
     $
7,414
  
Building
    
20,987
      
20,886
  
Furniture, Fixtures and Equipment
    
12,613
      
12,060
  
Leasehold Improvements
    
994
      
994
  
Construction in Progress
    
108
      
114
  
     
42,501
      
41,468
  
                 
Accumulated Depreciation
     (14,960 )     (14,015 )
    $
27,541
     $
27,453
  


Depreciation charged to operations totaled $1,391 and $1,441 for September 30, 2007 and September 30, 2006, respectively.

Certain Company facilities and equipment are leased under various operating leases.  Rental expense approximated $273 and $243 for nine months ended September 30, 2007 and September 30, 2006, respectively.

(7)    Goodwill and Intangible Assets

The following is an analysis of the goodwill and core deposit intangible asset activity for the nine months ended September 30, 2007 and September 30, 2006:

   
Nine Months Ended
September 30, 2007
    
Nine Months Ended
September 30, 2006
  
             
Goodwill
            
Balance, Beginning
   $
2,412
     $
2,412
  
Goodwill Acquired
    
--
      
--
  
Balance, Ending
   $
2,412
     $
2,412
  
                 
Net Core Deposit, Intangible
                
Balance, Beginning
   $
439
     $
520
  
Amortization Expense
     (28 )     (72 )
Balance, Ending
   $
411
     $
448
  
 

Part I (Continued)
Item 1 (Continued)


(7)    Goodwill and Intangible Assets (Continued)

The following table reflects the expected amortization for the core deposit intangible at September 30, 2007:

2007
   $
9
  
2008
    
36
  
2009
    
36
  
2010
    
36
  
2011 and thereafter
    
294
  
    $
411
  

(8)    Income Taxes

The Company records income taxes under SFAS No. 109, Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes.  Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.  Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

(9)    Deposits

The aggregate amount of overdrawn deposit accounts reclassified as loan balances totaled $1,370 and $839 as of September 30, 2007 and December 31, 2006.

Components of interest-bearing deposits as of  September 30, 2007 and December 31, 2006 are as follows:

   
September 30, 2007
    
December 31, 2006
  
             
Interest-Bearing Demand
   $
177,688
     $
185,769
  
Savings
    
33,335
      
33,305
  
Time, $100,000 and Over
    
360,549
      
366,041
  
Other Time
    
373,025
      
379,995
  
    $
944,597
     $
965,110
  

At September 30, 2007 and December 31, 2006, the Company had brokered deposits of $66,171 and $72,682 respectively.  The aggregate amount of short-term jumbo certificates of deposit, each with a minimum denomination of $100,000 was approximately $328,031 and $328,788 as of  September 30, 2007 and December 31, 2006, respectively.

As of  September 30, 2007 and December 31, 2006,  the scheduled maturities of certificates of deposits are as follows:

Maturity
  
September 30, 2007
    
December 31, 2006
  
One Year and Under
   $
664,101
     $
663,217
  
One to Three Years
    
49,096
      
54,524
  
Three Years and Over
    
20,377
      
28,295
  
    $
733,574
     $
746,036
  

(10)    Other Borrowed Money

Other borrowed money at September 30, 2007 and December 31, 2006 is summarized as follows:

   
September 30, 2007
    
December 31, 2006
  
Federal Home Loan Bank Advances
   $
73,500
     $
61,500
  
The Banker’s Bank Note Payable
    
100
      
--
  
    $
73,600
     $
61,500
  


Part I (Continued)
Item 1 (Continued)


(10)    Other Borrowed Money (Continued)

Advances from the Federal Home Loan Bank (FHLB) have maturities ranging from 2008 to 2019 and interest rates ranging from 2.74 percent to 5.93 percent.  Under the Blanket Agreement for Advances and Security Agreement with the FHLB, residential first mortgage loans and cash balances held by the FHLB are pledged as collateral for the FHLB advances outstanding.  At September 30, 2007, the Company had available line of credit commitments totaling $88,231, of which $14,731 was available.

The Banker’s Bank Note Payable originated on February 15, 2007 as a line of credit with funds available of $1,000 at a rate of The Wall Street Prime minus 0.75 percent.  Interest payments are due monthly with the entire balance due February 14, 2008. The debt is secured by all furniture, fixtures, equipment and software of Colony Management Services.  Colony Bankcorp, Inc. guarantees the debt.  As of September 30, 2007, $900 was available on the line of credit.

The aggregate stated maturities of  other borrowed money at September 30, 2007 are as follows:

Year
  
Amount
  
2007
   $
0
  
2008
    
9,600
  
2009
    
0
  
2010
    
1,000
  
2011 and Thereafter
    
63,000
  
    $
73,600
  

The Company also has available federal funds lines of credit with various financial institutions totaling $47,300, of which $476 was outstanding at September 30, 2007.


(11)    Subordinated Debentures (Trust Preferred Securities)

During the fourth quarter of 2002, the Company formed a second subsidiary whose sole purpose was to issue $5,000 in Trust Preferred Securities through a pool sponsored by FTN Financial Capital Markets.  The Trust Preferred Securities have a maturity of 30
years and are redeemable after five years with certain exceptions.  At September 30, 2007 the floating-rate securities had a 8.45 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 3.25 percent.

During the second quarter of 2004, the Company formed a third subsidiary whose sole purpose was to issue $4,500 in Trust Preferred Securities through a pool sponsored by FTN Financial Capital Markets.  The Trust Preferred Securities have a maturity of 30 years and are redeemable after five years with certain exceptions.  At September 30, 2007, the floating rate securities had a 8.37 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 2.68 percent.

During the second quarter of 2006, the Company formed a fourth subsidiary whose sole purpose was to issue $5,000 in Trust Preferred Securities through a pool sponsored by SunTrust Capital Markets.  The Trust Preferred Securities have a maturity of 30 years and are redeemable after five years with certain exceptions.  At September 30, 2007 the floating-rate securities had a 6.73 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 1.50 percent.

During the first quarter of 2007, the Company formed a fifth subsidiary whose sole purpose was to issue $9,000 in Trust Preferred
Securities through a pool sponsored by Trapeza Capital Management, LLC.  The Trust Preferred Securities have a maturity of 30
years and are redeemable after five years with certain exceptions.  At September 30, 2007, the floating-rate securities had a 6.88 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 1.65 percent.  Proceeds from this issuance were used to payoff the trust preferred securities with the first subsidiary formed in March 2002 as the Company exercised its option to call.

During the third quarter of 2007, the Company formed a sixth subsidiary whose sole purpose was to issue $5,000 in Trust Preferred Securities through a pool sponsored by Trapeza Capital Management, LLC.  The Trust Preferred Securities have a maturity of 30 years and are redeemable after five years with certain exceptions.  At September 30, 2007, the floating-rate securities had a 7.10 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 1.40 percent.  Proceeds from this issuance will be used to payoff the trust preferred securities with the second subsidiary formed in December 2002 as the Company exercises its option to call in December 2007.


Part I (Continued)
Item 1 (Continued)


(11)    Subordinated Debentures (Trust Preferred Securities) (Continued)

The Trust Preferred Securities are recorded as subordinated debentures on the consolidated balance sheets, but subject to certain limitations, qualify as Tier 1 Capital for regulatory capital purposes.  The proceeds from the offerings were used to fund the cash portion of the Quitman acquisition, payoff holding company debt, and inject capital into bank subsidiaries.

(12)    Restricted Stock – Unearned Compensation

In 1999, the board of directors of Colony Bankcorp, Inc. adopted a restricted stock grant plan which awards certain executive officers common shares of the Company.  The maximum number of shares (split-adjusted) which may be subject to restricted stock awards is 64,701.  During 2000 – 2007, 75,803 split-adjusted shares were issued under this plan and since the plan’s inception, 11,539 shares have been forfeited; thus, remaining shares which may be subject to restricted stock awards are 437 at September 30, 2007.  The shares are recorded at fair market value (on the date granted) as a separate component of stockholders’ equity.  The cost of these shares is being amortized against earnings using the straight-line method over three years (the restriction period.)

In April 2004, the stockholders of Colony Bankcorp, Inc. adopted a restricted stock grant plan which awards certain executive officers common shares of the Company.  The maximum number of shares which may be subject to restricted stock awards (split-adjusted) is 143,500.  During 2006 - 2007, 20,155 shares were issued under this plan and since the plan’s inception 2,198 shares have been forfeited, thus remaining shares which may be subject to restricted stock awards are 125,543 at September 30, 2007.  The shares are recorded at fair market value (on the date granted) as a separate component of stockholders’ equity.  The cost of these shares is being amortized against earnings using the straight-line method over three years (the restriction period).

(13)    Profit Sharing Plan

The Company has a profit sharing plan that covers substantially all employees who meet certain age and service requirements.  It is the Company’s policy to make contributions to the plan as approved annually by the board of directors.  The total provision for contributions to the plan was $663 for 2006, $558 for 2005 and $479 for 2004.

(14)    Commitments and Contingencies

Credit-Related Financial Instruments.  The Company is a party to credit related 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, standby letters of credit and commercial letters of credit.  Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

The Company’s exposure to credit loss is represented by the contractual amount of these commitments.  The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments.

At September 30, 2007 and December 31, 2006 the following financial instruments were outstanding whose contract amounts represent credit risk:

   
Contract Amount
  
   
September 30, 2007
    
December 31, 2006
  
             
Loan Commitments
   $
102,185
     $
105,165
  
Standby Letters of Credit
    
3,679
      
3,279
  

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.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  The commitments for equity lines of credit may expire without being drawn upon.  Therefore, the total commitment amounts do not necessarily represent future cash requirements.  The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.

Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers.  These lines of credit are uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed.


Part I (Continued)
Item 1 (Continued)
 
(14)    Commitments and Contingencies (Continued)

Standby and performance letters of credit are conditional lending commitments issued by the Company to guarantee the performance of a customer to a third party.  Those letters of credit are primarily issued to support public and private borrowing arrangements.  Essentially all letters of credit issued have expiration dates within one year.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

Purchase Commitments.  As of September 30, 2007, the Company had an outstanding commitment of approximately $1,967 to construct and furnish an office in Savannah.  No draws have been advanced as of September 30, 2007.

Legal Contingencies.  In the ordinary course of business, there are various legal proceedings pending against Colony and its subsidiaries.  The aggregate liabilities, if any, arising from such proceedings would not, in the opinion of management, have a material adverse effect on Colony’s consolidated financial position.

(15)    Deferred Compensation Plan

Two of the Bank subsidiaries have deferred compensation plans covering directors choosing to participate through individual deferred compensation contracts.  In accordance with terms of the contracts, the Banks are committed to pay the directors deferred compensation over a specified number of years, beginning at age 65.  In the event of a director’s death before age 65, payments are
made to the director’s named beneficiary over a specified number of years, beginning on the first day of the month following the death of the director.

Liabilities accrued under the plans totaled $1,172 and $1,108 as of September 30, 2007 and December 31, 2006, respectively.  Benefit payments under the contracts were $140 and $127 for the nine month period ended September 30, 2007 and September 30, 2006, respectively.   Provisions charged to operations totaled $205 and $109 for the nine month period ended September 30, 2007 and
September 30, 2006, respectively.

Fee income recognized with deferred compensation plans totaled $104 and $106 for nine month period ended September 30, 2007 and
September 30, 2006, respectively.

(16)    Regulatory Capital Matters

The Company is subject to various regulatory capital requirements administered by 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 Company’s consolidated financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve
quantitative measures of the Company’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.  The Company’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets.  The amounts and ratios as defined in
regulations are presented hereafter.  Management believes, as of September 30, 2007, the Company meets all capital adequacy requirements to which it is subject under the regulatory framework for prompt corrective action.  In the opinion of management, there are no conditions or events since prior notification of capital adequacy from the regulators that have changed the institution’s category.


Part I (Continued)
Item 1 (Continued)


(16)    Regulatory Capital Matters (Continued)

The following table summarizes regulatory capital information as of September 30, 2007 and December 31, 2006 on a consolidated basis and for each significant subsidiary, as defined.

   
Actual
    
For Capital
Adequacy Purposes
    
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
  
                                     
   
Amount
    
Ratio
    
Amount
    
Ratio
    
Amount
    
Ratio
  
As of September 30, 2007
                                    
                                     
Total Capital to Risk-Weighted Assets
                                    
Consolidated
   $
121,355
       12.36 %   $
78,584
       8.00 %   $
98,230
       10.00 %
Fitzgerald
    
19,675
      
12.60
      
12,491
      
8.00
      
15,614
      
10.00
  
Ashburn
    
29,859
      
11.05
      
21,612
      
8.00
      
27,014
      
10.00
  
Worth
    
15,463
      
10.82
      
11,434
      
8.00
      
14,299
      
10.00
  
Southeast
    
21,530
      
11.12
      
15,555
      
8.00
      
19,444
      
10.00
  
Quitman
    
12,750
      
11.90
      
8,572
      
8.00
      
10,715
      
10.00
  
                                                 
Tier 1 Capital to Risk-Weighted Assets
                                                
Consolidated
   $
108,356
       11.03 %   $
39,292
       4.00 %   $
58,938
       6.00 %
Fitzgerald
    
17,720
      
11.35
      
6,246
      
4.00
      
9,369
      
6.00
  
Ashburn
    
26,473
      
9.80
      
10,806
      
4.00
      
16,209
      
6.00
  
Worth
    
13,669
      
9.56
      
5,720
      
4.00
      
8,579
      
6.00
  
Southeast
    
19,223
      
9.93
      
7,777
      
4.00
      
11,666
      
6.00
  
Quitman
    
11,409
      
10.65
      
4,286
      
4.00
      
6,429
      
6.00
  
                                                 
Tier 1 Capital to Average Assets
                                                
Consolidated
   $
108,356
       9.02 %   $
48,070
       4.00 %   $
60,087
       5.00 %
Fitzgerald
    
17,720
      
8.97
      
7,902
      
4.00
      
9,878
      
5.00
  
Ashburn
    
26,473
      
7.93
      
13,353
      
4.00
      
16,692
      
5.00
  
Worth
    
13,669
      
7.71
      
7,088
      
4.00
      
8,860
      
5.00
  
Southeast
    
19,223
      
9.40
      
8,179
      
4.00
      
10,223
      
5.00
  
Quitman
    
11,409
      
7.89
      
5,782
      
4.00
      
7,228
      
5.00
  
 

Part I (Continued)
Item 1 (Continued)


(16)    Regulatory Capital Matters (Continued)

   
Actual
    
For Capital
Adequacy Purposes
    
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
  
                                     
   
Amount
    
Ratio
    
Amount
    
Ratio
    
Amount
    
Ratio
  
As of December 31, 2006
                                    
                                     
Total Capital to Risk-Weighted Assets
                                    
Consolidated
   $
110,304
       11.50 %   $
76,710
       8.00 %   $
95,887
       10.00 %
Fitzgerald
    
18,697
      
11.33
      
13,206
      
8.00
      
16,508
      
10.00
  
Ashburn
    
28,908
      
10.77
      
21,464
      
8.00
      
26,830
      
10.00
  
Worth
    
14,618
      
11.02
      
10,610
      
8.00
      
13,262
      
10.00
  
Southeast
    
20,091
      
10.76
      
14,934
      
8.00
      
18,667
      
10.00
  
Quitman
    
12,183
      
11.65
      
8,367
      
8.00
      
10,458
      
10.00
  
                                                 
Tier 1 Capital to Risk-Weighted Assets
                                                
Consolidated
   $
98,235
       10.24 %   $
38,