form10q.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, 2008
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    T                      NO    £

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

LARGE ACCELERATED FILER    £
ACCELERATED FILER    T
NON ACCELERATED FILER    £
SMALLER REPORTING COMPANY    £
 (DO NOT CHECK IF A SMALLER REPORTING COMPANY)
  

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

YES    £                      NO    T

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, 2008
COMMON STOCK, $1 PAR VALUE
7,212,613
 
 
 
 

TABLE OF CONTENTS

2

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).

3

PART 1.   FINANCIAL INFORMATION
ITEM 1.

FINANCIAL STATEMENTS

THE FOLLOWING FINANCIAL STATEMENTS ARE PROVIDED FOR COLONY BANKCORP, INC. AND ITS WHOLLY- OWNED SUBSIDIARY BANK, COLONY BANK.

 
A.
CONSOLIDATED BALANCE SHEETS – SEPTEMBER 30, 2008 AND DECEMBER 31, 2007.

 
B.
CONSOLIDATED STATEMENTS OF INCOME – FOR THE THREE MONTHS ENDED  SEPTEMBER 30, 2008 AND 2007 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007.

 
C.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007.

 
D.
CONSOLIDATED STATEMENTS OF CASH FLOWS – FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007.

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, 2008 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS TO BE EXPECTED FOR THE FULL YEAR.

4
 
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2008 AND DECEMBER 31, 2007
(DOLLARS IN THOUSANDS)

   
September 30, 2008
    
December 31, 2007
  
ASSETS
  
(Unaudited)
        
             
Cash and Cash Equivalents
            
Cash and Due from Banks
   $ 22,929     $ 28,369  
Federal Funds Sold
     199       21,737  
      23,128       50,106  
Interest-Bearing Deposits
     435       1,467  
Investment Securities
                
Available for Sale, at Fair Value
     171,863       167,123  
Held to Maturity, at Cost (Fair Value of $67 and $72, as of September 30, 2008 and December 31, 2007, Respectively)
     65       68  
      171,928       167,191  
                 
Federal Home Loan Bank Stock, at Cost
     6,317       5,533  
Loans
     970,682       945,279  
Allowance for Loan Losses
     (17,952 )     (15,513 )
Unearned Interest and Fees
     (226 )     (301 )
      952,504       929,465  
                 
Premises and Equipment
     29,399       27,809  
Other Real Estate
     4,756       1,332  
Goodwill
     2,412       2,412  
Other Intangible Assets
     375       402  
Other Assets
     24,076       23,059  
Total Assets
   $ 1,215,330     $ 1,208,776  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                
Deposits
                
Noninterest-Bearing
   $ 69,038     $ 86,112  
Interest-Bearing
     908,714       932,490  
      977,752       1,018,602  
Borrowed Money
                
Federal Funds Purchased
     12,664       1,346  
Securities Sold Under Agreements to Repurchase
     20,000       ---  
Subordinated Debentures
     24,229       24,229  
Other Borrowed Money
     91,000       73,600  
      147,893       99,175  
                 
Other Liabilities
     6,879       7,256  
Commitments and Contingencies
                
Stockholders' Equity
                
Common Stock, Par Value $1 a Share, Authorized 20,000,000 Shares, Issued 7,213,813 and 7,200,913 Shares as of September 30, 2008 and December 31, 2007, Respectively
     7,214       7,201  
Paid-In Capital
     24,561       24,420  
Retained Earnings
     52,675       52,087  
Restricted Stock - Unearned Compensation
     (275 )     (237 )
Accumulated Other Comprehensive Loss, Net of Tax
     (1,369 )     272  
      82,806       83,743  
                 
Total Liabilities and Stockholders' Equity
   $ 1,215,330     $ 1,208,776  


The accompanying notes are an integral part of these statements.

5
 
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
 (UNAUDITED)
 (DOLLARS IN THOUSANDS)


   
Three Months Ended
    
Nine Months Ended
  
   
9/30/2008
    
9/30/2007
    
9/30/2008
    
9/30/2007
  
Interest Income
                        
Loans, Including Fees
   $ 16,295     $ 20,735     $ 51,386     $ 60,923  
Federal Funds Sold
     25       237       264       1,204  
Deposits with Other Banks
     7       36       27       111  
Investment Securities
                                
U.S. Government Agencies
     1,809       1,632       5,076       4,749  
State, County and Municipal
     92       136       322       407  
Corporate Obligations and Asset-Backed Securities
     113       79       292       205  
Dividends on Other Investments
     87       76       253       225  
      18,428       22,931       57,620       67,824  
Interest Expense
                                
Deposits
     7,599       10,853       25,746       32,133  
Federal Funds Purchased
     241       13       293       50  
Borrowed Money
     1,103       1,272       3,448       3,572  
      8,943       12,138       29,487       35,755  
                                 
Net Interest Income
     9,485       10,793       28,133       32,069  
Provision for Loan Losses
     3,370       850       8,512       2,678  
Net Interest Income After Provision for Loan Losses
     6,115       9,943       19,621       29,391  
                                 
Noninterest Income
                                
Service Charges on Deposits
     1,233       1,224       3,571       3,556  
Other Service Charges, Commissions and Fees
     240       218       735       703  
Mortgage Fee Income
     168       225       511       763  
Securities Gains (Losses)
     11       (2 )     1,195       184  
Other
     128       181       1,173       806  
      1,780       1,846       7,185       6,012  
Noninterest Expenses
                                
Salaries and Employee Benefits
     4,051       4,464       12,483       13,693  
Occupancy and Equipment
     1,098       1,025       3,166       3,036  
Other
     2,664       2,267       7,635       6,901  
      7,813       7,756       23,284       23,630  
                                 
Income Before Income Taxes
     82       4,033       3,522       11,773  
Income Taxes (Benefits)
     (112 )     1,414       823       3,978  
Net Income
   $ 194     $ 2,619     $ 2,699     $ 7,795  
Net Income Per Share of Common Stock
                                
Basic
   $ 0.03     $ 0.36     $ 0.38     $ 1.08  
Diluted
   $ 0.03     $ 0.36     $ 0.38     $ 1.08  
Cash Dividends Declared Per Share of Common Stock
   $ 0.10     $ 0.09     $ 0.29     $ 0.27  
Weighted Average Basic Shares Outstanding
     7,201,580       7,193,603       7,197,016       7,187,586  
Weighted Average Diluted Shares Outstanding
     7,201,580       7,202,424       7,197,016       7,198,270  


The accompanying notes are an integral part of these statements.

6

COLONY BANKCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(UNAUDITED)
 (DOLLARS IN THOUSANDS)

   
Three Months Ended
    
Nine Months Ended
  
   
09/30/08
    
09/30/07
    
09/30/08
    
09/30/07
  
                         
Net Income
   $ 194     $ 2,619     $ 2,699     $ 7,795  
                                 
Other Comprehensive Income (Loss), Net of Tax
                                
Gains (Losses) on Securities Arising During the Year
     (541 )     1,040       (852 )     633  
Reclassification Adjustment
     (8 )     2       (789 )     (121 )
                                 
Change in Net Unrealized Losses on Securities Available for Sale, Net Reclassification Adjustment and Tax Effect
     (549 )     1,042       (1,641 )     512  
                                 
Comprehensive Income (Loss)
   $ (355 )   $ 3,661     $ 1,058     $ 8,307  


The accompanying notes are an integral part of these statements.

7

COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
 (UNAUDITED)
 (DOLLARS IN THOUSANDS)

   
2008
    
2007
  
CASH FLOWS FROM OPERATING ACTIVITIES
            
Net Income
   $ 2,699     $ 7,795  
Adjustments to Reconcile Net Income to Net Cash
                
Provided by Operating Activities:
                
Depreciation
     1,526       1,391  
Provision for Loan Losses
     8,512       2,678  
Securities Gains
     (1,195 )     (184 )
Amortization and Accretion
     552       428  
Loss on Sale of Other Real Estate and Repossessions
     62       53  
Gain on Sale of Equipment
     (11 )     (6 )
Decrease (Increase) in Cash Surrender Value of Life Insurance
     (155 )     20  
Other Prepaids, Deferrals and Accruals, Net
     (474 )     (692 )
      11,516       11,483  
CASH FLOWS FROM INVESTING ACTIVITIES
                
Federal Home Loan Bank Stock
     (785 )     (446 )
Purchases of Investment Securities Available for Sale
     (116,756 )     (39,256 )
Proceeds from Maturities, Calls, and Paydowns of
                
Investment Securities:
                
Available for Sale
     45,203       16,786  
Held to Maturity
     7       8  
Proceeds from Sale of Investment Securities
                
Available for Sale
     65,299       16,985  
(Increase) Decrease in Interest-Bearing Deposits in Other Banks
     1,032       (542 )
Net Loans to Customers
     (37,981 )     (29,526 )
Purchase of Premises and Equipment
     (3,117 )     (1,730 )
Other Real Estate and Repossessions
     2,815       2,209  
Proceeds from Sale of Premises and Equipment
     12       258  
Investment in Statutory Trust
     ---       (434 )
Liquidation of Statutory Trust
     ---       279  
      (44,271 )     (35,409 )
CASH FLOWS FROM FINANCING ACTIVITIES
                
Noninterest-Bearing Customer Deposits
     (17,074 )     (3,178 )
Interest-Bearing Customer Deposits
     (23,776 )     (20,513 )
Increase (Decrease) in Federal Funds Purchased
     11,318       (594 )
Securities Sold Under Agreements to Repurchase
     20,000       ---  
Dividends Paid
     (2,091 )     (1,890 )
Proceeds from Other Borrowed Money
     51,500       41,100  
Principal Payments on Other Borrowed Money
     (34,100 )     (29,000 )
Proceeds from Issuance of Subordinated Debentures
     ---       14,434  
Principal Payments on Subordinated Debentures
      ---       (9,279 )
      5,777       (8,920 )
                 
Net Increase (Decrease) in Cash and Cash Equivalents
     (26,978 )     (32,846 )
Cash and Cash Equivalents at Beginning of Period
     50,106       72,380  
Cash and Cash Equivalents at End of Period
   $ 23,128     $ 39,534  


The accompanying notes are an integral part of these statements.

8

Part I (Continued)
Item 1 (Continued)

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

(1)
Summary of Significant Accounting Policies

Principles of Consolidation

Colony Bankcorp, Inc. (the Company) is a bank holding company located in Fitzgerald, Georgia. The Company merged all of its operations into one sole operating subsidiary effective August 1, 2008.  The consolidated financial statements include the accounts of Colony Bankcorp, Inc. and its wholly-owned subsidiary, Colony Bank (which includes its wholly-owned subsidiary, Colony Mortgage Corp.), 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 Bank provides a full range of retail and commercial banking services for consumers and small to medium size businesses located primarily in middle and south Georgia. Colony Bank is headquartered in Fitzgerald, Georgia with banking offices in Albany, Ashburn, Broxton, Centerville, Chester, Columbus, Cordele, Douglas, Eastman, Fitzgerald, Leesburg, Moultrie, Pitts, Quitman, Rochelle, Savannah, Soperton, Sylvester, Thomaston, Tifton, Valdosta and Warner Robins.  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 2008. 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 primarily to local borrowers. The Company has a high concentration of real estate loans that could pose an adverse credit risk particularly with the current economic downturn in the real estate market.  In management’s opinion, 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 continued downturn of the housing and real estate market that began in 2007 has resulted in an increase of real estate dependent problem loans.  These loans are centered primarily in our larger MSA markets.  Declining collateral real estate values that secure land development, construction and speculative real estate loans in our larger MSA markets has resulted in increased loan loss provisions in 2008.

The success of Colony is dependent, to a certain extent, upon the economic conditions in the geographic markets it serves.  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.

At times, the Company may have cash and cash equivalents at financial institutions in excess of insured limits.  The Company places its cash and cash equivalents with high credit quality financial institutions whose credit rating is monitored by management to minimize credit risk.

9

Part I (Continued)
Item 1 (Continued)

(1)
Summary of Significant Accounting Policies (Continued)

Accounting Policies

The accounting and reporting policies of Colony Bankcorp, Inc. and its subsidiary 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.

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.

10

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

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.

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.

11

Part I (Continued)
Item 1 (Continued)

(1)
Summary of Significant Accounting Policies (Continued)

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.

Advertising Costs

The Company expenses the cost of advertising in the periods in which those costs are incurred.

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 subsidiary file a consolidated federal income tax return. The subsidiary pays its proportional share of federal income taxes to the Company based on its taxable income.

Positions taken in the Company’s tax returns may be subject to challenge by the taxing authorities upon examination.  Uncertain tax positions are initially recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities.  Such tax positions are both initially and subsequently measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement with the tax authority, assuming full knowledge of the position and all relevant facts.  The Company provides for interest and, in some cases, penalties on tax positions that may be challenged by the taxing authorities.  Interest expense is recognized beginning in the first period that such interest would begin accruing.  Penalties are recognized in the period that the Company claims the position in the tax return.  Interest and penalties on income tax uncertainties are classified within income tax expense in the consolidated statement of 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.

12

Part I (Continued)
Item 1 (Continued)

(1)
Summary of Significant Accounting Policies (Continued)

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.

Changes in Accounting Principles and Effects of New Accounting Pronouncements

SFAS No. 141, Business Combinations (Revised 2007).  SFAS No. 141R replaces SFAS No. 141, Business Combinations, and applies to all transactions and other events in which one entity obtains control over one or more other businesses.  SFAS No. 141R requires an acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any noncontrolling interest in the acquiree at fair value as of the acquisition date.  Contingent consideration is required to be recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a reasonable doubt.  This fair value approach replaces the cost-allocation process required under SFAS No. 141 whereby the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their estimated fair value.  SFAS No. 141R requires acquirers to expense acquisition-related costs as incurred rather than allocating such costs to the assets acquired and liabilities assumed, as was previously the case under SFAS No. 141.  Under SFAS No. 141R, the requirements of SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, would have to be met in order to accrue for a restructuring plan in purchase accounting.  Pre-acquisition contingencies are to be recognized at fair value, unless it is a noncontractual contingency that is not likely to materialize, in which case, nothing should be recognized in purchase accounting and, instead, that contingency would be subject to the probable and estimable recognition criteria of SFAS No. 5, Accounting for Contingencies.  SFAS No. 141R is expected to have an impact on the Company’s accounting for business combinations closing on or after January 1, 2009.

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.  The adoption of this standard January 1, 2008 did not have a material effect on the financial position, results of operations or disclosures.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an 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.  The adoption of this standard January 1, 2008 did not have an effect on the Company’s financial position, results of operations or disclosures.

SFAS No. 160, Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB Statement No. 51.  SFAS No. 160 amends Accounting Research Bulletin (ARB) No. 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements.  Among other requirements, SFAS No. 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest.  It also requires disclosure, on the face of the consolidated statements of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest.  SFAS No. 160 is effective for the Company on January 1, 2009 and is not expected to have a significant impact on the Company’s consolidated financial statements.

13

Part I (Continued)
Item 1 (Continued)

(1)
Summary of Significant Accounting Policies (Continued)

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

Emerging Issues Task Force (EITF) Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split Dollar Life Insurance Arrangements.  EITF No. 06-4 requires the recognition of a liability and related compensation expense for endorsement split-dollar life insurance policies that provide a benefit to an employee that extends to postretirement periods.  Under EITF No. 06-4, life insurance policies purchased for the purpose of providing such benefits do not effectively settle an entity’s obligation to the employee.  Accordingly, the entity must recognize a liability and related compensation expense during the employee’s active service period based on the future cost of insurance to be incurred during the employee’s retirement.  If the entity has agreed to provide the employee with a death benefit, then the liability for the future death benefit should be recognized by following the guidance in SFAS No. 106, Employer’s Accounting for Postretirement Benefits Other Than Pensions.  The adoption of this standard January 1, 2008 did not have an effect on the Company’s financial position, results of operations or disclosures.

SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy).  The hierarchical guidance provided by SFAS 162 did not have a significant impact on the Corporation’s financial statements.

(2)    Cash and Balances Due from Banks

Components of cash and balances due from banks are as follows as of September 30, 2008 and December 31, 2007:

   
September 30, 2008
    
December 31, 2007
  
Cash on Hand and Cash Items
   $ 9,506     $ 8,527  
Noninterest-Bearing Deposits with Other Banks
      13,423       19,842  
    $ 22,929     $ 28,369  

As of September 30, 2008, the Banks had required deposit reserves of approximately $6,924 with the Federal Reserve that was satisfied with cash on hand.

(3)    Investment Securities

Investment securities as of September 30, 2008 are summarized as follows:

   
Amortized
    
Unrealized
    
Unrealized
    
Fair
  
   
Cost
    
Gains
    
Losses
    
Value
  
Securities Available for Sale:
                        
U.S. Government Agencies
                        
Mortgage-Backed
   $ 155,938     $ 387     $ (1,245 )   $ 155,080  
Other
     650       ---       ---       650  
State, County & Municipal
     9,730       19       (281 )     9,468  
Corporate Obligations
     6,619       41       (651 )     6,009  
Asset-Backed Securities
     1,000        ---       (344 )     656  
    $ 173,937     $ 447     $ (2,521 )   $ 171,863  
                                 
Securities Held to Maturity:
                                
State, County and Municipal
   $ 65     $ 2     $ ---     $ 67  
 
The amortized cost and fair value of investment securities as of September 30, 2008, 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.

14

Part I (Continued)
Item 1 (Continued)

(3)    Investment Securities (Continued)

   
Securities
  
   
Available for Sale
    
Held to Maturity
  
   
Amortized Cost
    
Fair Value
    
Amortized Cost
    
Fair Value
  
                         
Due in One Year or Less
   $ 3,977     $ 3,937              
Due After One Year Through Five Years
     5,590       5,285              
Due After Five Years Through Ten Years
     4,787       4,713     $ 65     $ 67  
Due After Ten Years
     3,645       2,848       --       --  
      17,999       16,783       65       67  
                                 
Mortgage Backed Securities
     155,938       155,080       --       --  
    $ 173,937     $ 171,863     $ 65     $ 67  


Investment securities as of December 31, 2007 are summarized as follows:

   
Amortized
    
Unrealized
    
Unrealized
    
Fair
  
   
Cost
    
Gains
    
Losses
    
Value
  
Securities Available for Sale:
                        
U.S. Government Agencies
                        
Mortgage Backed
   $ 109,024     $ 758     $ (459 )   $ 109,323  
Other
     36,818       314       (36 )     37,096  
State, County & Municipal
     14,178       33       (296 )     13,915  
Corporate Obligations
     5,689       105       (7 )     5,787  
Asset-Backed Securities
     1,000       ---       ---       1,000  
Marketable Equity Securities
     2        ---        ---       2  
    $ 166,711     $ 1,210     $ (798 )   $ 167,123  
                                 
Securities Held to Maturity:
                                
State, County and Municipal
   $ 68     $ 4     $ ---     $ 72  

Proceeds from the sale of investments available for sale during first nine months of 2008 totaled $65,299 compared to $16,985 for the first nine months of 2007.  The sale of investments available for sale during 2008 resulted in gross realized gains of $1,202 and gross unrealized losses of $7, while the sale of investments available for sale during 2007 resulted in gross realized gains of $214 and losses of $30.

Investment securities having a carry value approximating $94,149 and $89,145 as of September 30, 2008 and December 31, 2007, respectively, were pledged to secure public deposits and for other purposes.

15

Part I (Continued)
Item 1 (Continued)

(3)    Investment Securities (Continued)

Information pertaining to securities with gross unrealized losses at September 30, 2008 and December 31, 2007 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

   
Less Than 12 Months
    
12 Months or Greater
    
Total
  
                                     
         
Gross
          
Gross
          
Gross
  
   
Fair
    
Unrealized
    
Fair
    
Unrealized
    
Fair
    
Unrealized
  
   
Value
    
Losses
    
Value
    
Losses
    
Value
    
Losses
  
                                     
September 30, 2008
                                    
U.S. Government Agencies
                                    
Mortgage Backed
   $ 109,843     $ (1,224 )   $ 850     $ (21 )   $ 110,693     $ (1,245 )
State, County and Municipal
     4,593       (281 )     ---       ---       4,593       (281 )
Corporate Obligations
     4,968       (651 )     ---       ---       4,968       (651 )
Asset-Backed Securities
     656       (344 )     ---       ---       656       (344 )
    $ 120,060     $ (2,500 )   $ 850     $ (21 )   $ 120,910     $ (2,521 )
December 31, 2007
                                                
U.S. Government Agencies
                                                
Mortgage Backed
   $ 13,721     $ (56 )   $ 30,761     $ (403 )   $ 44,482     $ (459 )
Other
     ---       ---       14,101       (36 )     14,101       (36 )
State, County and Municipal
     6,918       (255 )     3,115       (41 )     10,033       (296 )
Corporate Obligations
     ---       ---       995       (7 )     995       (7 )
Marketable Equity Securities
     2       ---       ---       ---       2       ---  
    $ 20,641     $ (311 )   $ 48,972     $ (487 )   $ 69,613     $ (798 )

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, 2008, the debt securities with unrealized losses have depreciated 2.04 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, 2008 and December 31, 2007 was as follows:

   
September 30, 2008
    
December 31, 2007
  
             
Commercial, Financial and Agricultural
   $ 90,105     $ 52,323  
Real Estate – Construction
     164,092       211,484  
Real Estate – Farmland
     58,254       42,439  
Real Estate – Other
     593,564       544,655  
Installment Loans to Individuals
     44,012       72,350  
All Other Loans
     20,655       22,028  
    $ 970,682     $ 945,279  

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 $29,667 and $14,956 as of September 30, 2008 and December 31, 2007, respectively and total recorded investment in loans past due 90 days or more and still accruing interest approximated $20 and $60, respectively.

16

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, 2008 and September 30, 2007 as follows:
 
   
September 30, 2008
    
September 30, 2007
  
             
Balance, Beginning
   $ 15,513     $ 11,989  
Provision Charged to Operating Expenses
     8,512       2,678  
Loans Charged Off
     (6,534 )     (1,971 )
Loan Recoveries
     461       1,125  
                 
Balance, Ending
   $ 17,952     $ 13,821  


(6)    Premises and Equipment

Premises and equipment are comprised of the following as of September 30, 2008 and December 31, 2007:

   
September 30, 2008
    
December 31, 2007
  
             
Land
   $ 7,805     $ 7,799  
Building
     20,939       20,901  
Furniture, Fixtures and Equipment
     13,303       12,641  
Leasehold Improvements
     994       994  
Construction in Progress
     2,348       448  
      45,389       42,783  
                 
Accumulated Depreciation
     (15,990 )     (14,974 )
    $ 29,399     $ 27,809  

Depreciation charged to operations totaled $1,526 and $1,391 for September 30, 2008 and September 30, 2007, respectively.

Certain Company facilities and equipment are leased under various operating leases.  Rental expense approximated $282 and $273 for nine months ended September 30, 2008 and September 30, 2007, 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, 2008 and September 30, 2007:
 
   
Nine Months Ended
    
Nine Months Ended
  
   
September 30, 2008
    
September 30, 2007
  
             
Goodwill
            
Balance, Beginning
   $ 2,412     $ 2,412  
Goodwill Acquired
      ---        ---  
Balance, Ending
   $ 2,412     $ 2,412  
                 
                 
Net Core Deposit, Intangible
                
Balance, Beginning
   $ 402     $ 439  
Amortization Expense
      (27 )      (28 )
Balance, Ending
   $ 375     $ 411  

17

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, 2008:

2008
   $ 9  
2009
     36  
2010
     36  
2011
     36  
2012 and thereafter
     258  
    $ 375  

(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)    Fair Value Measurements

SFAS No. 157, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements.  The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.  The three levels are defined as follows:

 
·
Level 1
inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 
·
Level 2
inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 
·
Level 3
inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy:

Assets

Securities

Where quoted prices are available in an active market, securities are classified within level 1 of the valuation hierarchy.  Level 1 inputs include securities that have quoted prices in active markets for identical assets.  If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow.  Examples of such instruments, which would generally be classified within level 2 of the valuation hierarchy, included certain collateralized mortgage and debt obligations and certain high-yield debt securities.  In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within level 3 of the valuation hierarchy.  When measuring fair value, the valuation techniques available under the market approach, income approach and/or cost approach are used.  The Company’s evaluations are based on market data and the Company employs combinations of these approaches for its valuation methods depending on the asset class.

18

Part I (Continued)
Item 1 (Continued)

(9)    Fair Value Measurements (Continued)

Impaired loans

SFAS No. 157 applies to loans measured for impairment using the practical expedients permitted by SFAS No. 114, Accounting by Creditors for Impairment of a Loan, including impaired loans measured at an observable market price (if available), or at the fair value of the loan’s collateral (if the loan is collateral dependent).  Fair value of the loan’s collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuation which is then adjusted for the cost related to liquidation of the collateral.

Assets Measured at Fair Value on a Recurring Basis

The table below presents the recorded amount of the Company’s assets measured at fair value on a recurring basis as of September
30, 2008 aggregated by the level in the fair value hierarchy within which those measurements fall.

         
Fair Value Measurements at Reporting Date Using
  
   
September 30, 2008
    
Quoted Prices in Active Markets for Identical Assets (Level 1)
    
Significant Other Observable Inputs (Level 2)
    
Significant Unobservable Inputs (Level 3)
  
                         
Securities Available for Sale
                        
U.S. Government Agencies
                        
Mortgage-Backed
   $ 155,080     $ ---     $ 155,080     $ ---  
Other
     650       ---       650       ---  
State,County & Municipal
     9,468       ---       9,468       ---  
Corporate Obligations
     6,009       ---       5,310       699  
Asset-Backed Securities
      656        ---        ---        656  
    $ 171,863     $ ---     $ 170,508     $ 1,355  

Liabilities

The Company did not identify any liabilities that are required to be presented at fair value.

(10)  Deposits

The aggregate amount of overdrawn deposit accounts reclassified as loan balances totaled $409 and $574 as of September 30, 2008 and December 31, 2007.

Components of interest-bearing deposits as of September 30, 2008 and December 31, 2007 are as follows:

   
September 30, 2008
    
December 31, 2007
  
Interest-Bearing Demand
   $ 180,505     $ 190,304  
Savings
     33,757       31,588  
Time, $100,000 and Over
     318,467       347,219  
Other Time
     375,985       363,379  
    $ 908,714     $ 932,490  

At September 30, 2008 and December 31, 2007, the Company had brokered deposits of $115,202 and $54,737 respectively.  Of the $115,202 brokered deposits at September 30, 2008, $13,379 represented CDARS reciprocal deposits in which customers placed core deposits into the CDARS program for FDIC insurance coverage and the Company received reciprocal brokered deposits in a like amount.  Thus, brokered deposits less the reciprocal deposits totaled $101,823 at September 30, 2008.  The aggregate amount of short-term jumbo certificates of deposit, each with a minimum denomination of $100,000 was approximately $287,529 and $310,971 as of September 30, 2008 and December 31, 2007, respectively.

19

Part I (Continued)
Item 1 (Continued)

(10)  Deposits (Continued)

As of  September 30, 2008 and December 31, 2007,  the scheduled maturities of certificates of deposits are as follows:

Maturity
  
September 30, 2008
    
December 31, 2007
  
One Year and Under
   $ 625,698     $ 632,936  
One to Three Years
     61,141       42,977  
Three Years and Over
     7,613       34,685  
    $ 694,452     $ 710,598  

(11)  Other Borrowed Money

Other borrowed money at September 30, 2008 and December 31, 2007 is summarized as follows:

   
September 30, 2008
    
December 31, 2007
  
Federal Home Loan Bank Advances
   $ 91,000     $ 73,500  
Silverton Note Payable
     ---       100  
Barclay’s Master Repurchase Agreement
     20,000        ---  
    $ 111,000     $ 73,600  

Advances from the Federal Home Loan Bank (FHLB) have maturities ranging from 2009 to 2019 and interest rates ranging from 2.29 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, 2008, the Company had available line of credit commitments totaling $100,587, of which $9,587 was available.

Silverton Bank Note Payable originated on March 5, 2008 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 March 5, 2009. The debt is secured by all furniture, fixtures, equipment and software of Colony Management Services.  Colony Bankcorp, Inc.
guarantees the debt.  This note was paid off in September 2008.

Barclay’s Master Repurchase Agreement originated on June 30, 2008.  The Repurchase Agreement matures on June 30, 2011 and has a one-time call option on December 30, 2009.  Interest is due quarterly at a fixed rate of 3.34 percent.  The Repurchase Agreement is secured by U.S. Government mortgage-backed securities.

The aggregate stated maturities of  other borrowed money at September 30, 2008 are as follows:

Year
  
Amount
  
2008
   $ ---  
2009
     19,000  
2010
     1,000  
2011
     20,000  
2012 and Thereafter
     71,000  
    $ 111,000  

The Company also has available federal funds lines of credit with various financial institutions totaling $54,000, of which $12,664 was outstanding at September 30, 2008.  During third quarter 2008, the Company secured another master repurchase line of credit agreement for $80,000, of which no monies had been drawn as of September 30, 2008.

(12)  Subordinated Debentures (Trust Preferred Securities)

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, 2008, the floating rate securities had a 5.50 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 2.68 percent.

20

Part I (Continued)
Item 1 (Continued)

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

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, 2008 the floating-rate securities had a 5.26  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, 2008, the floating-rate securities had a 5.41  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, 2008, the floating-rate securities had a 4.20 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 1.40 percent.  Proceeds from this issuance were used to payoff the trust preferred securities with the second subsidiary formed in December 2002 as the Company exercised its option to call.

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 offering were used to fund the cash portion of the Quitman acquisition, payoff holding company debt, and inject capital into bank subsidiaries.

(13)  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 was 64,701.  To date, 77,052 split-adjusted shares have been issued under this plan and since the plan’s inception, 12,351 shares have been forfeited; thus, remaining shares which may be subject to restricted stock awards are none at September 30, 2008.  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.  To date, 34,406 shares have been issued under this plan and since the plan’s inception 7,848 shares have been forfeited, thus remaining shares which may be subject to restricted stock awards are 116,942 at September 30, 2008.  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).

(14)  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 provision for the nine   months ended September 30, 2008 was $455 compared to $583 for the nine months ended September 30, 2007.  The total provision for contributions to the plan was $584 for 2007, $663 for 2006 and $558 for 2005.

(15)  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.

21

Part I (Continued)
Item 1 (Continued)

(15)  Commitments and Contingencies (Continued)

At September 30, 2008 and December 31, 2007 the following financial instruments were outstanding whose contract amounts represent credit risk:

   
Contract Amount
  
   
September 30, 2008
    
December 31, 2007
  
             
Loan Commitments
   $ 85,091     $ 93,105  
Standby Letters of Credit
     2,696       3,814  

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.

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.

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.

(16) Deferred Compensation Plan

Colony Bank, wholly-owned subsidiary has deferred compensation plans covering certain directors choosing to participate through individual deferred compensation contracts.  In accordance with terms of the contracts, the Bank is 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 $1,119 and $1,159 as of September 30, 2008 and December 31, 2007, respectively.  Benefit payments under the contracts were $165 and $140 for the nine month period ended September 30, 2008 and September 30, 2007, respectively.   Provisions charged to operations totaled $128 and $205 for the nine month period ended September 30, 2008 and September 30, 2007, respectively.

Fee income recognized with deferred compensation plans totaled $117 and $104 for nine month period ended September 30, 2008 and September 30, 2007, respectively.

(17)  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.

22

Part I (Continued)
Item 1 (Continued)

(17)  Regulatory Capital Matter (Continued)

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, 2008, 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.

The following table summarizes regulatory capital information as of September 30, 2008.

         
To Be Well Capitalized
  
         
For Capital
    
Under Prompt Corrective
  
   
Actual
    
Adequacy Purposes
    
Action Provisions
  
                                     
   
Amount
    
Ratio
    
Amount
    
Ratio
    
Amount
    
Ratio
  
As of September 30, 2008
 
                                    
Total Capital
                                    
to Risk-Weighted Assets
                                    
Consolidated
   $ 116,997       12.15 %   $ 77,031       8.00 %  
NA
    
NA
  
Colony Bank
     116,075       12.08       76,902       8.00     $ 96,128       10.00 %
                                                 
Tier 1 Capital
                                                
to Risk-Weighted Assets
                                                
Consolidated
   $ 104,888       10.89 %   $ 38,515       4.00 %  
NA
    
NA
  
Colony Bank
     103,986       10.82       38,451       4.00       57,677       6.00 %
                                                 
Tier 1 Capital
                                                
to Average Assets
                                                
Consolidated
   $ 104,888       8.70 %   $ 48,240       4.00 %  
NA
    
NA
  
Colony Bank
     103,986       8.64       48,135       4.00     $ 60,169       5.00 %

23

Part I (Continued)
Item 1 (Continued)

(18)  Financial Information of Colony Bankcorp, Inc. (Parent Only)

The parent company’s balance sheets as of September 30, 2008 and December 31, 2007 and the related statements of income and comprehensive income and cash flows are as follows:

COLONY BANKCORP, INC. (PARENT ONLY)
BALANCE SHEETS
SEPTEMBER 30, 2008 AND DECEMBER 31, 2007

ASSETS
  
September 30, 2008
    
December 31, 2007
  
   
(Unaudited)
    
(Audited)
  
             
Cash
   $ 203     $ 973  
Premises and Equipment, Net
     1,328       1,236  
Investment in Subsidiaries, at Equity
     105,963       105,323  
Other
     425       1,491  
                 
Totals Assets
   $ 107,919     $ 109,023  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Liabilities
                
Dividends Payable
   $ 703     $ 684  
Other
     181       367  
      884       1,051  
Subordinated Debt
     24,229       24,229  
                 
                 
Stockholders’ Equity
                
Common Stock, Par Value $1 a Share; Authorized 20,000,000Shares, Issued 7,213,813 and 7,200,913 Shares as of September 30, 2008 and December 31, 2007, Respectively
     7,214       7,201  
Paid-In Capital
     24,561       24,420  
Retained Earnings
     52,675       52,087  
Restricted Stock - Unearned Compensation
     (275 )     (237 )
Accumulated Other Comprehensive Loss, Net of Tax
     (1,369 )     272  
      82,806