UNITED
STATES SECURITIES
AND EXCHANGE
COMMISSION
 WASHINGTON,
D.C.  20549
 
 
 FORM
10-K
 
 
 x
              ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934(Fee
      Required)For
      the Fiscal Year Ended December 31, 2007o
              TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934(No
      Fee Required)For
      the Transition Period from _____________to
  ______________
 
 Commission
File Number 000-12436
  
 COLONY BANKCORP,
INC.
 (Exact
Name of Registrant Specified in its Charter)
  
 
 
 Georgia
              
              58-1492391(State
      or Other Jurisdiction ofIncorporation
      or Organization)
              
              (I.R.S.
      EmployerIdentification
      Number)115
      South Grant StreetFitzgerald,
      Georgia
              
              31750(Address
      of Principal Executive Offices)
              
              (Zip
      Code)
 
 (229)
426-6000
 Issuer’s
Telephone Number, Including Area Code
 
 Securities
Registered Pursuant to Section 12(b) of the Act:  None.
 
 Securities
Registered Pursuant to Section 12(g) of the Act:
 
 COMMON
STOCK, $1.00 PAR VALUE
 (Title of
Class)
 
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.    Yes  o  No  x
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes  o  No  x
 
 Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days.   Yes x  No o
 
 Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K in this form, and no disclosure will be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.    x
 
 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 o
              Accelerated
      Filer x
              Nonaccelerated
      Filer o
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act):   Yeso   No  x
 
 State the
aggregate market value of the voting stock held by nonaffiliates computed by
reference to the price at which the stock was sold, or the average bid and asked
prices of such stock, as of June 30, 2007:  $104,778,888 based on
stock price of $19.48.
 
 State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date:  7,216,113 shares of $1.00 par
value common stock as of March 10, 2008.
 
 DOCUMENTS
INCORPORATED BY REFERENCE
 
 Portions
of the information required by Part III of this Annual Report are incorporated
by reference from the Registrant’s definitive Proxy Statement to be filed with
Securities and Exchange Commission pursuant to Regulation 14A not later than 120
days after the end of the fiscal year covered by this Annual
Report.
  
 - 1
-
  TABLE OF
CONTENTS
 PagePART IForward Looking Statement Disclosure
              3Item
      1.
              
              Business
              4Item
      1A.
              
              Risk Factors
              25Item
      1B.
              
              Unresolved Staff Comments
              28Item
      2.
              
              Properties
              28Item
      3.
              
              Legal Proceedings
              28Item
      4.
              
              Submission of Matters to a Vote of Security
      Holders
              28PART IIItem
      5.
              
              Market for Registrant’s Common Equity, Related Stockholder
      Matters
      and Issuer Purchases of Equity Securities
              28Item
      6.
              
              Selected Financial Data
              30Item
      7.
              
              Management’s Discussion and Analysis of Financial Condition
      and
      Results of Operations
              32Item
      7A.
              
              Quantitative and Qualitative Disclosures About Market
      Risk
              62Item
      8.
              
              Financial Statements and Supplementary
    Data
              62Item
      9.
              
              Changes in and Disagreements with Accountants on Accounting
      and
      Financial Disclosure
              64Item
      9A.
              
              Controls and Procedures
              64Item
      9B.
              
              Other Information
              65PART IIIItem
      10.
              
              Directors and Executive Officers and Corporate
      Governance
              65Item
      11.
              
              Executive Compensation
              65Item
      12.
              
              Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder MattersItem
      13.
              
              Certain Relationships and Related Transactions and
      Director IndependenceItem
      14.
              
              Principal Accounting Fees and Services
              66PART IVItem
      15.
              
              Exhibits, Financial Statement Schedules
              67Signatures
              
              
              69
  - 2
-
 Table of Contents
  Forward Looking Statement Disclosure
 
 Statements
in this Annual 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,” “believes,” “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 Annual 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 revenues, 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
-
 Table of Contents
  Part I
 Item
1
 Business
 
 COLONY
BANKCORP, INC.
 
 Colony
Bankcorp, Inc. (the Company or Colony) is a Georgia business corporation which
was incorporated on November 8, 1982.  The Company was organized for
the purpose of operating as a bank holding company under the Federal Bank
Holding Company Act of 1956, as amended, and the bank holding company laws of
Georgia (Georgia Laws 1976, p. 168, et. seq.).  On
July 22, 1983, the Company, after obtaining the requisite regulatory approvals,
acquired 100 percent of the issued and outstanding common stock of Colony Bank
of Fitzgerald (formerly The Bank of Fitzgerald), Fitzgerald, Georgia, through
the merger of the Bank with a subsidiary of the Company which was created for
the purpose of organizing the Bank into a one-bank holding
company.  Since that time, Colony Bank of Fitzgerald has operated as a
wholly-owned subsidiary of the Company.
 
 On April
30, 1984, Colony, with the prior approval of the Federal Reserve Bank of Atlanta
and the Georgia Department of Banking and Finance, acquired 100 percent of the
issued and outstanding common stock of Colony Bank Wilcox (formerly Community
Bank of Wilcox and Pitts Banking Company), Pitts, Wilcox County,
Georgia.  As part of that transaction, Colony issued an additional
17,872 shares of its $10.00 par value common stock, all of which was exchanged
with the holders of shares of common stock of Pitts Banking Company for 100
percent of the 250 issued and outstanding shares of common stock of Pitts
Banking Company.  Since the date of acquisition, the Bank has operated
as a wholly-owned subsidiary of the Company.
 
 On
November 1, 1984, after obtaining the requisite regulatory approvals, Colony
acquired 100 percent of the issued and outstanding common stock of Colony Bank
Ashburn (formerly Ashburn Bank), Ashburn, Turner County, Georgia, for a
combination of cash and interest-bearing promissory notes.  Since the
date of acquisition, Colony Bank Ashburn has operated as a wholly-owned
subsidiary of the Company.
 
 On
September 30, 1985, after obtaining the requisite regulatory approvals, the
Company acquired 100 percent of the issued and outstanding common stock of
Colony Bank of Dodge County (formerly The Bank of Dodge County), Chester, Dodge
County, Georgia.  The stock was acquired in exchange for the issuance
of 3,500 shares of common stock of Colony.  Since the date of its
acquisition, Colony Bank of Dodge County has operated as a wholly-owned
subsidiary of the Company.
 
 Effective
July 31, 1991, the Company acquired all of the outstanding common stock of
Colony Bank Worth (formerly Worth Federal Savings and Loan Association and Bank
of Worth) in exchange for cash and 7,661 of the Company's common stock for an
aggregate purchase price of approximately $718,000.  Since the date of
its acquisition, Colony Bank Worth has operated as a wholly-owned subsidiary of
the Company.
 
 On
November 8, 1996, Colony organized Colony Management Services, Inc. to provide
support services to each subsidiary.  Services provided include loan
and compliance review, internal audit and data processing.
 
 On
November 30, 1996, the Company acquired Broxton State Bank (name subsequently
changed to Colony Bank Southeast) in a business combination accounted for as a
pooling of interests.  Broxton State Bank became a wholly-owned
subsidiary of the Company through the exchange of 157,735 shares of the
Company’s common stock for all of the outstanding stock of Broxton State
Bank.
  - 4
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 On March
2, 2000, Colony Bank Ashburn purchased the capital stock of Georgia First
Mortgage Company in a business combination accounted for as a
purchase.  The purchase price of $346,725 was the fair value of the
net assets of Georgia First Mortgage at the date of purchase.  Georgia
First Mortgage is primarily engaged in residential real estate mortgage lending
in the state of Georgia.
 
 On March
26, 2002 and December 19, 2002, Colony formed Colony Bankcorp Statutory Trust I
and Colony Bankcorp Statutory Trust II, respectively.  Both were
formed to establish special purpose entities to issue trust preferred
securities.  During 2007, both Trusts were liquidated as Colony
exercised its option to call and pay off the trust preferred
securities.
 
 On March
29, 2002, Colony purchased 100 percent of the outstanding voting stock of
Quitman Bancorp, Inc., pursuant to which Quitman was merged with and into Colony
with Colony Bankcorp, Inc. surviving the merger and Quitman’s wholly-owned
subsidiary, Quitman Federal Savings Bank (name subsequently changed to Colony
Bank Quitman, FSB) becoming a wholly-owned subsidiary of Colony.  The
aggregate acquisition price was $7,446,163, which included cash and 367,093
shares of the Company’s common stock.
 
 On March
19, 2004, Colony Bank Ashburn purchased Flag Bank-Thomaston office in a business
combination accounted for as a purchase.  Since the date of
acquisition, the Thomaston office has operated as a branch office of Colony Bank
Ashburn.
 
 On June
17, 2004, Colony formed Colony Bankcorp Statutory Trust III for the purpose of
establishing a special purpose entity to issue trust preferred
securities.
 
 On April
13, 2006, Colony formed Colony Bankcorp Capital Trust I for the purpose of
establishing a special purpose entity to issue trust preferred
securities.
 
 On March
12, 2007, Colony formed Colony Bankcorp Capital Trust II for the purpose of
establishing a special purpose entity to issue trust preferred
securities.
 
 On
September 14, 2007, Colony formed Colony Bankcorp Capital Trust III for the
purpose of establishing a special purpose entity to issue trust preferred
securities.
 
 The
Company conducts all of its operations through its bank
subsidiaries.  A brief description of each Bank's history and business
operations is discussed below.
 
 COLONY
BANK OF FITZGERALD
 
 History
and Business of the Bank
 
 Colony
Bank of Fitzgerald is a state banking institution chartered under the laws of
Georgia on November 10, 1975.  Since opening on April 15, 1976, the
Bank has continued a general banking business and presently serves its customers
from four locations, the main office in Fitzgerald, Georgia at 302 South Main
Street, a full-service branch located on Highway 129 South, a full-service
branch at 1290 Houston Lake Road in Warner Robins, Georgia and a full-service
branch at 200 Gunn Road in Centerville, Georgia.
  - 5
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 The Bank
operates a full-service banking business and engages in a broad range of
commercial banking activities, including accepting customary types of demand and
time deposits; making individual, consumer, commercial and installment loans;
money transfers; safe deposit services; and making investments in United States
Government and municipal securities.   The Bank does not offer
trust services other than acting as custodian of individual retirement
accounts.  The Bank’s mortgage lending services are through Georgia
First Mortgage.
 
 The data
processing work of the Bank is processed by Colony Management Services, Inc., a
wholly-owned subsidiary of Colony Bankcorp, Inc.
 
 Colony
Bank of Fitzgerald acts as an agent for Visa Card and MasterCard through
Silverton Bank which allows merchants to accept Visa Card and MasterCard and
deposit the charge tickets in their accounts with the Bank.  The Bank
also offers its customers a variety of checking and savings
accounts.
 
 The Bank
serves the residents of Fitzgerald and surrounding areas of Ben Hill County
which has a population of approximately 18,000 people.  Manufacturing
facilities located in Ben Hill County employ many people and are the most
significant part of the local economy.  Ben Hill County also has a
large agricultural industry producing timber and row crops.  Major row
crops are peanuts, tobacco, cotton and corn.
 
 The Bank
serves Houston County with the opening of its offices in Centerville and Warner
Robins, Georgia.  The Houston County market has an estimated
population of 128,000.  Robins Air Force base, located in Houston
County, is a major employer in the area which has survived national base closure
mandates and expanded in size in recent years.
 
 A history
of the Bank's financial position for fiscal years ended 2007, 2006 and 2005 is
as follows:
 
 2007
              
              
              2006
              
              
              2005Total
      Assets
              
              $
              196,006,764
              
              
              $
              203,113,676
              
              
              $
              185,403,798Total
      Deposits
              
              
              168,106,878
              
              
              
              174,078,725
              
              
              
              155,593,897Total
      Stockholders' Equity
              
              
              17,844,900
              
              
              
              16,465,138
              
              
              
              14,815,728Net
      Income
              
              
              2,638,166
              
              
              
              2,778,915
              
              
              
              2,464,452Number
      of Issued and Outstanding Shares
              
              
              90,000
              
              
              
              90,000
              
              
              
              90,000Book
      Value Per Share
              
              $
              198.28
              
              
              $
              182.95
              
              
              $
              164.62Net
      Income Per Share
              
              
              29.31
              
              
              
              30.88
              
              
              
              27.38
 
 Banking
Facilities
 
 The
Bank's main offices are housed in a building located in Fitzgerald,
Georgia.  The main offices, which are owned by the Bank, consist of
approximately 13,000 square feet, three drive-in windows and an adjacent parking
lot.  Banking operations also are conducted from the southside branch
which is located at South Dixie Highway, Fitzgerald, Georgia.  This
branch is owned by the Bank and has been in continuous operation since it opened
in December 1977.  The branch is a single story building with
approximately 850 square feet and is operated with three drive-in
windows.
  - 6
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 In August
2002, the Bank moved from its temporary facilities (opened July 2001) in Warner
Robins, Georgia to a new building located at 1290 Houston Lake
Road.  The 5,500 square foot building has four inside teller windows,
four drive-in windows and an ATM machine.
 
 In
February 2006, the Bank opened its second office in the Houston County, Georgia
market at 200 Gunn Road in Centerville, Georgia.  The approximate
5,000 square foot building has four inside teller windows, four drive-in windows
and an ATM machine.
 
 Competition
 
 The
banking business in Ben Hill County and Houston County is highly
competitive.  The Bank competes primarily with four other commercial
banks and one credit union operating in Ben Hill County.  In Houston
County the Bank competes with ten commercial banks and four credit
unions.  Additionally, the Bank competes to a lesser extent with
insurance companies and governmental agencies.  The banking industry
is also experiencing increasing competition for deposits from less traditional
sources such as money market and mutual funds.  The Bank also offers
"NOW" accounts, individual retirement accounts, simplified pension plans, KEOGH
plans and custodial accounts for minors.
 
 Correspondents
 
 As of
December 31, 2007, the Bank had correspondent relationships with two other
banks.  The Bank's principal correspondent is Silverton Bank located
in Atlanta, Georgia.  These correspondent banks provide certain
services to the Bank such as investing its excess funds, processing checks and
other items, buying and selling federal funds, handling money fund transfers and
exchanges, shipping coins and currency, providing security and safekeeping of
funds and other valuable items, handling loan participations and furnishing
management investment advice on the Bank's securities portfolio.  As
compensation for these services, the Bank maintains balances with its
correspondents in noninterest-bearing accounts.
 
 COLONY
BANK ASHBURN
 
 History
and Business of the Bank
 
 Colony
Bank Ashburn was chartered as a state commercial bank in 1900 and currently
operates under the Financial Institutions Code of Georgia.  The Bank's
deposits are insured up to $100,000 per account by the Federal Deposit Insurance
Corporation.  The Bank conducts business at the offices located at 515
East Washington and 416 East Washington in Ashburn, Turner County, Georgia, 137
Robert E. Lee Drive in Leesburg, Georgia, 2609 Ledo Road in Lee County, Georgia,
1031 24th Ave.,
E. in Cordele, Georgia, 206 North Church Street in Thomaston, Georgia, 716
Philema Road in Albany, Georgia and 1581 Bradley Park Drive in Columbus,
Georgia. The offices operate under the name Colony Bank. The Bank's business
largely consists of (1) the acceptance of demand, savings and time deposits; (2)
the making of loans to consumers, businesses and other institutions; (3)
investment of excess funds and sale of federal funds, U.S. Government
obligations and state, county and municipal bonds; and (4) internet online
banking.  The Bank’s mortgage lending services are through Georgia
First Mortgage and it does not offer trust services.  It acts as an
agent for Visa Card and MasterCard through Silverton Bank.
  - 7
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 The Bank
serves Turner County, Georgia, which has a population of approximately 10,000
people.  The Bank serves Crisp County with the opening of its branch
in Cordele, Georgia.  The Crisp County market has an estimated
population of 22,000.  The Bank serves Lee and Dougherty counties with
the opening of offices in Albany and Leesburg, Georgia.  The
Albany/Leesburg MSA market has an estimated population of
160,000.  The Bank serves Upson County with the opening of its branch
in Thomaston, Georgia.  The Upson County market has an estimated
population of 28,000.  The Bank serves Muscogee County with the
opening of its office in Columbus, Georgia.  The Columbus MSA market
has an estimated population of 282,000.
 
 A history
of the Bank's financial position for fiscal years ended 2007, 2006 and 2005 is
as follows:
 
 2007
              
              
              2006
              
              
              2005Total
      Assets
              
              $
              334,741,915
              
              
              $
              342,704,792
              
              
              $
              332,217,540Total
      Deposits
              
              
              284,228,173
              
              
              
              299,891,433
              
              
              
              294,311,410Total
      Stockholders' Equity
              
              
              29,189,963
              
              
              
              27,777,175
              
              
              
              27,017,259Net
      Income
              
              
              2,061,767
              
              
              
              2,593,841
              
              
              
              2,586,828Number
      of Issued and Outstanding Shares
              
              
              50,000
              
              
              
              50,000
              
              
              
              50,000Book
      Value Per Share
              
              $
              583.80
              
              
              $
              555.54
              
              
              $
              540.35Net
      Income Per Share
              
              
              41.24
              
              
              
              51.88
              
              
              
              51.74
 
 Banking
Facilities
 
 The
Bank's main office is located at 515 East Washington Street in Ashburn and
consists of a building of approximately 13,000 square feet of office and banking
space with an adjacent parking lot.  A branch facility is located
across the street from the main office and consists of a single story building
with approximately 850 square feet and is operated with three drive-in windows
and one automated teller machine.
 
 The Bank
has a Lee County office which opened in October 1998.  This
full-service facility, located within the city limits of Leesburg, consists of a
two-story brick building of approximately 5,000 square feet and includes three
drive-in lanes.  In 2001, a second Lee County facility located at 2609
Ledo Road opened.  The facility is a 5,500 square foot facility with
four drive-in windows and five inside teller windows.  The Bank has a
third Lee/Dougherty County office which opened in March 2004.  This
full service facility located within the city limits of Albany consists of
approximately 5,000 square feet, with four drive-in-lanes and one automated
teller machine.  As a result of the purchase of Georgia First Mortgage
Company, the Bank has a mortgage lending office at 616 North Westover Blvd.,
Albany, Dougherty County, Georgia.
 
 The Bank
opened a branch office in Cordele, Crisp County, Georgia on October 4,
1999.  The full-service branch facility consists of approximately
5,500 square feet, with four drive-in lanes and one automated teller
machine.
 
 In March
2004, the Bank acquired Flag Bank-Thomaston office in Thomaston, Upson County,
Georgia.  The full service branch facility consists of approximately
18,000 square feet, with four drive-in-lanes and one automated teller
machine.
  - 8
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 In
September 2004, the Bank opened a loan production office in Columbus, Muscogee
County, Georgia. The Bank opened a branch office in Columbus, Muscogee County,
Georgia in June 2006 and relocated the loan production operation to the new
office.  The approximate 5,000 square foot facility has four drive-in
windows, four inside teller windows and one automated teller
machine.
 
 All
occupied premises, with the exception of Georgia First Mortgage located in
Albany, are owned by the Bank.
 
 Competition
 
 The
banking business is highly competitive.  The Bank competes in Turner
County primarily with South Georgia Banking Company which operates out of one
facility in Ashburn, Georgia.  The Bank competes with four commercial
banks in Crisp County, eight in Lee County, eleven in Dougherty County, three in
Upson County and eleven in Muscogee County.  The Bank also competes
with other financial institutions, including credit unions and finance companies
and, to a lesser extent, with insurance companies and certain governmental
agencies.  The banking industry is also experiencing increased
competition for deposits from less traditional sources such as money market and
mutual funds.
 
 Correspondents
 
 Colony
Bank Ashburn has correspondent relationships with the following
banks:  Silverton Bank in Atlanta, Georgia; SunTrust Bank, N.A. in
Atlanta, Georgia; Colony Bank of Fitzgerald in Fitzgerald, Georgia; and the
Federal Home Loan Bank in Atlanta, Georgia.  The correspondent
relationships facilitate the transactions of business by means of loans, letters
of credit, acceptances, collections, exchange services and data
processing.  As compensation for these services, the Bank maintains
balances with its correspondents in noninterest-bearing accounts.
 
 COLONY
BANK WILCOX
 
 History
and Business of the Bank
 
 The Bank
was chartered on June 2, 1906 under the name "Pitts Banking
Company."  The name of the Bank subsequently was changed to Community
Bank of Wilcox on June 1, 1991 and then to Colony Bank Wilcox in
2000.  The Bank currently operates under the Financial Institutions
Code of Georgia.  The Bank's deposits are insured up to $100,000 per
account by the Federal Deposit Insurance Corporation.  The Bank
conducts business at locations in Pitts and Rochelle in Wilcox County,
Georgia.  The Bank's business consists of:  (1) the
acceptance of demand, savings and time deposits; (2) the making of loans to
consumers, businesses and other institutions; (3) investment of excess funds and
sale of federal funds, U.S. Government obligations and state, county and
municipal bonds; and (4) certain other miscellaneous financial services usually
handled for customers by commercial banks.  The Bank’s mortgage
lending services are through Georgia First Mortgage and it does not offer trust
services.
 
 The Bank
serves the residents of Wilcox County, Georgia, which has a population of
approximately 9,000.
  - 9
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 A history
of the Bank's financial position for fiscal years ended 2007, 2006 and 2005 is
as follows:
 
 2007
              
              
              2006
              
              
              2005Total
      Assets
              
              $
              51,746,386
              
              
              $
              49,190,359
              
              
              $
              48,959,120Total
      Deposits
              
              
              43,892,009
              
              
              
              41,757,568
              
              
              
              42,482,714Total
      Stockholders' Equity
              
              
              4,293,545
              
              
              
              4,231,005
              
              
              
              4,327,857Net
      Income
              
              
              737,941
              
              
              
              766,236
              
              
              
              691,579Number
      of Issued and Outstanding Shares
              
              
              250
              
              
              
              250
              
              
              
              250Book
      Value Per Share
              
              $
              17,174.18
              
              
              $
              16,924.02
              
              
              $
              17,311.43Net
      Income Per Share
              
              
              2,951.76
              
              
              
              3,064.94
              
              
              
              2,766.32
 
 Banking
Facilities
 
 The Bank
operates out of two locations at 105 South Eighth Street, Pitts, Georgia and at
Highway 280, Rochelle, Georgia, both of which are in Wilcox
County.  The Pitts office consists of a building of approximately
2,200 square feet of usable office and banking space which it
owns.  The facility contains one drive-in window and three teller
windows.  The Rochelle office, which opened in August 1989, consists
of a building of approximately 5,000 square feet of usable office and banking
space, which is owned by the Company.  The facility has three inside
teller windows, three drive-in windows and one automated teller
machine.
 
 Competition
 
 The
banking business is highly competitive.  The Bank competes in Wilcox
County primarily with four commercial banks.  In addition, the Bank
competes with other financial institutions, including credit unions and finance
companies and, to a lesser extent, insurance companies and certain governmental
agencies.  The banking industry is also experiencing increased
competition for deposits from less traditional sources such as money market and
mutual funds.
 
 Correspondents
 
 The Bank
has correspondent relationships with the following banks:  Silverton
Bank in Atlanta, Georgia; Federal Home Loan Bank, in Atlanta, Georgia; and
SunTrust Bank, N.A., in Atlanta, Georgia.  The correspondent
relationships facilitate the transactions of business by means of loans, letters
of credit, acceptances, collections, exchange services and data
processing.  As compensation for these services, the Bank maintains
balances with its correspondents in noninterest-bearing
accounts.
  - 10
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 COLONY
BANK OF DODGE COUNTY
 
 History
and Business of the Bank
 
 The Bank
was chartered on June 14, 1966 under the name "Bank of Chester."  The
name of the Bank subsequently was changed to The Bank of Dodge County on April
15, 1983 and then to Colony Bank of Dodge County in 2000.  The Bank
currently operates under the Financial Institutions Code of
Georgia.  The Bank's deposits are insured up to $100,000 per account
by the Federal Deposit Insurance Corporation.  The Bank's business
consists of:  (1) the acceptance of demand, savings and time deposits;
(2) the making of loans to consumers, businesses and other institutions; (3)
investment of excess funds in the sale of federal funds, U.S. Government
obligations and state, county and municipal bonds; and (4) certain other
miscellaneous financial services usually handled for customers by commercial
banks.  The Bank’s mortgage lending services are through Georgia First
Mortgage and it does not offer trust services.
 
 The Bank
serves the residents of Dodge County, Georgia, which has a population of
approximately 20,000. The Bank serves Treutlen County, Georgia with the opening
of its office in Soperton, Georgia.  The Treutlen County market has an
estimated population of 7,000.
 
 A history
of the Bank's financial position for fiscal years ended 2007, 2006 and 2005 is
as follows:
 
 2007
              
              
              2006
              
              
              2005Total
      Assets
              
              $
              88,848,084
              
              
              $
              81,020,282
              
              
              $
              77,083,271Total
      Deposits
              
              
              79,364,535
              
              
              
              72,720,715
              
              
              
              68,111,242Total
      Stockholders' Equity
              
              
              6,089,440
              
              
              
              5,775,668
              
              
              
              5,555,685Net
      Income
              
              
              898,916
              
              
              
              1,122,422
              
              
              
              932,931Number
      of Issued and Outstanding Shares
              
              
              1,750
              
              
              
              1,750
              
              
              
              1,750Book
      Value Per Share
              
              $
              3,479.68
              
              
              $
              3,300.38
              
              
              $
              3,174.68Net
      Income Per Share
              
              
              513.67
              
              
              
              641.38
              
              
              
              533.10
 
 Banking
Facilities
 
 The
Bank's main office is located at 5510 Oak Street in Eastman, Dodge County,
Georgia and consists of a building of approximately 11,000 square feet of office
and banking space with an adjacent parking lot and is operated with three
drive-in windows.  The branch facility is located in Chester, Dodge
County, Georgia and consists of a building with approximately 2,700 square feet
of office and banking space and an adjacent parking lot.  A second
branch was opened during 2000 in Soperton, Treutlen County, Georgia at 310 Main
Street.  The branch has approximately 1,600 square feet of banking and
office space with three walk-up teller units and two drive-in
windows.  The Bank owns all of the premises which it
occupies.
 
 Competition
 
 The
banking business is highly competitive.  The Bank competes in the
Dodge County area with two other banks.  The Bank competes in the
Treutlen County market with one other bank.  In addition, the Bank
competes with other financial institutions, including credit unions and finance
companies and, to a lesser extent, insurance companies and certain governmental
agencies.  The banking industry is also experiencing increased
competition for deposits from less traditional sources such as money market and
mutual funds.
  - 11
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 Correspondents
 
 The Bank
has correspondent relationships with the following banks: Silverton Bank in
Atlanta, Georgia; The Federal Home Loan Bank in Atlanta, Georgia; and SunTrust
Bank, N.A., in Atlanta, Georgia.  The correspondent relationships
facilitate the transactions of business by means of loans, letters of credit,
acceptances, collections, exchange services and data processing.  As
compensation for these services, the Bank maintains balances with its
correspondents in noninterest-bearing accounts.
 
 COLONY
BANK WORTH
 
 Colony
Bank Worth operated as a savings and loan stock association until it was
acquired by the Company on July 31, 1991, at which time the association changed
its name to Bank of Worth (subsequently named Colony Bank Worth) and became a
state-chartered commercial bank.  The Bank conducts business at its
offices located at 601 North Main Street, Sylvester, Worth County, Georgia, 605
West Second Street and 1909 Highway 82 West, Tifton, Tift County, Georgia and
621 East By-Pass, NE, Moultrie, Colquitt County, Georgia.  The Bank's
business consists of:  (1) the acceptance of demand, savings and time
deposits; (2) the making of loans to consumers, businesses and other
institutions; (3) investment of excess funds and sale of federal funds, U.S.
Government obligations and state, county and municipal bonds; and (4) certain
other miscellaneous financial services usually handled for customers by
commercial banks.  The Bank's deposits are insured up to $100,000 per
account by the Federal Deposit Insurance Corporation.  The Bank does
not offer trust services.  It acts as an agent for Visa Card and
MasterCard through Silverton Bank.  The Bank’s mortgage lending
services are through Georgia First Mortgage.
 
 The Bank
serves the residents of Worth County, Georgia, which has a population of
approximately 22,000. The Bank serves the residents of Tift County, Georgia with
the opening of its two offices in Tifton, Georgia.  The Tift County
market has an estimated population of 42,000.   The Bank serves
the residents of Colquitt County, Georgia with the opening of its office in
Moultrie, Georgia.  The Colquitt County market has an estimated
population of 45,000.
 
 A history
of the Bank's financial position for fiscal years ended 2007, 2006 and 2005 is
as follows:
 
 2007
              
              
              2006
              
              
              2005Total
      Assets
              
              $
              180,872,592
              
              
              $
              178,612,527
              
              
              $
              172,221,653Total
      Deposits
              
              
              159,096,106
              
              
              
              160,719,979
              
              
              
              152,518,642Total
      Stockholders' Equity
              
              
              14,089,489
              
              
              
              12,822,905
              
              
              
              11,895,191Net
      Income
              
              
              2,217,024
              
              
              
              1,978,512
              
              
              
              1,671,621Number
      of Issued and Outstanding Shares
              
              
              95,790
              
              
              
              95,790
              
              
              
              95,790Book
      Value Per Share
              
              $
              147.09
              
              
              $
              133.86
              
              
              $
              124.18Net
      Income Per Share
              
              
              23.14
              
              
              
              20.65
              
              
              
              17.45
  - 12
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 Banking
Facilities
 
 The
Bank's main office is housed in a building located in Sylvester,
Georgia.  The building, which is owned by the Bank, consists of
approximately 13,000 square feet, a drive-in window and an adjacent parking
lot.  On June 15, 1998, the Bank opened a branch office at 605 West
Second Street, Tifton, Georgia.  The office is a single story building
of approximately 2,300 square feet with one attached drive-in
window.  A second branch office opened in 2000 in Moultrie, Colquitt
County, Georgia.  This branch building of approximately 5,000 square
feet includes three walk-up teller units and four drive-in
windows.  In August 2004, the Bank opened a second office in Tifton,
Tift County, Georgia.  The office is located at 1909 Highway 82 West
and consists of approximately 2,800 square feet.  The office has four
drive-in windows and an ATM machine.  All occupied offices, with the
exception of the two Tifton locations, are owned by the Bank.
 
 Competition
 
 The
banking business in Worth County, Tift County and Colquitt County is highly
competitive.  The Bank competes primarily with three other commercial
banks operating in Worth County, seven other commercial banks in Tift County and
seven other commercial banks in Colquitt County.  Additionally, the
Bank competes with credit unions of employers located in the area and, to a
lesser extent, insurance companies and governmental agencies.  The
banking industry is also experiencing increasing competition for deposits from
less traditional sources such as money market and mutual funds.
 
 Correspondents
 
 As of
December 31, 2007, the Bank had correspondent relationships with three other
banks.  The Bank's principal correspondent is Silverton Bank located
in Atlanta, Georgia.  These correspondent banks provide certain
services to the Bank such as investing its excess funds, processing checks and
other items, buying and selling federal funds, handling money fund transfers and
exchanges, shipping coins and currency, providing security and safekeeping of
funds and other valuable items, handling loan participations and furnishing
management investment advice on the Bank's securities portfolio.  As
compensation for these services, the Bank maintains balances with its
correspondents in noninterest-bearing accounts.
 
 COLONY
BANK SOUTHEAST
 
 History
and Business of the Bank
 
 Colony
Bank Southeast, formerly Broxton State Bank, was chartered under the laws of
Georgia on August 4, 1966 and opened for business on September 1, 1966,
having absorbed “Citizens Bank,” a private, unincorporated bank.
 
 The Bank
is a full-service bank offering a wide variety of banking services targeted at
all sectors of the Bank’s primary market area.  The Bank offers
customary types of demand, savings, time and individual retirement accounts;
installment, commercial and real estate loans; home mortgages and personal
lines-of-credit; Visa and Master Card services through its correspondent,
Silverton Bank; safe deposit and night depository services; cashier’s checks,
money orders, traveler's checks, wire transfers and various other services that
can be tailored to the customer’s needs.  The Bank does not offer
trust services at this time.  The Bank’s mortgage lending services are
through Georgia First Mortgage.  The Bank serves the residents of
Coffee County, Georgia, which has a population of approximately
40,000.
  - 13
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 In March
2004, the Bank opened a loan production office in Savannah, Chatham County,
Georgia.  The Bank renovated an approximately 7,000 square foot
facility for a full service branch.  The branch opened in September
2005.  In addition, the Bank has begun construction of its second
office in Savannah with anticipated opening in the fourth quarter of
2008.  The new facility will be a full service branch consisting of
approximately 8,000 square feet.  The Bank serves the residents of the
Chatham County, Georgia MSA market which has a population of approximately
293,000.
 
 A history
of the Bank's financial position for fiscal years ended 2007, 2006 and 2005 is
as follows:
 
 2007
              
              
              2006
              
              
              2005Total
      Assets
              
              $
              210,019,712
              
              
              $
              215,668,120
              
              
              $
              173,059,806Total
      Deposits
              
              
              180,602,528
              
              
              
              188,267,151
              
              
              
              146,533,872Total
      Stockholders' Equity
              
              
              20,420,442
              
              
              
              17,980,842
              
              
              
              13,640,842Net
      Income
              
              
              912,414
              
              
              
              1,793,773
              
              
              
              1,176,862Number
      of Issued and Outstanding Shares
              
              
              50,730
              
              
              
              50,730
              
              
              
              50,730Book
      Value Per Share
              
              $
              402.53
              
              
              $
              354.44
              
              
              $
              268.89Net
      Income Per Share
              
              
              17.99
              
              
              
              35.36
              
              
              
              23.20
 
 Banking
Facilities
 
 The Bank
operates one banking office located at 401 North Alabama Street, Broxton,
Georgia which consists of approximately 5,000 square feet of
space.  The building has four alarm-equipped vaults, one for
safe-deposit boxes and cash storage, one for night depository service and two
for record storage.  The building has two drive-in systems, one
commercial drawer and one pneumatic tube system.  Colony Bank
Southeast opened a branch office in Douglas, Georgia on July 6,
1998.  The two-story brick building located at 625 West Ward Street
consists of approximately 8,300 square feet and provides four drive-in lanes for
customer convenience.  A second Douglas office was opened on September
8, 1999 and consists of approximately 1,200 square feet with three drive-in
lanes and one automated teller machine.  A loan production office was
opened in Savannah, Chatham County, Georgia in March 2004.  The Bank
renovated an approximately 7,000 square foot facility for a full service branch
in September 2005 with the loan production office moving its operation into the
new office.  All occupied premises are owned by the Bank, with the
exception of the branch located at 1351 A SE Bowens Mill Road,
Douglas.  The Bank purchased real estate during 2006 for the future
site of its second office in Savannah, Chatham County, Georgia.  It is
anticipated construction of its second office branch will be completed during
the fourth quarter of 2008.  The new facility will approximate 8,000
square feet.
 
 Competition
 
 The
banking business in Coffee County is highly competitive.  Colony Bank
Southeast competes with nine other banks and one credit union in Douglas,
Georgia.  As a result of the opening of a branch office in Savannah,
the Bank now competes with nineteen other banks in Chatham
County.  The banking industry is also experiencing increased
competition for deposits from less traditional sources such as money market and
mutual funds.
  - 14
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 Correspondents
 
 The Bank
has correspondent relationships with the following banks:  SunTrust
Bank, Atlanta, Georgia; Silverton Bank, Atlanta, Georgia; the Federal Home Loan
Bank in Atlanta, Georgia and Columbus Bank & Trust, Columbus,
Georgia.  The correspondent relationships facilitate the transactions
of business by means of loans, letters-of-credit, acceptances, collections,
exchange services and data processing.  As compensation for these
services, the Bank maintains balances with its correspondents in
noninterest-bearing accounts.
 
 COLONY
BANK QUITMAN, FSB
 
 History
and Business of the Bank
 
 Colony
Bank Quitman, FSB was chartered as a federal savings association in
1936.  The Bank operates under the oversight of the Office of Thrift
Supervision.  The Federal Deposit Insurance Corporation insures the
Bank’s deposits up to $100,000 per depositor.  The Bank conducts
business at offices located at 602 East Screven Street in Quitman, Brooks
County, Georgia, 2910-N North Ashley Street, Valdosta, Lowndes County, Georgia
and Highway 41-North Valdosta Road, Valdosta, Lowndes County,
Georgia.  The Bank’s business largely consists of (1) the acceptance
of demand, savings and time deposits; (2) the making of loans to consumers,
businesses and other institutions; and (3) investment of excess funds through
the sale of federal funds and purchase of U.S. government agency obligations and
state, county and municipal bonds.  The Bank is primarily a portfolio
lender with a major focus on residential real estate lending.  The
Bank acts as an agent for Visa Card and Mastercard through Silverton
Bank.  The Bank’s mortgage lending services are through Georgia First
Mortgage.
 
 The Bank
serves the residents of Brooks County, Georgia, which has a population of
approximately 16,500. The Bank serves Lowndes County with the opening of its two
branches in Valdosta, Georgia.  The Lowndes County market has an
estimated population of 98,000.
 
 A history
of the Bank’s financial position for calendar years ended 2007, 2006 and 2005 is
as follows:
 
 2007
              
              
              2006
              
              
              2005Total
      Assets
              
              $
              147,588,709
              
              
              $
              141,038,931
              
              
              $
              126,149,879Total
      Deposits
              
              
              108,894,100
              
              
              
              108,487,649
              
              
              
              95,069,270Total
      Stockholder’s Equity
              
              
              11,679,989
              
              
              
              10,898,134
              
              
              
              10,162,924Net
      Income
              
              
              1,353,790
              
              
              
              1,423,846
              
              
              
              1,388,222Numbers
      of Issued and Outstanding Shares
              
              
              100,000
              
              
              
              100,000
              
              
              
              100,000Book
      Value Per Share
              
              $
              116.80
              
              
              $
              108.98
              
              
              $
              101.63Net
      Income Per Share
              
              
              13.54
              
              
              
              14.24
              
              
              
              13.88
  - 15
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 Banking
Facilities
 
 The
Bank’s main office is located at 602 East Screven Street in Quitman and consists
of a building of approximately 6,720 square feet of office and banking
space.  The building has additional expansion room
upstairs.  The attached drive-through facility consists of three
drive-through lanes plus an automated teller machine lane.  The
building has four inside teller windows.  In March 2003, the Bank
opened its first branch.  The new facility, located at 2190-N North
Ashley Street in Valdosta, Georgia, is a 2,200 square foot building with two
drive-through lanes, three inside teller windows and a walk-up automated teller
machine.  The Bank owns the Quitman location and leases the Valdosta
location.  The Bank opened a second office in Valdosta, Lowndes
County, Georgia that consists of approximately 5,000 square feet.  The
new office opened in May 2005 with three drive-through lanes plus an automated
teller machine lane.
 
 Competition
 
 The
banking business is highly competitive.  In Brooks County, the Bank
competes with four banks.  In Lowndes County, the Bank competes with
fifteen banks, two savings and loan associations and six federal credit
unions.  The Bank also competes to a lesser extent with finance
companies, insurance companies and certain governmental agencies.  The
banking industry is also experiencing increased competition for deposits from
less traditional sources such as money market and mutual funds.
 
 Correspondents
 
 Colony
Bank Quitman, FSB has correspondent relationships with the following
banks:  Silverton Bank in Atlanta, Georgia; Colony Bank of Fitzgerald
in Fitzgerald, Georgia; Compass Bank in Birmingham, Alabama; and the Federal
Home Loan Bank in Atlanta, Georgia.  The correspondent relationships
facilitate the transactions of business by means of loans, collections,
investment services, exchange services and data processing.  As
compensation for these services, the Bank maintains balances with its
correspondents in noninterest-bearing accounts and pays some service
charges.
 
 EMPLOYEES
 
 As of
December 31, 2007, Colony Bankcorp, Inc. and its subsidiaries employed 349
full-time employees and 41 part-time employees.  Colony considers its
relationship with its employees to be excellent.
 
 The
subsidiary banks have noncontributory profit-sharing plans covering all
employees subject to certain minimum age and service
requirements.  All Banks made contributions for all eligible employees
in 2007.  In addition, Colony Bankcorp, Inc. and its subsidiaries
maintain a comprehensive employee benefit program providing, among other
benefits, hospitalization, major medical insurance and life insurance.
Management considers these benefits to be competitive with those offered by
other financial institutions in south Georgia. Colony's employees are not
represented by any collective bargaining group.
  - 16
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 SUPERVISION
AND REGULATION
 BANK
HOLDING COMPANY REGULATION
 
 General
 
 Colony is
a bank holding company within the meaning of the Bank Holding Company Act of
1956, as amended (BHCA).  As a bank holding company registered with
the Federal Reserve under the BHCA and the Georgia Department of Banking and
Finance (the Georgia Department) under the Financial Institutions Code of
Georgia, it is subject to supervision, examination and reporting by the Federal
Reserve and the Georgia Department.  Its activities are limited to
banking, managing or controlling banks, furnishing services to or performing
services for its subsidiaries, or engaging in any other activity that the
Federal Reserve determines to be so closely related to banking, or managing or
controlling banks, as to be a proper incident to these activities.
 
 Colony is
required to file with the Federal Reserve and the Georgia Department periodic
reports and any additional information as they may require.  The
Federal Reserve and Georgia Department will also regularly examine the
Company.  The Federal Deposit Insurance Corporation and Georgia
Department also examine the Banks, while the Office of Thrift Supervision
examines the Thrift Bank.
 
 Activity
Limitations
 
 The BHCA
requires prior Federal Reserve approval for, among other things:
 
 ·
              the
      acquisition by a bank holding company of direct or indirect ownership or
      control of more than 5 percent of the voting shares or substantially all
      of the assets of any bank, or
 
 ·
              a
      merger or consolidation of a bank holding company with another bank
      holding company.
 
 Similar
requirements are imposed by the Georgia Department.
 
 A bank
holding company may acquire direct or indirect ownership or control of voting
shares of any company that is engaged directly or indirectly in banking, or
managing or controlling banks, or performing services for its authorized
subsidiaries.  A bank holding company may also engage in or acquire an
interest in a company that engages in activities that the Federal Reserve has
determined by regulation or order to be so closely related to banking as to be a
proper incident to these activities.  The Federal Reserve normally
requires some form of notice or application to engage in or acquire companies
engaged in such activities.  Under the BHCA, Colony will generally be
prohibited from engaging in or acquiring direct or indirect control of more than
5 percent of the voting shares of any company engaged in activities other than
those referred to above.
 
 The BHCA
permits a bank holding company located in one state to lawfully acquire a bank
located in any other state, subject to deposit percentage, aging requirements
and other restrictions.  The Riegle-Neal Interstate Banking and
Branching Efficiency Act also generally provides that national and state
chartered banks may, subject to applicable state law, branch interstate through
acquisitions of banks in other states.
  - 17
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 In
November 1999, Congress enacted the Gramm-Leach-Bliley Act, which made
substantial revisions to the statutory restrictions separating banking
activities from other financial activities.  Under the
Gramm-Leach-Bliley Act, bank holding companies that are well capitalized, well
managed and meet other conditions can elect to become “financial holding
companies.”  As financial holding companies, they and their
subsidiaries are permitted to acquire or engage in activities that were not
previously allowed bank holding companies, such as insurance underwriting,
securities underwriting and distribution, travel agency activities, broad
insurance agency activities, merchant banking and other activities that the
Federal Reserve determines to be financial in nature or complementary to these
activities.  Financial holding companies continue to be subject to the
overall oversight and supervision of the Federal Reserve, but the
Gramm-Leach-Bliley Act applies the concept of functional regulation to the
activities conducted by subsidiaries.  For example, insurance
activities would be subject to supervision and regulation by state insurance
authorities.  While Colony has not elected to become a financial
holding company in order to exercise the broader activity powers provided by the
Gramm-Leach-Bliley Act, it may elect to do so in the future.
 
 Limitations
on Acquisitions of Bank Holding Companies
 
 As a
general proposition, other companies seeking to acquire control of a bank
holding company would require the approval of the Federal Reserve under the
BHCA.  In addition, individuals or groups of individuals seeking to
acquire control of a bank holding company would need to file a prior notice with
the Federal Reserve (which the Federal Reserve may disapprove under certain
circumstances) under the Change in Bank Control Act.  Control is
conclusively presumed to exist if an individual or company acquires 25 percent
or more of any class of voting securities of the bank holding
company.  Control may exist under the Change in Bank Control Act if
the individual or company acquires 10 percent or more of any class of voting
securities of the bank holding company.
 
 Source
of Financial Strength
 
 Federal
Reserve policy requires a bank holding company to act as a source of financial
strength and to take measures to preserve and protect bank subsidiaries in
situations where additional investments in a troubled bank may not otherwise be
warranted,  In addition, if a bank holding company has more than one
bank or thrift subsidiary, each of the bank holding company’s subsidiary
depository institutions is responsible for any losses to the FDIC as a result of
an affiliated depository institution’s failure.  As a result, a bank
holding company may be required to loan money to its subsidiaries in the form of
capital notes or other instruments that qualify as capital of the subsidiary
bank under regulatory rules.  However, any loans from the bank holding
company to those subsidiary banks will likely be unsecured and subordinated to
that of bank’s depositors and perhaps to other creditors of that
bank.
  - 18
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 BANK
REGULATION
 
 General
 
 The Banks
are commercial banks chartered under the laws of the State of Georgia, and as
such are subject to supervision, regulation and examination by the Georgia
Department.  The Banks are members of the FDIC, and their deposits are
insured by the FDIC’s Deposit Insurance Fund up to the amount permitted by
law.  The FDIC, Office of Thrift Supervision (OTS) and the Georgia
Department routinely examine the Banks and monitor and regulate all of the
Banks’ operations, including such things as adequacy of reserves, quality and
documentation of loans, payments of dividends, capital adequacy, adequacy of
systems and controls, credit underwriting and asset liability management,
compliance with laws and establishment of branches.  Interest and
other charges collected or contracted for by the Banks are subject to state
usury laws and certain federal laws concerning interest rates.  The
Banks file periodic reports with the FDIC, OTS and the Georgia
Department.
 
 Transactions
with Affiliates and Insiders
 
 The
Company is a legal entity separate and distinct from the
Banks.  Various legal limitations restrict the Banks from lending or
otherwise supplying funds to the Company and other nonbank subsidiaries of the
Company, all of which are deemed to be “affiliates” of the Banks for the
purposes of these restrictions.  The Company and the Banks are subject
to Section 23A of the Federal Reserve Act.  Section 23A defines
“covered transactions,” which include extensions of credit, and limits a bank’s
covered transactions with any affiliate to 10 percent of such bank’s capital and
surplus and with all affiliates to 20 percent of such bank’s capital and
surplus.  All covered and exempt transactions between a bank and its
affiliates must be on terms and conditions consistent with safe and sound
banking practices, and banks and their subsidiaries are prohibited from
purchasing low-quality assets from the bank’s affiliates.  Finally,
Section 23 A requires that all of a bank’s extensions of credit to an affiliate
be appropriately secured by acceptable collateral, generally United States
government or agency securities.  The Company and the Banks are also
subject to Section 23B of the Federal Reserve Act, which generally limits
covered and other transactions between a bank and its affiliates to terms and
under circumstances, including credit standards, that are substantially the same
or at least as favorable to the bank as prevailing at the time for transactions
with unaffiliated companies.
 
 Dividends
 
 The
Company is a legal entity separate and distinct from the Banks.  The
principal source of the Company’s cash flow, including cash flow to pay
dividends to its stockholders, is dividends that the Banks pay to
it.  Statutory and regulatory limitations apply to the Banks’ payment
of dividends to the Company as well as to the Company’s payment of dividends to
its stockholders.
 
 A variety
of federal and state laws and regulations affect the ability of the Banks and
the Company to pay dividends.  A depository institution may not pay
any dividend if payment would cause it to become undercapitalized or if it
already is undercapitalized.  The federal banking agencies may prevent
the payment of a dividend if they determine that the payment would be unsafe and
unsound banking practice.  Moreover, the federal agencies have issued
policy statements that provide that bank holding companies and insured banks
should generally only pay dividends out of current operating
earnings.  In addition, regulations promulgated by the Georgia
Department limit the Bank’s payment of dividends.
  - 19
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 Mortgage
Banking Regulation
 
 Georgia
First Mortgage is licensed and regulated as a “mortgage banker” by the Georgia
Department.  It is also qualified as a Fannie Mae and Freddie Mac
seller/servicer and must meet the requirements of such corporations and of the
various private parties with which it conducts business, including warehouse
lenders and those private entities to which it sells mortgage
loans.
 
 Enforcement
Policies and Actions
 
 Federal
law gives the Federal Reserve and FDIC substantial powers to enforce compliance
with laws, rules and regulations.  Banks or individuals may be ordered
to cease and desist from violations of law or other unsafe or unsound
practices.  The agencies have the power to impose civil money
penalties against individuals or institutions of up to $1,000,000 per day for
certain egregious violations.  Persons who are affiliated with
depository institutions can be removed from any office held in that institution
and banned from participating in the affairs of any financial
institution.  The banking regulators have not hesitated to use the
enforcement authorities provided in federal law.
 
 Capital
Regulations
 
 The
federal bank regulatory authorities have adopted capital guidelines for banks
and bank holding companies.  In general, the authorities measure the
amount of capital an institution holds against its assets.  There are
three major capital tests: (i) the Total Capital ratio (the total of Tier 1
Capital and Tier 2 Capital measured against risk-adjusted assets), (ii) the Tier
1 Capital ratio (Tier 1 Capital measured against risk-adjusted assets) and (iii)
the leverage ratio (Tier 1 Capital measured against average (i.e.,
nonrisk-weighted) assets).
 
 Tier 1
Capital consists of common equity, retained earnings and a limited amount of
qualifying preferred stock, less goodwill and core deposit
intangibles.  Tier 2 Capital consists of nonqualifying preferred
stock, qualifying subordinated, perpetual and/or mandatory convertible debt,
term subordinated debt and intermediate term preferred stock and up to 45
percent of the pretax unrealized holding gains on available-for-sale equity
securities with readily determinable market values that are prudently valued,
and a limited amount of any loan loss allowance.
 
 In
measuring the adequacy of capital, assets are generally weighted for
risk.  Certain assets, such as cash and U.S. government securities,
have a zero risk weighting.  Others, such as commercial and consumer
loans, have a 100 percent risk weighting.  Risk weightings are also
assigned for off-balance sheet items such as loan commitments.  The
various assets are multiplied by the appropriate risk-weighting to determine
risk- adjusted assets for the capital calculations.  For the leverage
ratio mentioned above, average assets are not risk-weighted.
  - 20
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 The
federal banking agencies must take “prompt corrective action” in respect of
depository institutions that do not meet minimum capital
requirements.  There are five tiers for financial institutions: “well
capitalized,” “adequately capitalized,” “undercapitalized,” “significantly
undercapitalized” and “critically undercapitalized.”  Under these
regulations, a bank will be:
 
 ·
              “well
      capitalized” if it has a Total Capital ratio of 10 percent or greater, a
      Tier 1 Capital ratio of 6 percent or greater, a leverage ratio of 5
      percent or better – or 4 percent in certain circumstances – and is not
      subject to any written agreement, order, capital directive, or prompt
      corrective action directive by a federal bank regulatory agency to meet
      and maintain a specific capital level for any capital
    measure;
 
 ·
              “adequately
      capitalized” if it has a Total Capital ratio of 8 percent or greater, a
      Tier 1 Capital ratio of 4 percent or greater, and a leverage ratio of 4
      percent or greater – or 3 percent in certain circumstances – and is not
      well capitalized;
 
 ·
              “undercapitalized”
      if it has a Total Capital ratio of less that 8 percent, a Tier 1 Capital
      ratio of less that 4 percent – or 3 percent in certain
      circumstances;
 
 ·
              “significantly
      undercapitalized” if it has a Total Capital ratio of less than 6 percent
      or a Tier 1 Capital ratio of less than 3 percent, or a leverage ratio of
      less than 3 percent; or
 
 ·
              “critically
      undercapitalized” if its tangible equity is equal to or less than 2
      percent of average quarterly
assets.
 
 Federal
law generally prohibits a depository institution from making any capital
distribution, including the payment of a dividend or paying any management fee
to its holding company if the depository institution would be undercapitalized
as a result.  Undercapitalized depository institutions may not accept
brokered deposits absent a waiver from the FDIC, are subject to growth
limitations and are required to submit a capital restoration plan for
approval.  For a capital restoration plan to be acceptable, the
depository institution’s parent holding company must guarantee that the
institution will comply with such capital restoration plan.  The
aggregate liability of the parent holding company is limited to the lesser of 5
percent of the depository institution’s total assets at the time it became
undercapitalized, and the amount necessary to bring the institution into
compliance with applicable capital standards.  If a depository
institution fails to submit an acceptable plan, it is treated as if it is
significantly undercapitalized.  If the controlling holding company
fails to fulfill its obligations under this law and files, or has filed against
it, a petition under the federal Bankruptcy Code, the FDIC claim related to the
holding company’s obligations would be entitled to a priority in such bankruptcy
proceeding over third party creditors of the bank holding company.
 
 Significantly
undercapitalized depository institutions may be subject to a number of
requirements and restrictions, including orders to sell sufficient voting stock
to become adequately capitalized, requirements to reduce total assets and
cessation of receipt of deposits from correspondent banks.  Critically
undercapitalized institutions are subject to the appointment of a receiver or
conservator.
 
 At
December 31, 2007, the Company exceeded the minimum Tier 1, risk-based and
leverage ratios and qualified as “well capitalized” under current Federal
Reserve Board criteria.  The following table sets forth certain
capital information for the Company as of December 31, 2007.  Consider
the following brief summary rather than the preceeding and the
table.  As of December 31, 2007, Colony had Tier 1 Capital and Total
Capital of approximately 10.83 percent and 12.08 percent, respectively, of
risk-weighted assets. As of December 31, 2007, Colony had a leverage ratio of
Tier 1 Capital to total average assets of approximately 8.60
percent.
  - 21
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 December
      31, 2007Amount
              
              
              PercentLeverage
      RatioActual
              
              $
              104,157
              
              
              
              8.60
              %Well-Capitalized
      Requirement
              
              
              60,583
              
              
              
              5.00Minimum
      Required (1)
              
              
              48,467
              
              
              
              4.00Risk
      Based Capital:Tier
      1 CapitalActual
              
              
              104,157
              
              
              
              10.83Well-Capitalized
      Requirement
              
              
              57,708
              
              
              
              6.00Minimum
      Required (1)
              
              
              38,472
              
              
              
              4.00Total
      CapitalActual
              
              
              116,222
              
              
              
              12.08Well-Capitalized
      Requirement
              
              
              96,180
              
              
              
              10.00Minimum
      Required (1)
              
              
              76,944
              
              
              
              8.00
 
 (1)
              Represents
      the minimum requirement.  Institutions that are contemplating
      acquisitions or anticipating or experiencing significant growth may be
      required to maintain a substantially higher leverage
  ratio.
 
 The
guidelines also provide that institutions experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without significant reliance on intangible
assets.  Higher capital may be required in individual cases, depending
upon a bank or bank holding company’s risk profile.  All bank holding
companies and banks are expected to hold capital commensurate with the level and
nature of their risks, including the volume and severity of their problem
loans.  Lastly, the Federal Reserve’s guidelines indicate that the
Federal Reserve will continue to consider a “Tangible Tier 1 Leverage Ratio,”
calculated by deducting all intangibles, in evaluating proposals for expansion
or new activity.
 
 FDIC
Insurance Assessments
 
 The
Banks’ deposits are insured by the FDIC and thus the Banks are subject to FDIC
deposit insurance assessments.  The FDIC utilizes a risk-based
insurance premium scheme to determine the assessment rates for insured
depository institutions.  Each financial institution is assigned to
one of three capital groups:  well capitalized, adequately capitalized
or undercapitalized.
 
 Each
financial institution is further assigned to one of three subgroups within a
capital group, on the basis of supervisory evaluations by the institution’s
primary federal and, if applicable, state regulators and other information
relevant to the institution’s financial condition and the risk posed to the
insurance fund.  The actual assessment rate applicable to a particular
institution will, therefore, depend in part upon the risk assessment
classification assigned to the institution by the FDIC.  The FDIC is
presently considering whether to charge deposit insurance premiums based upon
management weaknesses and whether the Banks’ underwriting practices,
concentrations of risk and growth are undisciplined or outside industry
norms.
  - 22
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 The
deposit insurance assessment rates currently range from five basis points on
deposits (for a financial institution in the highest category) to 43 basis
points on deposits (for an institution in the lowest category).  In
addition, the FDIC collects The Financing Corporation (FICO) deposit assessments
on assessable deposits at the same rate.  FICO assessments are set
quarterly, and in 2007 ranged from 1.14 to 1.22 basis points.  The
FICO assessment rate for the Banks for the first quarter of 2008 is 1.14 basis
points of assessable deposits.
 
 Community
Reinvestment Act
 
 The Banks
are subject to the provisions of the Community Reinvestment Act of 1977, as
amended (the CRA), and the federal banking agencies’ related
regulations.  Under the CRA, all banks and thrifts have a continuing
and affirmative obligation, consistent with safe and sound operation, to help
meet the credit needs for their entire communities, including low- and
moderate-income neighborhoods.  The CRA requires a depository
institution’s primary federal regulator, in connection with its examination of
the institution or its evaluation of certain regulatory applications, to assess
the institution’s record in assessing and meeting the credit needs of the
community served by that institution, including low- and moderate-income
neighborhoods.  The regulatory agency’s assessment of the
institution’s record is made available to the public.
 
 Current
CRA regulations rate institutions based on their actual performance in meeting
community credit needs.  The Banks received a “satisfactory” rating on
their most recent examinations in 2007.
 
 Consumer
Regulations
 
 Interest
and other charges collected or contracted for by the Banks are subject to state
usury laws and certain federal laws concerning interest rates.  The
Banks’ loan operations are also subject to federal laws and regulations
applicable to credit transactions, such as those:
 
 ·
              Governing
      disclosures of credit terms to consumer
  borrowers;
 
 ·
              Requiring
      financial institutions provide information to enable the public and public
      officials to determine whether a financial institution is fulfilling its
      obligation to help meet the housing needs of the community it
      serves;
 
 ·
              Prohibiting
      discrimination on the basis of race, creed or other prohibited factors in
      extending credit;
 
 ·
              Governing
      the use and provision of information to credit reporting agencies;
      and
 
 ·
              Governing
      the manner in which consumer debts may be collected by collection
      agencies.
 
 The
deposit operations of the Banks are also subject to laws and regulations
that:
 
 ·
              Impose
      a duty to maintain the confidentiality of consumer financial records and
      prescribe procedures for complying with administrative subpoenas of
      financial records; and
 
 ·
              Govern
      automatic deposits to and withdrawals from deposit accounts and customers’
      rights and liabilities arising from the use of automated teller machines
      and other electronic banking
services.
  - 23
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 Fiscal
and Monetary Policy
 
 Banking
is a business that depends on interest rate differentials.  In
general, the difference between the interest paid by a bank on its deposits and
its other borrowings, and the interest received by a bank on its loans and
securities holdings, constitutes the major portion of a bank’s
earnings.  Thus, Colony’s earnings and growth and that of the Banks
will be subject to the influence of economic conditions, generally both domestic
and foreign, and also to the monetary and fiscal policies of the United States
and its agencies, particularly the Federal Reserve.  The Federal
Reserve regulates the supply of money through various means, including open
market dealings in United States government securities, the discount rate at
which banks may borrow from the Federal Reserve and the reserve requirements on
deposits.
 
 The
monetary policies of the Federal Reserve historically have had a significant
effect on the operating results of commercial banks and mortgage banking
operations and will continue to do so in the future.  The Company
cannot predict the conditions in the national and international economies and
money markets, the actions and changes in policy by monetary and fiscal
authorities or their effect on the Banks.
 
 Anti-Terrorism
Legislation
 
 In the
wake of the tragic events of September 11th, on
October 26, 2001, the President signed the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA
PATRIOT) Act of 2001.  Under the USA PATRIOT Act, financial
institutions are subject to prohibitions against specified financial
transactions and account relationships as well as enhanced due diligence and
“know your customer” standards in their dealings with foreign financial
institutions and foreign customers.  For example, the enhanced due
diligence policies, procedures and controls generally require financial
institutions to take reasonable steps to:
 
 ·
              conduct
      enhanced scrutiny of account relationships to guard against money
      laundering and report any suspicious
  transaction;
 
 ·
              ascertain
      the identity of the nominal and beneficial owners of, and the source of
      funds deposited into, each account as needed to guard against money
      laundering and report any suspicious
  transactions;
 
 ·
              ascertain
      for any foreign bank, the shares of which are not publicly traded, the
      identity of the owners of the foreign bank, and the nature and extent of
      the ownership interest of each owner;
and
 
 ·
              ascertain
      whether any foreign bank provides correspondent accounts to other foreign
      banks and, if so, the identity of those foreign banks and related due
      diligence information.
 
 The USA
PATRIOT Act requires financial institutions to establish anti-money laundering
programs.  The USA PATRIOT Act sets forth minimum standards for these
programs, including:
 
 ·
              The
      development of internal policies, procedures and
  controls;
 
 ·
              The
      designation of a compliance
officer;
 
 ·
              An
      ongoing employee training program;
and
 
 ·
              An
      independent audit function to test the
programs.
  - 24
-
 Table of Contents
  Part
I (Continued)
 Item 1
(Continued)
 
 In
addition, the USA PATRIOT Act authorizes the Secretary of the Treasury to adopt
rules increasing the cooperation and information sharing between financial
institutions, regulators and law enforcement authorities regarding individuals,
entities and organizations engaged in, or reasonably suspected based on credible
evidence of engaging in, terrorist acts or money laundering
activities.  Any financial institution complying with these rules will
not be deemed to have violated the privacy provisions of the Gramm-Leach-Bliley
Act, as discussed above.
 
 Item 1A
 Risk
Factors
 
 The
following are certain risks that management believes are specific to our
business. This should not be viewed as an all inclusive list or in any
particular order.
 
 Future
loan losses may exceed our allowance for loan losses
 
 We are
subject to credit risk, which is the risk of losing principal or interest due to
borrowers’ failure to repay loans in accordance with their terms.  A
downturn in the economy or the real estate market in our market areas or a rapid
change in interest rates could have a negative effect on collateral values and
borrowers’ ability to repay.  This deterioration in economic
conditions could result in losses to the Bank in excess of loan loss
allowances.
 
 Our loan
customers may not repay their loans according to the terms of these loans, and
the collateral securing the payment of these loans may be insufficient to ensure
repayment.  As a result, we may experience loan losses, which could
have a material adverse effect on our operating results.  Management
makes various assumptions and judgments about the collectibility of our loan
portfolio, including the creditworthiness of our borrowers and the value of the
real estate and other assets serving as collateral for the repayment of many of
our loans.  We maintain an allowance for loan losses in an attempt to
cover any loan losses that may occur.  In determining the size of the
allowance, we rely on an analysis of our loan portfolio based on historical loss
experience, volume and types of loans, trends in classification, volume and
trends in delinquencies and nonaccruals, national and local economic conditions
and other pertinent information.  Our determination of the size of the
allowance could be understated due to our lack of familiarity with
market-specific factors.
 
 If our
assumptions are wrong, our current allowance may not be sufficient to cover
future loan losses, and adjustments may be necessary to allow for different
economic conditions or adverse developments in our loan
portfolio.  Material additions to our allowance would materially
decrease our net income.  As a result of a difficult real estate
market, we have increased our allowance from $11.99 million as of December 31,
2006 to $15.51 million as of December 31, 2007.  We expect to continue
to increase our allowance in 2008; however, we can make no assurance that our
allowance will be adequate to cover future loan losses given current and future
market conditions.
 
 In
addition, federal and state regulators periodically review our allowance for
loan losses and may require us to increase our provision for loan losses or
recognize further loan charge-offs, based on judgments different than those of
our management.  Any increase in our allowance for loan losses or loan
charge-offs as required by these regulatory agencies could have a negative
effect on our operating results.
  - 25
-
 Table of Contents
  Part
I (Continued)
 Item 1A
(Continued)
 
 Rapidly
changing interest rate environments could reduce our net interest margin, net
interest income, fee income and net income
 
 Interest
and fees on loans and securities, net of interest paid on deposits and
borrowings, are a large part of our net income.  Interest rates are
key drivers of our net interest margin and subject to many factors beyond the
control of management.  As interest rates change, net interest income
is affected.  Rapid increases in interest rates in the future could
result in interest expense increasing faster than interest income because of
mismatches in financial instrument maturities.  Further, substantially
higher interest rates generally reduce loan demand and may result in slower loan
growth particularly in construction lending, an important factor in the
Company’s revenue growth over the years.  Decreases or increases in
interest rates could have a negative effect on the spreads between the interest
rates earned on assets and the rates of interest paid on liabilities and,
therefore, decrease net interest income.  In response to the dramatic
deterioration of the subprime, mortgage, credit and liquidity markets, the
Federal Reserve recently has taken action on five occasions to reduce interest
rates by a total of 225 basis points since September 2007, which likely will
reduce our net interest income during the first quarter of 2008 and the
foreseeable future.  See “Quantitative and Qualitative Disclosures
about Market Risk.”
 
 Our
business is subject to the success of the local economies where we
operate
 
 Our
success significantly depends upon the growth in population, income levels,
deposits and housing starts in our primary and secondary markets.  If
the communities in which we operate do not grow or if prevailing economic
conditions locally or nationally are unfavorable, our business may not
succeed.  We are currently experiencing adverse economic conditions in
some of our market areas, which affect the ability of our customers to repay
their loans to us and generally negatively affect our financial condition and
results of operations.
 
 The
market value of the real estate securing our loans as collateral has been
adversely affected by the slowing economy and unfavorable change in economic
conditions in our market areas and could be further adversely affected in the
future.  As of December 31, 2007, approximately 84.5 percent of our
loans receivable were secured by real estate.  Any sustained period of
increased payment delinquencies, foreclosures or losses caused by the adverse
market and economic conditions, including the downturn in the real estate market
in the state of Georgia will adversely affect the value of our assets, our
revenues, results of operations and financial condition.  Currently,
we are experiencing such an economic downturn, and if it continues, our
operations could be further adversely affected.
 
 We
make and hold in our portfolio a significant number of land acquisition and
development and construction loans, which in the current market environment pose
more credit risk than other types of loans typically made by financial
institutions.
 
 We offer
land acquisition and development and construction loans for builders and
developers.  As of December 31, 2007, approximately $202 million of
our loan portfolio represents loans for which the related property is neither
presold nor preleased.  These land acquisition and development and
construction loans are considered more risky than other types of residential
mortgage loans.  The primary credit risks associated with land
acquisition and development and construction lending are underwriting, project
risks and market risks.  Project risks include cost overruns, borrower
credit risk, project completion risk, general contractor credit risk and
environmental and other hazard risks.  Market risks are risks
associated with the sale of the completed residential units.  They
include affordability risk, which means the risk of affordability of financing
by borrowers, product design risks, and risks posed by completing
projects.  While we believe we have established adequate reserves on
our financial statements to cover the credit risk of our land acquisition and
development and construction loan portfolio, there can be no assurance that
losses will not exceed our reserves, which could adversely impact our
earnings.
  - 26
-
 Table of Contents
  Part
I (Continued)
 Item 1A
(Continued)
 
 Current
and anticipated deterioration in the housing market and the homebuilding
industry may lead to increased loss severities and further worsening of
delinquencies and nonperforming assets in our loan
portfolios.  Consequently, our results of operations may be adversely
impacted.
 
 There has
been substantial industry concern and publicity over asset quality among
financial institutions due in large part to issues related to subprime mortgage
lending, declining real estate values and general economic
concerns.  Furthermore, the housing and the residential mortgage
markets recently have experienced a variety of difficulties and changed economic
conditions.  If market conditions continue to deteriorate, they may
lead to additional valuation adjustments on our loan portfolios and real estate
owned as we continue to reassess the market value of our loan portfolio, the
losses associated with the loans in default and the net realizable value of real
estate owned.
 
 The
homebuilding industry has experienced a significant and sustained decline in
demand for new homes and an oversupply of new and existing homes available for
sale in various markets, including some of the markets in which we
lend.  Our customers who are builders and developers face greater
difficulty in selling their homes in markets where these trends are more
pronounced.  Consequently, we are facing increased delinquencies and
nonperforming assets as these builders and developers are forced to default on
their loans with us.  We do not anticipate that the housing market
will improve in the near-term and, accordingly, additional downgrades,
provisions for loan losses and charge-offs related to our loan portfolio may
occur.
 
 Slower
than anticipated growth in new branches and new product and service offerings
could result in reduced net income
 
 We have
placed a strategic emphasis on expanding our branch network and product
offerings. Executing this strategy carries risks of slower than anticipated
growth both in new branches and new products.  New branches and
products require a significant investment of both financial and personnel
resources.  Lower than expected loan and deposit growth in new
investments can decrease anticipated revenues and net income generated by those
investments, and opening new branches and introducing new products could result
in more additional expenses than anticipated and divert resources from current
core operations.
 
 The
financial services industry is very competitive
 
 We face
competition in attracting and retaining deposits, making loans, and providing
other financial services throughout our market area.  Our competitors
include other community banks, larger banking institutions, and a wide range of
other financial institutions such as credit unions, government-sponsored
enterprises, mutual fund companies, insurance companies and other nonbanking
businesses.  Many of these competitors have substantially greater
resources than us.  For a more complete discussion of our competitive
environment, see “Business – Competition” in Item 1 above. If we are unable to
compete effectively, we will lose market share, and income from deposits, loans
and other products may be reduced.
 
 Inability
to hire or retain certain key professionals, management and staff could
adversely affect our revenues and net income
 
 We rely
on key personnel to manage and operate our business, including major revenue
generating functions such as our loan and deposit portfolios.  The
loss of key staff may adversely affect our ability to maintain and manage these
portfolios effectively, which could negatively affect our
revenues.  In addition, loss of key personnel could result in
increased recruiting and hiring expenses, which could cause a decrease in our
net income.
  - 27
-
 Table of Contents
  Item 1B
 Unresolved
Staff Comments
 
 None.
 
 Item 2
 Properties
 
 The
principal properties of the Registrant consist of the properties of the
Banks.  For a description of the properties of the Banks, see "Item 1
– Business of the Company and Subsidiary Banks” included elsewhere in this
Annual Report.
 
 Item 3
 Legal
Proceedings
 
 The
Company and its subsidiaries may become parties to various legal proceedings
arising from the normal course of business.  As of December 31, 2007,
there are no material pending legal proceedings to which Colony or its
subsidiaries are a party or of which any of its property is the
subject.
 
 Item 4
 Submission
of Matters to a Vote of Security Holders
 
 No
matters were submitted to a vote of the Registrant's stockholders during the
fourth quarter of 2007.
 
 
 Part II
 Item
5
 Market
for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchase of Equity Securities
 
 Effective
April 2, 1998, Colony Bankcorp, Inc. common stock is quoted on the NASDAQ
National Market under the symbol “CBAN.”  Prior to this date, there
was no public market for the common stock of the registrant.
 
 The
following table sets forth the high, low and close sale prices per share of the
common stock as reported on the NASDAQ National Market, and the dividends
declared per share for the periods indicated.
 
 Year
      Ended December 31, 2007
              
              High
              
              
              Low
              
              
              Close
              
              
              Dividends
                Per
      ShareFourth
      Quarter
              
              $
              19.00
              
              
              $
              14.55
              
              
              $
              15.20
              
              
              $
              0.095Third
      Quarter
              
              
              20.50
              
              
              
              16.47
              
              
              
              17.35
              
              
              
              0.093Second
      Quarter
              
              
              21.85
              
              
              
              18.88
              
              
              
              19.48
              
              
              
              0.090First
      Quarter
              
              
              20.76
              
              
              
              17.55
              
              
              
              20.76
              
              
              
              0.088Year
      Ended December 31, 2006Fourth
      Quarter
              
              
              20.52
              
              
              
              17.25
              
              
              
              17.70
              
              
              
              0.085Third
      Quarter
              
              
              22.07
              
              
              
              19.04
              
              
              
              20.90
              
              
              
              0.083Second
      Quarter
              
              
              22.63
              
              
              
              17.10
              
              
              
              22.34
              
              
              
              0.080First
      Quarter
              
              
              27.55
              
              
              
              21.05
              
              
              
              22.04
              
              
              
              0.078
  - 28
-
 Table of Contents
  Part
II (Continued)
 Item 5
(Continued)
 Market
for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchase of Equity Securities (Continued)
 
 The
Registrant paid cash dividends on its common stock of $2,629,381 or $0.365 per
share and $2,336,865 or $0.325 per share in 2007 and 2006,
respectively.
 
 As of
December 31, 2007, the Company had approximately 2,107 stockholders of
record.  There were no sales of unregistered securities of the Company
in 2007.
 
 Performance
Graph
 
 The graph
presented below compares the cumulative total stockholder return on Colony
Bankcorp, Inc.’s common stock to the cumulative total return of the NASDAQ
Composite and the SNL Southeast Bank Index for the five fiscal years, which
commenced January 1, 2003 and ended December 31, 2007.  The cumulative
total stockholder return assumes the investment of $100 in Colony Bankcorp,
Inc.’s common stock and in each index on December 31, 2002 and assumes
reinvestment of dividends.  The NASDAQ Composite Index is a publicly
available measure of over 3,000 companies including NASDAQ domestic and
international based common type stocks listed on The NASDAQ Stock Market. 
The SNL Southeast Bank Index is a compilation of the total stockholder return of
all publicly-traded bank holding companies headquartered in the Southeastern
United States.
  Comparison of Five-Year Cumulative
Total Stockholder Return
  
 Period
      EndingIndex
              
              12/31/02
              
              
              12/31/03
              
              
              12/31/04
              
              
              12/31/05
              
              
              12/31/06
              
              
              12/31/07Colony
      Bankcorp, Inc.
              
              
              100.00
              
              
              
              160.35
              
              
              
              273.31
              
              
              
              253.65
              
              
              
              182.70
              
              
              
              160.15NASDAQ
      Composite
              
              
              100.00
              
              
              
              150.01
              
              
              
              162.89
              
              
              
              165.13
              
              
              
              180.85
              
              
              
              198.60SNL
      Southeast Bank Index
              
              
              100.00
              
              
              
              125.58
              
              
              
              148.92
              
              
              
              152.44
              
              
              
              178.75
              
              
              
              134.65
 
 Source:  SNL
Financial LC
  - 29
-
 Table of Contents
  Part
II (Continued)
 Item 5
(Continued)
 Issuer
Purchase of Equity Securities
 
 The
Company purchased no shares of the Company’s common stock during the quarter
ended December 31, 2007.
 
 Item 6
 Selected
Financial Data
 
 Year
      Ended December 31,2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003(Dollars
      in Thousands, except per share data)Selected
      Balance Sheet DataTotal
      Assets
              
              $
              1,208,777
              
              
              $
              1,213,504
              
              
              $
              1,108,338
              
              
              $
              997,591
              
              
              $
              868,606Total
      Loans, Net of Unearned Interest and Fees
              
              
              944,978
              
              
              
              941,772
              
              
              
              858,815
              
              
              
              778,643
              
              
              
              654,177Total
      Deposits
              
              
              1,018,602
              
              
              
              1,042,446
              
              
              
              944,365
              
              
              
              850,329
              
              
              
              732,318Investment
      Securities
              
              
              167,191
              
              
              
              149,307
              
              
              
              124,326
              
              
              
              112,593
              
              
              
              110,408Federal
      Home Loan Bank Stock
              
              
              5,533
              
              
              
              5,087
              
              
              
              5,034
              
              
              
              4,479
              
              
              
              3,000Stockholders’
      Equity
              
              
              83,743
              
              
              
              76,611
              
              
              
              68,128
              
              
              
              61,763
              
              
              
              55,976Selected
      Income Statement DataInterest
      Income
              
              
              90,159
              
              
              
              83,280
              
              
              
              63,634
              
              
              
              51,930
              
              
              
              46,418Interest
      Expense
              
              
              47,701
              
              
              
              41,392
              
              
              
              26,480
              
              
              
              18,383
              
              
              
              18,414Net
      Interest Income
              
              
              42,458
              
              
              
              41,888
              
              
              
              37,154
              
              
              
              33,547
              
              
              
              28,004Provision
      for Loan Losses
              
              
              5,931
              
              
              
              3,987
              
              
              
              3,444
              
              
              
              3,469
              
              
              
              4,060Other
      Income
              
              
              7,817
              
              
              
              7,350
              
              
              
              6,152
              
              
              
              6,424
              
              
              
              7,128Other
      Expense
              
              
              31,579
              
              
              
              29,882
              
              
              
              26,076
              
              
              
              24,271
              
              
              
              20,864Income
      Before Tax
              
              
              12,765
              
              
              
              15,369
              
              
              
              13,786
              
              
              
              12,231
              
              
              
              10,208Income
      Tax Expense
              
              
              4,218
              
              
              
              5,217
              
              
              
              4,809
              
              
              
              4,162
              
              
              
              3,392Net
      Income
              
              $
              8,547
              
              
              $
              10,152
              
              
              $
              8,977
              
              
              $
              8,069
              
              
              $
              6,816Weighted
      Average Shares Outstanding (1)
              
              
              7,189
              
              
              
              7,177
              
              
              
              7,168
              
              
              
              7,131
              
              
              
              7,127Shares
      Outstanding (1)
              
              
              7,201
              
              
              
              7,190
              
              
              
              7,181
              
              
              
              7,172
              
              
              
              7,160Intangible
      Assets
              
              $
              2,815
              
              
              $
              2,851
              
              
              $
              2,932
              
              
              $
              3,047
              
              
              $
              691Dividends
      Declared
              
              
              2,629
              
              
              
              2,337
              
              
              
              2,058
              
              
              
              1,808
              
              
              
              1,555Average
      Assets
              
              
              1,204,165
              
              
              
              1,160,718
              
              
              
              1,034,777
              
              
              
              938,283
              
              
              
              816,666Average
      Stockholders’ Equity
              
              
              80,595
              
              
              
              71,993
              
              
              
              65,146
              
              
              
              59,037
              
              
              
              53,843Net
      Charge-Offs
              
              
              2,407
              
              
              
              2,760
              
              
              
              2,694
              
              
              
              1,973
              
              
              
              2,908Reserve
      for Loan Losses
              
              
              15,513
              
              
              
              11,989
              
              
              
              10,762
              
              
              
              10,012
              
              
              
              8,516OREO
              
              
              1,332
              
              
              
              970
              
              
              
              2,170
              
              
              
              1,127
              
              
              
              2,724Nonperforming
      Loans
              
              
              15,016
              
              
              
              8,078
              
              
              
              8,593
              
              
              
              8,809
              
              
              
              7,492Nonperforming
      Assets
              
              
              16,348
              
              
              
              9,048
              
              
              
              10,763
              
              
              
              9,936
              
              
              
              10,216Average
      Interest-Earning Assets
              
              
              1,141,652
              
              
              
              1,097,716
              
              
              
              979,966
              
              
              
              887,331
              
              
              
              774,984Noninterest-Bearing
      Deposits
              
              
              86,112
              
              
              
              77,336
              
              
              
              78,778
              
              
              
              68,169
              
              
              
              64,044
  - 30
-
 Table of Contents
  Part
II (Continued)
 Item 6
(Continued)
 
 Year
      Ended December 31,2007
                      
                      
                      2006
                      
                      
                      2005
                      
                      
                      2004
                      
                      
                      2003(Dollars
      in Thousands, except per share data)Per
      Share Data: (1)Net
      Income (Diluted)
                      
                      $
                      1.19
                      
                      
                      $
                      1.41
                      
                      
                      $
                      1.25
                      
                      
                      $
                      1.13
                      
                      
                      $
                      0.95Book
      Value
                      
                      
                      11.63
                      
                      
                      
                      10.66
                      
                      
                      
                      9.49
                      
                      
                      
                      8.61
                      
                      
                      
                      7.82Tangible
      Book Value
                      
                      
                      11.24
                      
                      
                      
                      10.26
                      
                      
                      
                      9.08
                      
                      
                      
                      8.19
                      
                      
                      
                      7.72Dividends
                      
                      
                      0.365
                      
                      
                      
                      0.325
                      
                      
                      
                      0.285
                      
                      
                      
                      0.252
                      
                      
                      
                      0.217Profitability
      Ratios:Net
      Income to Average Assets
                      
                      
                      0.71
                      %
                      
                      
                      0.87
                      %
                      
                      
                      0.87
                      %
                      
                      
                      0.86
                      %
                      
                      
                      0.83
                      %Net
      Income to Average Stockholders' Equity
                      
                      
                      10.60
                      
                      
                      
                      14.10
                      
                      
                      
                      13.78
                      
                      
                      
                      13.67
                      
                      
                      
                      12.66Net
      Interest Margin
                      
                      
                      3.75
                      
                      
                      
                      3.84
                      
                      
                      
                      3.81
                      
                      
                      
                      3.81
                      
                      
                      
                      3.65Loan
      Quality Ratios:Net
      Charge-Offs to Total Loans
                      
                      
                      0.25
                      
                      
                      
                      0.29
                      
                      
                      
                      0.31
                      
                      
                      
                      0.25
                      
                      
                      
                      0.44Reserve
      for Loan Losses to Total Loans and OREO
                      
                      
                      1.64
                      
                      
                      
                      1.27
                      
                      
                      
                      1.25
                      
                      
                      
                      1.28
                      
                      
                      
                      1.30Nonperforming
      Assets to Total Loans and OREO
                      
                      
                      1.73
                      
                      
                      
                      0.96
                      
                      
                      
                      1.25
                      
                      
                      
                      1.27
                      
                      
                      
                      1.56Reserve
      for Loan Losses to Nonperforming Loans
                      
                      
                      103.31
                      
                      
                      
                      148.42
                      
                      
                      
                      125.24
                      
                      
                      
                      113.66
                      
                      
                      
                      113.67Reserve
      for Loan Losses to Total Nonperforming Assets
                      
                      
                      94.89
                      
                      
                      
                      132.50
                      
                      
                      
                      99.99
                      
                      
                      
                      100.76
                      
                      
                      
                      83.36Liquidity
      Ratios:Loans
      to Total Deposits
                      
                      
                      92.77
                      
                      
                      
                      90.34
                      
                      
                      
                      90.94
                      
                      
                      
                      91.57
                      
                      
                      
                      89.33Loans
      to Average Earning Assets
                      
                      
                      82.77
                      
                      
                      
                      85.79
                      
                      
                      
                      87.64
                      
                      
                      
                      87.75
                      
                      
                      
                      84.41Noninterest-Bearing
      Deposits to Total Deposits
                      
                      
                      8.45
                      
                      
                      
                      7.42
                      
                      
                      
                      8.34
                      
                      
                      
                      8.02
                      
                      
                      
                      8.75Capital
      Adequacy Ratios:Common
      Stockholders' Equity to Total Assets
                      
                      
                      6.93
                      
                      
                      
                      6.31
                      
                      
                      
                      6.15
                      
                      
                      
                      6.19
                      
                      
                      
                      6.45Total
      Stockholders' Equity to Total Assets
                      
                      
                      6.93
                      
                      
                      
                      6.31
                      
                      
                      
                      6.15
                      
                      
                      
                      6.19
                      
                      
                      
                      6.45Dividend
      Payout Ratio
                      
                      
                      30.67
                      
                      
                      
                      23.05
                      
                      
                      
                      22.80
                      
                      
                      
                      22.30
                      
                      
                      
                      22.84
 
 (1)
              All
      per share data adjusted to reflect 5-for-4 stock split effective May 15,
      2005.
  - 31
-
 Table of Contents
  Part II (Continued)
 Item
7
 
 Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
 
 Forward-Looking
Statements and Factors that Could Affect Future Results
 
 Certain
statements contained in this Annual Report that are not statements of historical
fact constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 (the Act), notwithstanding that such
statements are not specifically identified. In addition, certain statements may
be contained in the Company’s future filings with the SEC, in press releases,
and in oral and written statements made by or with the approval of the Company
that are not statements of historical fact and constitute forward-looking
statements within the meaning of the Act. Examples of forward-looking statements
include, but are not limited to: (i) projections of revenues, income or
loss, earnings or loss per share, the payment or nonpayment of dividends,
capital structure and other financial items; (ii) statements of plans and
objectives of Colony Bankcorp, Inc. or its management or Board of Directors,
including those relating to products or services; (iii) statements of future
economic performance; and (iv) statements of assumptions underlying such
statements. Words such as “believes,” “anticipates,” “expects,” “intends,”
“targeted” and similar expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying such
statements.
 
 Forward-looking
statements involve risks and uncertainties that may cause actual results to
differ materially from those in such statements. Factors that could cause actual
results to differ from those discussed in the forward-looking statements
include, but are not limited to:
 
 ·
              Local
      and regional economic conditions and the impact they may have on the
      Company and its customers and the Company’s assessment of that
      impact.
 
 ·
              Changes
      in estimates of future reserve requirements based upon the periodic review
      thereof under relevant regulatory and accounting
    requirements.
 
 ·
              The
      effects of and changes in trade, monetary and fiscal policies and laws,
      including interest rate policies of the Federal Reserve
    Board.
 
 ·
              Inflation,
      interest rate, market and monetary
fluctuations.
 
 ·
              Political
      instability.
 
 ·
              Acts
      of war or terrorism.
 
 ·
              The
      timely development and acceptance of new products and services and
      perceived overall value of these products and services by
      users.
 
 ·
              Changes
      in consumer spending, borrowings and savings
  habits.
 
 ·
              Technological
      changes.
 
 ·
              Acquisitions
      and integration of acquired
businesses.
 
 ·
              The
      ability to increase market share and control
  expenses.
  - 32
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 ·
              The
      effect of changes in laws and regulations (including laws and regulations
      concerning taxes, banking, securities and insurance) with which the
      Company and its subsidiaries must
comply.
 
 ·
              The
      effect of changes in accounting policies and practices, as may be adopted
      by the regulatory agencies, as well as the Financial Accounting Standards
      Board and other accounting standard
setters.
 
 ·
              Changes
      in the Company’s organization, compensation and benefit
    plans.
 
 ·
              The
      costs and effects of litigation and of unexpected or adverse outcomes in
      such litigation.
 
 ·
              Greater
      than expected costs or difficulties related to the integration of new
      lines of business.
 
 ·
              The
      Company’s success at managing the risks involved in the foregoing
      items.
 
 Forward-looking
statements speak only as of the date on which such statements are
made.  The Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made, or to reflect the occurrence of unanticipated
events.
 
 The
Company
 
 Colony
Bankcorp, Inc. (Colony) is a bank holding company headquartered in Fitzgerald,
Georgia that provides, through its wholly-owned subsidiaries (collectively
referred to as the Company), a broad array of products and services throughout
18 Georgia markets. The Company offers commercial, consumer and mortgage banking
services.
 
 Application
of Critical Accounting Policies and Accounting Estimates
 
 The
accounting and reporting policies of the Company are in accordance with
accounting principles generally accepted in the United States of America and
conform to general practices within the banking industry.  The
Company’s financial position and results of operations are affected by
management’s application of accounting policies, including judgments made to
arrive at the carrying value of assets and liabilities and amounts reported for
revenues, expenses and related disclosures.  Different assumptions in
the application of these policies could result in material changes in the
Company’s financial position and/or results of operations.  Critical
accounting policies are those policies that management believes are the most
important to the portrayal of the Company’s financial condition and results of
operations, and they require management to make estimates that are difficult and
subjective.
 
 Allowance for Loan Losses –
The allowance for loan losses provides coverage for probable losses inherent in
the Company’s loan portfolio.  Management evaluates the adequacy of
the allowance for loan losses quarterly based on changes, if any, in
underwriting activities, the loan portfolio composition (including product mix
and geographic, industry or customer-specific concentrations), trends in loan
performance, regulatory guidance and economic factors.  This
evaluation is inherently subjective, as it requires the use of significant
management estimates.  Many factors can affect management’s estimates
of specific and expected losses, including volatility of default probabilities,
collateral values, rating migrations, loss severity and economic and political
conditions.  The allowance is increased through provisions charged to
operating earnings and reduced by net charge-offs.
  - 33
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 The
Company determines the amount of the allowance based on relative risk
characteristics of the loan portfolio.  The allowance recorded for
loans is based on reviews of individual credit relationships and historical loss
experience.  The allowance for losses relating to impaired loans is
based on the loan’s observable market price, the discounted cash flows using the
loan’s effective interest rate, or the value of collateral for collateral
dependent loans.
 
 Regardless
of the extent of the Company’s analysis of customer performance, portfolio
trends or risk management processes, certain inherent but undetected losses are
probable within the loan portfolio.  This is due to several factors,
including inherent delays in obtaining information regarding a customer’s
financial condition or changes in their unique business conditions, the
judgmental nature of individual loan evaluations, collateral assessments and the
interpretation of economic trends.  Volatility of economic or
customer-specific conditions affecting the identification and estimation of
losses for larger nonhomogeneous credits and the sensitivity of assumptions
utilized to establish allowances for homogeneous groups of loans are among other
factors.  The Company estimates a range of inherent losses related to
the existence of these exposures.  The estimates are based upon the
Company’s evaluation of risk associated with the commercial and consumer levels
and the estimated impact of the current economic environment.
 
 Goodwill and Other Intangibles
– The Company records all assets and liabilities acquired in purchase
acquisitions, including goodwill and other intangibles, at fair value as
required by SFAS 141.  Goodwill is subject, at a minimum, to annual
tests for impairment.  Other intangible assets are amortized over
their estimated useful lives using straight-line and accelerated methods, and
are subject to impairment if events or circumstances indicate a possible
inability to realize the carrying amount.  The initial goodwill and
other intangibles recorded and subsequent impairment analysis require management
to make subjective judgments concerning estimates of how the acquired asset will
perform in the future.  Events and factors that may significantly
affect the estimates include, among others, customer attrition, changes in
revenue growth trends, specific industry conditions and changes in
competition.
 
 Overview
 
 The
following discussion and analysis presents the more significant factors
affecting the Company’s financial condition as of December 31, 2007 and
2006, and results of operations for each of the years in the three-year period
ended December 31, 2007. This discussion and analysis should be read in
conjunction with the Company’s consolidated financial statements, notes thereto
and other financial information appearing elsewhere in this report.
 
 Taxable-equivalent
adjustments are the result of increasing income from tax-free loans and
investments by an amount equal to the taxes that would be paid if the income
were fully taxable based on a 34 percent  federal tax rate, thus
making tax-exempt yields comparable to taxable asset yields.
 
 Dollar
amounts in tables are stated in thousands, except for per share
amounts.
  - 34
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Results
of Operations
 
 The
Company’s results of operations are determined by its ability to effectively
manage interest income and expense, to minimize loan and investment losses, to
generate noninterest income and to control noninterest expense.  Since
market forces and economic conditions beyond the control of the Company
determine interest rates, the ability to generate net interest income is
dependent upon the Company’s ability to obtain an adequate spread between the
rate earned on earning assets and the rate paid on interest-bearing liabilities.
Thus, the key performance for net interest income is the interest margin or net
yield, which is taxable-equivalent net interest income divided by average
earning assets.  Net income totaled $8.55 million, or $1.19 diluted
per common share in 2007 compared to $10.15 million, or $1.41 diluted per common
share in 2006 and $8.98 million, or $1.25 diluted per common share in
2005.
 
 Selected
income statement data, returns on average assets and average equity and
dividends per share for the comparable periods were as follows:
 
 2007
              
              
              2006
              
              
              2005Taxable–Equivalent
      Net Interest Income
              
              $
              42,817
              
              
              $
              42,158
              
              
              $
              37,381Taxable-Equivalent
      Adjustment
              
              
              359
              
              
              
              270
              
              
              
              227Net
      Interest Income
              
              
              42,458
              
              
              
              41,888
              
              
              
              37,154Provision
      for Possible Loan Losses
              
              
              5,931
              
              
              
              3,987
              
              
              
              3,444Noninterest
      Income
              
              
              7,817
              
              
              
              7,350
              
              
              
              6,152Noninterest
      Expense
              
              
              31,579
              
              
              
              29,882
              
              
              
              26,076Income
      Before Income Taxes
              
              
              12,765
              
              
              
              15,369
              
              
              
              13,786Income
      Taxes
              
              
              4,218
              
              
              
              5,217
              
              
              
              4,809Net
      Income
              
              $
              8,547
              
              
              $
              10,152
              
              
              $
              8,977Earnings
      per Common Share:Basic
              
              $
              1.19
              
              
              $
              1.41
              
              
              $
              1.25Diluted
              
              $
              1.19
              
              
              $
              1.41
              
              
              $
              1.25Return
      on Average Assets
              
              
              0.71
              %
              
              
              0.87
              %
              
              
              0.87
              %Return
      on Average Equity
              
              
              10.60
              %
              
              
              14.10
              %
              
              
              13.78
              %
  - 35
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Net
income for 2007 decreased $1.61 million, or 15.81 percent, compared to
2006.  The decrease was primarily the result of a $1.95 million
increase in provision for loan losses and an increase of $1.70 million in
noninterest expense.  The impact of these items was partly offset by a
$0.57 million increase in net interest income, an increase of $0.47 million in
noninterest income and a decrease of $1 million in income tax
expense.  Net income for 2006 increased $1.18 million, or 13.09
percent, compared to 2005.  The increase was primarily the result of a
$4.74 million increase in net interest income and an increase of $1.20 million
in noninterest income.  The impact of these items was partly offset by
a $3.81 million increase in noninterest expense, an increase of $0.54 million in
provision for loan losses and an increase of $0.41 million in income tax
expense.
 
 Details
of the changes in the various components of net income are further discussed
below.
 
 Net
Interest Income
 
 Net
interest income is the difference between interest income on earning assets,
such as loans and securities, and interest expense on liabilities, such as
deposits and borrowings, which are used to fund those assets. Net interest
income is the Company’s largest source of revenue, representing 84.45 percent of
total revenue during 2007 and 85.07 percent during 2006.
 
 Net
interest margin is the taxable-equivalent net interest income as a percentage of
average earning assets for the period.  The level of interest rates
and the volume and mix of earning assets and interest-bearing liabilities impact
net interest income and net interest margin.
 
 The
Federal Reserve Board influences the general market rates of interest, including
the deposit and loan rates offered by many financial institutions. The Company’s
loan portfolio is significantly affected by changes in the prime interest rate.
The prime interest rate, which is the rate offered on loans to borrowers with
strong credit, ended with a prime interest rate of 4.75 percent, 4.25 percent,
4.00 percent, 5.25 percent, 7.25 percent, 8.25 percent and 7.25 percent,
respectively, as of year-end 2001, 2002, 2003, 2004, 2005, 2006 and
2007.  The federal funds rate moved similar to prime rate with an
interest rate of 1.75 percent, 1.25 percent, 1.00 percent, 2.25 percent, 4.25
percent, 5.25 percent and 4.25 percent, respectively, as of year-end 2001, 2002,
2003, 2004, 2005, 2006 and 2007.  With the current housing and real
estate concerns along with recessionary fears, it is anticipated that the
Federal Reserve will continue reducing interest rates during
2008.  The impact of further interest rate cuts will put further
pressure on the Company’s net interest margin.
 
 The
following table presents the changes in taxable-equivalent net interest income
and identifies the changes due to differences in the average volume of earning
assets and interest-bearing liabilities and the changes due to changes in the
average interest rate on those assets and liabilities. The changes in net
interest income due to changes in both average volume and average interest rate
have been allocated to the average volume change or the average interest rate
change in proportion to the absolute amounts of the change in each. The
Company’s consolidated average balance sheets along with an analysis of
taxable-equivalent net interest earnings are presented in the Quantitative and
Qualitative Disclosures About Market Risk included elsewhere in this
report.
  - 36
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Rate/Volume
Analysis
 
 The
rate/volume analysis presented hereafter illustrates the change from year to
year for each component of the taxable equivalent net interest income separated
into the amount generated through volume changes and the amount generated by
changes in the yields/rates.
 
 Changes
      From
                2006
      to 2007 (a)
              
              
              Changes
      From
                2005
      to 2006 (a)($
      in thousands)
              
              Volume
              
              
              Rate
              
              
              Total
              
              
              Volume
              
              
              Rate
              
              
              TotalInterest
      IncomeLoans,
      Net-Taxable
              
              $
              2,855
              
              
              $
              3,028
              
              
              $
              5,883
              
              
              $
              6,633
              
              
              $
              10,156
              
              
              $
              16,789Investment
      SecuritiesTaxable
              
              
              704
              
              
              
              627
              
              
              
              1,331
              
              
              
              680
              
              
              
              1,208
              
              
              
              1,888Tax-Exempt
              
              
              278
              
              
              
              (7
              )
              
              
              271
              
              
              
              75
              
              
              
              19
              
              
              
              94Total
      Investment Securities
              
              
              982
              
              
              
              620
              
              
              
              1,602
              
              
              
              755
              
              
              
              1,227
              
              
              
              1,982Interest-Bearing
      Deposits inOther
      Banks
              
              
              6
              
              
              
              4
              
              
              
              10
              
              
              
              (1
              )
              
              
              48
              
              
              
              47Federal
      Funds Sold
              
              
              (613
              )
              
              
              56
              
              
              
              (557
              )
              
              
              86
              
              
              
              683
              
              
              
              769Other
      Interest-Earning Assets
              
              
              6
              
              
              
              24
              
              
              
              30
              
              
              
              11
              
              
              
              91
              
              
              
              102Total
      Interest Income
              
              
              3,236
              
              
              
              3,732
              
              
              
              6,968
              
              
              
              7,484
              
              
              
              12,205
              
              
              
              19,689Interest-ExpenseInterest-Bearing
      Demand andSavings
      Deposits
              
              
              72
              
              
              
              328
              
              
              
              400
              
              
              
              108
              
              
              
              1,257
              
              
              
              1,365Time
      Deposits
              
              
              1,090
              
              
              
              4,631
              
              
              
              5,721
              
              
              
              3,258
              
              
              
              9,397
              
              
              
              12,655Total
      Interest ExpenseOn
      Deposits
              
              
              1,162
              
              
              
              4,959
              
              
              
              6,121
              
              
              
              3,366
              
              
              
              10,654
              
              
              
              14,020Other
      Interest-Bearing LiabilitiesFederal
      Funds Purchased
              
              
              29
              
              
              
              1
              
              
              
              30
              
              
              
              4
              
              
              
              9
              
              
              
              13Subordinated
      Debentures
              
              
              272
              
              
              
              (145
              )
              
              
              127
              
              
              
              242
              
              
              
              368
              
              
              
              610Other
      Debt
              
              
              18
              
              
              
              13
              
              
              
              31
              
              
              
              (32
              )
              
              
              301
              
              
              
              269Total
      Interest Expense
              
              
              1,481
              
              
              
              4,828
              
              
              
              6,309
              
              
              
              3,580
              
              
              
              11,332
              
              
              
              14,912Net
      Interest Income (Loss)
              
              $
              1,755
              
              
              $
              (1,096
              )
              
              $
              659
              
              
              $
              3,904
              
              
              $
              873
              
              
              $
              4,777
 
 (a)
              Changes
      in net interest income for the periods, based on either changes in average
      balances or changes in average rates for interest-earning assets and
      interest-bearing liabilities, are shown on this table. During each year
      there are numerous and simultaneous balance and rate changes; therefore,
      it is not possible to precisely allocate the changes between balances and
      rates. For the purpose of this table, changes that are not exclusively due
      to balance changes or rate changes have been attributed to
      rates.
 
 Our
financial performance is impacted by, among other factors, interest rate risk
and credit risk.  We do not utilize derivatives to mitigate our credit
risk, relying instead on an extensive loan review process and our allowance for
loan losses.
  - 37
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Interest
rate risk is the change in value due to changes in interest
rates.  The Company is exposed only to U.S. dollar interest rate
changes and, accordingly, the Company manages exposure by considering the
possible changes in the net interest margin. The Company does not have any
trading instruments nor does it classify any portion of its investment portfolio
as held for trading. The Company does not engage in any hedging activity or
utilize any derivatives. The Company has no exposure to foreign currency
exchange rate risk, commodity price risk and other market risks. Interest rate
risk is addressed by our Asset & Liability Management Committee (ALCO) which
includes senior management representatives. The ALCO monitors interest rate risk
by analyzing the potential impact to the net portfolio of equity value and net
interest income from potential changes to interest rates and considers the
impact of alternative strategies or changes in balance sheet
structure.
 
 Interest
rates play a major part in the net interest income of financial institutions.
The repricing of interest earnings assets and interest-bearing liabilities can
influence the changes in net interest income. The timing of repriced assets and
liabilities is Gap management and our Company has established its policy to
maintain a Gap ratio in the one-year time horizon of .80 to 1.20.
 
 Our
exposure to interest rate risk is reviewed at least quarterly by our Board of
Directors and the ALCO. Interest rate risk exposure is measured using interest
rate sensitivity analysis to determine our change in net portfolio value in the
event of assumed changes in interest rates. In order to reduce the exposure to
interest rate fluctuations, we have implemented strategies to more closely match
our balance sheet composition. The Company has engaged SunTrust Bank to run a
quarterly asset/liability model for interest rate risk analysis.  We
are generally focusing our investment activities on securities with terms or
average lives in the 3-7 year range.
 
 The
Company maintains about 37 percent of its loan portfolio in adjustable rate
loans that reprice with prime rate changes, while the bulk of its other loans
mature within 3 years. The liabilities to fund assets are primarily in
short-term certificates of deposit that mature within one year. This balance
sheet composition has allowed the Company to be relatively constant with its net
interest margin the past several years, though the unprecedented 475 basis point
decrease by U.S. Federal Reserve in 2001, 50 basis point decrease in 2002 and 25
basis point decrease in 2003 resulted in significant net interest margin
pressure. During 2004 interest rates increased 125 basis points, during 2005
interest rates increased 200 basis points, during 2006 interest rates increased
100 basis points and during 2007 interest rates decreased 100 basis
points.  The shift to increased rates the prior three years resulted
in improved and stable net interest margins; however, the significant rate
decrease the last four months of 2007 resulted in margin compression for the
Company.  Net interest margin decreased to 3.75 percent for 2007
compared to 3.84 percent for 2006 and 3.81 percent for 2005.  We
anticipate some contraction in the net interest margin for 2008 given the
Federal Reserve’s present declining rate forecast for 2008.  Should
the Federal Reserve’s stance be further rate cuts, the Company would be
challenged with net interest rate compression.
  - 38
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Taxable-equivalent
net interest income for 2007 increased $0.66 million, or 1.56 percent, compared
to 2006, while taxable-equivalent net interest income for 2006 increased by
$4.78 million, or 12.78 percent, compared to 2005.  The fluctuation
between the comparable periods resulted from the positive impact of growth in
the average volume of earning assets and a negative impact from the increasing
average interest rates.  The average volume of earning assets during
2007 increased almost $43.9  million compared to 2006 while over the
same period the net interest margin decreased to 3.75 from 3.84
percent.  Similarly, the average volume of earning assets during 2006
increased $117.8 million compared to 2005 while over the same period the net
interest margin increased to 3.84 percent from 3.81 percent.  Growth
in average earning assets during 2007 and 2006 was primarily in loans. The
reduction in the net interest margin in 2007 was primarily the result of the
Federal Reserve reducing interest rates 100 basis points the last four months of
the year along with sluggish loan growth in 2007.
 
 The
average volume of loans increased $34.6 million in 2007 compared to 2006 and
increased $93.0 million in 2006 compared to 2005.  The average yield
on loans increased 32 basis points in 2007 compared to 2006 and increased 111
basis points in 2006 compared to 2005.  Funding for this growth was
primarily provided by deposit growth. The average volume of deposits increased
$30.6 million in 2007 compared to 2006 and increased $112.9 million in 2006
compared to 2005.  Interest-bearing deposits made up 89.6 percent of
the growth in average deposits in 2007 and 95.5 percent of the growth in average
deposits in 2006.  Accordingly, the ratio of average interest-bearing
deposits to total average deposits was 92.5 percent in 2007, 92.6 percent in
2006 and 92.2 percent in 2005.  This deposit mix, combined with a
general increase in interest rates, had the effect of (i) increasing the average
cost of total deposits by 49 basis points in 2007 compared to 2006 and
increasing the average cost of total deposits by 112 basis points in 2006
compared to 2005, and (ii) mitigating a portion of the impact of increasing
yields on earning assets on the Company’s net interest income.
 
 The
Company’s net interest spread, which represents the difference between the
average rate earned on earning assets and the average rate paid on
interest-bearing liabilities, was 3.34 percent in 2007 compared to 3.50 percent
in 2006 and 3.56 percent in 2005.  The net interest spread, as well as
the net interest margin, will be impacted by future changes in short-term and
long-term interest rate levels, as well as the impact from the competitive
environment.  A discussion of the effects of changing interest rates
on net interest income is set forth in Quantitative and Qualitative Disclosures
About Interest Rate Sensitivity included elsewhere in this report.
 
 Provision
for Possible Loan Losses
 
 The
provision for possible loan losses is determined by management as the amount to
be added to the allowance for possible loan losses after net charge-offs have
been deducted to bring the allowance to a level which, in management’s best
estimate, is necessary to absorb probable losses within the existing loan
portfolio.  The provision for possible loan losses totaled $5.93
million in 2007 compared to $3.99 million in 2006 and $3.44 million in
2005.  See the section captioned “Allowance for Possible Loan Losses”
elsewhere in this discussion for further analysis of the provision for possible
loan losses.
  - 39
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Noninterest
Income
 
 The
components of noninterest income were as follows:
 
 2007
              
              
              2006
              
              
              2005Service
      Charges on Deposit Accounts
              
              $
              4,771
              
              
              $
              4,580
              
              
              $
              4,128Other
      Charges, Commissions and Fees
              
              
              921
              
              
              
              831
              
              
              
              708Other
              
              
              974
              
              
              
              1,171
              
              
              
              822Mortgage
      Fee Income
              
              
              967
              
              
              
              768
              
              
              
              494Securities
      Gains
              
              
              184
              
              
              
              -
              
              
              
              -$
              7,817
              
              
              $
              7,350
              
              
              $
              6,152
 
 Total
noninterest income for 2007 increased $0.47 million, or 6.35 percent, compared
to 2006 while total noninterest income for 2006 increased $1.20 million, or
19.47 percent, compared to 2005.  The increase in 2007 noninterest
income compared to 2006 was primarily in mortgage fee income and service charges
on deposits accounts, while the increase in 2006 noninterest income compared to
2005 was primarily in mortgage fee income, service charges on deposit accounts
and other.  Changes in these items and the other components of
noninterest income are discussed in more detail below.
 
 Service Charges on Deposit
Accounts.  Service charges on deposit accounts for 2007
increased $191 thousand, or 4.17 percent, compared to 2006.  The
increase was primarily due to an increase in overdraft fees assessed and
increased volume of consumer and business accounts.  Service charges
on deposit accounts for 2006 increased $452 thousand, or 10.95 percent, compared
to 2005.  The increase was primarily due to an increase in overdraft
fees, which were mostly related to consumer accounts.
 
 Mortgage Fee
Income.Mortgage fee income for 2007 increased $199 thousand,
or 25.91 percent, compared to 2006.  The increase was primarily due to
a company-wide focus on mortgage loans to be sold into the secondary
market.  Of significance was the increased activity in the larger MSA
markets that the Company has operations.  Mortgage fee income for 2006
increased $274 thousand, or 55.47 percent, compared to 2005.
 
 All Other Noninterest
Income.  The aggregate of all other noninterest income accounts
increased $77 thousand, or 3.85 percent, compared to 2006.  The
increase was primarily due to gains realized from the sale of securities of $184
thousand for 2007 compared to no security gains in 2006, or an increase of $184
thousand.  In addition ATM fee income increased to $765 thousand for
2007 compared to $652 thousand for 2006, or an increase of $113 thousand and fee
income on check orders increased to $147 thousand for 2007 compared to $78
thousand for 2006, or an increase of $69 thousand.  These increases
were offset by a reduction in gains realized from the sale of SBA and FSA
governmental loans as gains realized were $150 thousand for 2007 compared to
$512 thousand for 2006, or a reduction of $362 thousand.
  - 40
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 The
aggregate of all other noninterest income accounts increased $472 thousand, or
30.85 percent, compared to 2005.  The increase was primarily due to
gains realized from the sale of SBA and FSA governmental loans that increased to
$512 thousand for 2006 compared to $42 thousand for 2005, or an increase of $470
thousand.  Also, ATM fee income increased to $652 thousand for 2006
compared to $526 thousand for 2005, or an increase of $126
thousand.  These increases were offset by fee income recorded on
director and executive officer deferred compensation and retirement plans that
decreased to $148 thousand for 2006 compared to $329 thousand for 2005, or a
decrease of $181 thousand.  For 2005 fee income on deferred
compensation included a one-time entry from the demutualization of insurance
companies used to fund the plan.
 
 Noninterest
Expense
 
 The
components of noninterest expense were as follows:
 
 2007
              
              
              2006
              
              
              2005Salaries
      and Employee Benefits
              
              $
              17,866
              
              
              $
              16,870
              
              
              $
              14,128Occupancy
      and Equipment
              
              
              4,039
              
              
              
              4,035
              
              
              
              3,778Other
              
              
              9,674
              
              
              
              8,977
              
              
              
              8,170$
              31,579
              
              
              $
              29,882
              
              
              $
              26,076
 
 Total
noninterest expense for 2007 increased $1.70 million, or 5.68 percent compared
to 2006 while total noninterest expense for 2006 increased $3.81 million, or
14.60 percent, compared to 2005.  Growth in noninterest expense in
2007 and 2006 was primarily in salaries, employee benefits, occupancy and
equipment expense and other noninterest expenses. These items and the changes in
the various components of noninterest expense are discussed in more detail
below.
 
 Salaries and Employee
Benefits.  Salaries and benefits expense for 2007 increased
$996 thousand, or 5.90 percent, compared to 2006.  The increase is
primarily related to increases in head count, merit increases, payroll taxes and
health insurance expense.  The slight increase in head count was
primarily staffing needs in the back office support area as no new offices were
opened during 2007.  Areas of addition included technology, human
resources and administrative support.  These increases were offset by
a reduction in incentive and profit sharing expense as payouts were
approximately $442 thousand less than in 2006 due to the Company’s performance
in which targeted goals with the incentive and profit sharing plan were not met.
 
 Salaries
and benefits expense for 2006 increased $2.74 million, or 19.41 percent,
compared to 2005.  The increase is primarily related to increases in
head count, merit increases and denovo branching.  During 2006, new
offices were opened in Centerville and Columbus, Georgia while new offices
opened in Valdosta and Savannah, Georgia during 2005 were online all of 2006
compared to being online part of 2005.
  - 41
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Occupancy and
Equipment.  Net occupancy expense for 2007 remained flat
compared to 2006.  The Company matched up with net occupancy and
equipment expense for 2006 primarily because there were no new offices opened
during 2007.  Net occupancy expense for 2006 increased $257 thousand,
or 6.80 percent, compared to 2005.  The Company experienced increased
net occupancy and equipment expense for 2006 resulting from two new offices
opened during 2006.  The impact of new offices opened during 2006
resulted in higher maintenance, insurance, utilities and depreciation.
 
 All Other Noninterest
Expense.  All other noninterest expense for 2007 increased $697
thousand, or 7.76 percent.  Significant changes in noninterest expense
were:  legal and professional fees increased to $1.14 million for 2007
compared to $1.07 million for 2006, or an increase of $70 thousand; ATM expense
increased to $462 thousand for 2007 compared to $377 thousand for 2006, or an
increase of $85 thousand; software and license fee expense increased to $424
thousand for 2007 compared to $341 thousand for 2006, or an increase of $83
thousand; deferred compensation expense increased to $238 thousand for 2007
compared to $165 thousand for 2006, or an increase of $73 thousand and
amortization expense on trust preferred securities increased to $295 thousand
for 2007 compared to $30 thousand for 2006, or an increase of $265
thousand.  The Company exercised call options on trust preferred
securities to refinance at lower interest rates and expensed the unamortized
fees on the two trust preferred securities.
 
 All other
noninterest expense for 2006 increased $807 thousand, or 9.88 percent, compared
to 2005.  The increase is primarily due to additional overhead
associated with new offices opened along with significant changes in noninterest
expense as follows:  loss on sale of other real estate decreased to
$20 thousand for 2006 compared to $185 thousand for 2005, or a decrease of $165
thousand; other real estate and repossession expense increased to $162 thousand
for 2006 compared to $127 thousand for 2005, or an increase of $35 thousand;
legal and professional fees increased to $1.071 million for 2006 compared to
$765 thousand for 2005, or an increase of $306 thousand; ATM expense increased
to $377 thousand for 2006 compared to $322 thousand for 2005, or an increase of
$55 thousand; director fees increased to $639 thousand for 2006 compared to $617
thousand for 2005, or an increase of $22 thousand; stationery and supplies
increased to $559 thousand for 2006 compared to $514 thousand for 2005, or an
increase of $45 thousand; postage expense increased to $386 thousand for 2006
compared to $348 thousand for 2005, or an increase of $38 thousand; and
advertising expense increased to $653 thousand for 2006 compared to $457
thousand for 2005, or an increase of $196 thousand.
 
 Sources
and Uses of Funds
 
 The
following table illustrates, during the years presented, the mix of the
Company’s funding sources and the assets in which those funds are invested as a
percentage of the Company’s average total assets for the period indicated.
Average assets totaled $1,204 million in 2007 compared to $1,161 million in 2006
and $1,035 million in 2005.
  - 42
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 2007
              
              
              2006
              
              
              2005Sources
      of FundsDepositsNoninterest-Bearing
              
              $
              76,509
              
              
              
              6.4
              %
              
              $
              73,334
              
              
              
              6.3
              %
              
              $
              68,259
              
              
              
              6.6
              %Interest-Bearing
              
              
              945,028
              
              
              
              78.5
              
              
              
              917,634
              
              
              
              79.1
              
              
              
              809,850
              
              
              
              78.3Federal
      Funds Purchased
              
              
              1,130
              
              
              
              -
              
              
              
              563
              
              
              
              -
              
              
              
              449
              
              
              
              -Subordinated
      Debentures and Other Borrowed Money
              
              
              92,211
              
              
              
              7.7
              
              
              
              88,512
              
              
              
              7.6
              
              
              
              85,675
              
              
              
              8.3Other
      Noninterest-Bearing Liabilities
              
              
              8,692
              
              
              
              0.7
              
              
              
              8,682
              
              
              
              0.8
              
              
              
              5,398
              
              
              
              0.5Equity
      Capital
              
              
              80,595
              
              
              
              6.7
              
              
              
              71,993
              
              
              
              6.2
              
              
              
              65,146
              
              
              
              6.3$
              1,204,165
              
              
              
              100.0
              %
              
              $
              1,160,718
              
              
              
              100.0
              %
              
              $
              1,034,777
              
              
              
              100.0
              %Uses
      of FundsLoans
              
              $
              934,495
              
              
              
              77.6
              %
              
              $
              901,162
              
              
              
              77.6
              %
              
              $
              809,401
              
              
              
              78.2
              %Investment
      Securities
              
              
              157,033
              
              
              
              13.0
              
              
              
              135,538
              
              
              
              11.7
              
              
              
              113,704
              
              
              
              11.0Federal
      Funds Sold
              
              
              28,863
              
              
              
              2.4
              
              
              
              41,307
              
              
              
              3.6
              
              
              
              38,692
              
              
              
              3.7Interest-Bearing
      Deposits
              
              
              2,879
              
              
              
              0.2
              
              
              
              2,753
              
              
              
              0.2
              
              
              
              2,792
              
              
              
              0.3Other
      Interest-Earning Assets
              
              
              5,308
              
              
              
              0.5
              
              
              
              5,192
              
              
              
              0.4
              
              
              
              4,878
              
              
              
              0.5Other
      Noninterest-Earning Assets
              
              
              75,587
              
              
              
              6.3
              
              
              
              74,766
              
              
              
              6.5
              
              
              
              65,310
              
              
              
              6.3$
              1,204,165
              
              
              
              100.0
              %
              
              $
              1,160,718
              
              
              
              100.0
              %
              
              $
              1,034,777
              
              
              
              100.0
              %
 
 Deposits
continue to be the Company’s primary source of funding.  Over the
comparable periods, the relative mix of deposits continues to be high in
interest-bearing deposits.  Interest-bearing deposits totaled 92.51
percent of total average deposits in 2007 compared to 92.60 percent in 2006 and
92.23 percent in 2005.
 
 The
Company primarily invests funds in loans and securities.  Loans
continue to be the largest component of the Company’s mix of invested
assets.  Loan demand was sluggish in 2007 as total loans were $945.3
million at December 31, 2007, up 0.32 percent, compared to loans of $942.3
million at December 31, 2006, while total loans at December 31, 2006 were up
9.68 percent compared to loans of $859.1 million at December 31,
2005.  See additional discussion regarding the Company’s loan
portfolio in the section captioned “Loans” included below.  The
majority of funds provided by deposit growth have been invested in
loans.
  - 43
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Loans
 
 The
following table presents the composition of the Company’s loan portfolio as of
December 31 for the past five years.
 
 2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003Commercial,
      Financial and Agricultural
              
              $
              52,323
              
              
              $
              61,887
              
              
              $
              48,849
              
              
              $
              44,284
              
              
              $
              44,590Real
      EstateConstruction
              
              
              211,484
              
              
              
              193,952
              
              
              
              152,944
              
              
              
              100,774
              
              
              
              56,374Mortgage,
      Farmland
              
              
              42,439
              
              
              
              40,936
              
              
              
              37,152
              
              
              
              38,245
              
              
              
              33,097Mortgage,
      Other
              
              
              544,655
              
              
              
              549,601
              
              
              
              529,599
              
              
              
              500,869
              
              
              
              428,197Consumer
              
              
              72,350
              
              
              
              76,930
              
              
              
              73,473
              
              
              
              73,685
              
              
              
              73,020Other
              
              
              22,028
              
              
              
              18,967
              
              
              
              17,100
              
              
              
              20,823
              
              
              
              18,932945,279
              
              
              
              942,273
              
              
              
              859,117
              
              
              
              778,680
              
              
              
              654,210Unearned
      Interest and Fees
              
              
              (301
              )
              
              
              (501
              )
              
              
              (302
              )
              
              
              (37
              )
              
              
              (33
              )Allowance
      for Loan Losses
              
              
              (15,513
              )
              
              
              (11,989
              )
              
              
              (10,762
              )
              
              
              (10,012
              )
              
              
              (8,516
              )Loans
              
              $
              929,465
              
              
              $
              929,783
              
              
              $
              848,053
              
              
              $
              768,631
              
              
              $
              645,661
 
 The
following table presents total loans as of December 31, 2007 according to
maturity distribution and/or repricing opportunity on adjustable rate
loans.
 
 Maturity
      and Repricing Opportunity
              
              ($
      in thousands)One
      Year or Less
              
              $
              621,825After
      One Year through Three Years
              
              
              269,055After
      Three Years through Five Years
              
              
              42,869Over
      Five Years
              
              
              11,530$
              945,279
 
 Overview. Loans totaled
$945.3 million at December 31, 2007, up 0.32 percent from December 31, 2006
loans of $942.3 million.  The majority of the Company’s loan portfolio
is comprised of the real estate loans-other, real estate construction and
installment loans to individuals.  Real estate-other, which is
primarily 1-4 family residential properties and nonfarm nonresidential
properties, made up 57.62  percent and 58.33 percent of total loans,
real estate construction made up 22.37 percent and 20.58  percent
while installment loans to individuals made up 7.65 percent and 8.16 percent of
total loans at December 31, 2007 and December 31, 2006,
respectively.  Real estate loans-other include both commercial and
consumer balances.
 
 Loan Origination/Risk
Management.In accordance with the Company’s decentralized
banking model, loan decisions are made at the local bank level.  The
Company utilizes a Central Loan Committee to assist lenders with the decision
making and underwriting process of larger loan requests.  Due to the
diverse economic markets served by the Company, evaluation and underwriting
criterion may vary slightly by bank.  Overall, loans are extended
after a review of the borrower’s repayment ability, collateral adequacy, and
overall credit worthiness.
  - 44
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Commercial
purpose, commercial real estate and industrial loans are underwritten similar to
other loans throughout the Company.  The properties securing the
Company’s commercial real estate portfolio are diverse in terms of type and
geographic location.  This diversity helps reduce the Company’s
exposure to adverse economic events that affect any single market or
industry.  Management monitors and evaluates commercial real estate
loans based on collateral, geography, and risk grade criteria.  The
Company also utilizes information provided by third-party agencies to provide
additional insight and guidance about economic conditions and trends affecting
the markets it serves.
 
 The
Company extends loans to builders and developers that are secured by
nonowner-occupied properties.  In such cases, the Company reviews the
overall economic conditions and trends for each market to determine the
desirability of loans to be extended for residential construction and
development.  Sources of repayment for these types of loans may be
pre-committed permanent loans from approved long-term lenders, sales of
developed property or an interim mini-perm loan commitment from the Company
until permanent financing is obtained.  In some cases, loans are
extended for residential loan construction for speculative purposes and are
based on the perceived present and future demand for housing in a particular
market served by the Company.  These loans are monitored by on-site
inspections and are considered to have higher risks than other real estate loans
due to their ultimate repayment being sensitive to interest rate changes,
general economic conditions and trends, the demand for the properties, and the
availability of long-term financing.
 
 The
Company originates consumer loans at the bank level.  Due to the
diverse economic markets served by the Company, underwriting criterion may vary
slightly by bank.  The Company is committed to serving the borrowing
needs of all markets served and, in some cases, adjusts certain evaluation
methods to meet the overall credit demographics of each
market.  Consumer loans represent relatively small loan amounts that
are spread across many individual borrowers to help minimize
risk.  Additionally, consumer trends and outlook reports are reviewed
by management on a regular basis.
 
 The
Company maintains an independent loan review department that reviews and
validates the credit risk program on a periodic basis. Results of these reviews
are presented to management. The loan review process complements and reinforces
the risk identification and assessment decisions made by lenders and credit
personnel, as well as the Company’s policies and procedures.
 
 Commercial, Financial and
Agricultural.Commercial, financial and agricultural loans at
December 31, 2007 decreased 15.45 percent from December 31, 2006 to
$52.3 million. The Company’s commercial and industrial loans are a diverse group
of loans to small, medium and large businesses. The purpose of these loans
varies from supporting seasonal working capital needs to term financing of
equipment. While some short-term loans may be made on an unsecured basis, most
are secured by the assets being financed with collateral margins that are
consistent with the Company’s loan policy guidelines.
 
 Industry Concentrations. As
of December 31, 2007 and December 31, 2006, there were no concentrations of
loans within any single industry in excess of 10 percent of total loans, as
segregated by Standard Industrial Classification code (SIC code). The SIC code
is a federally designed standard industrial numbering system used by the Company
to categorize loans by the borrower’s type of business.
  - 45
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Collateral
Concentrations.  Lending is concentrated in commercial and real
estate loans primarily 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 borrower’s ability to honor
their contracts is dependent upon the viability of the real estate economic
sector.
 
 Large Credit
Relationships.  Colony is currently in eighteen counties in
south and central Georgia and include metropolitan markets in Dougherty,
Lowndes, Houston, Chatham and Muscogee counties.  As a result, the
Company originates and maintains large credit relationships with several
commercial customers in the ordinary course of business.  The Company
considers large credit relationships to be those with commitments equal to or in
excess of $5.0 million prior to any portion being sold.  Large
relationships also include loan participations purchased if the credit
relationship with the agent is equal to or in excess of $5.0
million.  In addition to the Company’s normal policies and procedures
related to the origination of large credits, the Company’s Central Credit
Committee must approve all new and renewed credit facilities which are part of
large credit relationships.  The following table provides additional
information on the Company’s large credit relationships outstanding at December
31, 2007 and December 31, 2006.
 
 December
      31, 2007
              
              
              December
      31, 2006Number
      of
              
              
              Period
      End Balances
              
              
              Number
      of
              
              
              Period
      End BalancesRelationships
              
              
              Committed
              
              
              Outstanding
              
              
              Relationships
              
              
              Committed
              
              
              OutstandingLarge
      Credit Relationships$10
      Million and Greater
              
              
              3
              
              
              $
              38,957
              
              
              $
              23,441
              
              
              
              2
              
              
              $
              25,692
              
              
              $
              18,365$5
      Million to $9.9 Million
              
              
              15
              
              
              
              92,595
              
              
              
              89,677
              
              
              
              12
              
              
              
              69,485
              
              
              
              62,914
 
 Maturities and Sensitivities of
Loans to Changes in Interest Rates.  The following table
presents the maturity distribution of the Company’s loans at December 31, 2007.
The table also presents the portion of loans that have fixed interest rates or
variable interest rates that fluctuate over the life of the loans in accordance
with changes in an interest rate index such as the prime rate.
 
 Due
      in One
                Year
      or Less
              
              
              After
      One,
                but
      Within
                Three
      Years
              
              
              After
      Three,
                but
      Within
                Five
      Years
              
              
              After
                Five
                Years
              
              
              TotalLoans
      with Fixed Interest Rates
              
              $
              271,926
              
              
              $
              268,710
              
              
              $
              42,812
              
              
              $
              11,183
              
              
              $
              594,631Loans
      with Floating Interest Rates
              
              
              349,899
              
              
              
              345
              
              
              
              57
              
              
              
              347
              
              
              
              350,648$
              621,825
              
              
              $
              269,055
              
              
              $
              42,869
              
              
              $
              11,530
              
              
              $
              945,279
 
 The
Company may renew loans at maturity when requested by a customer whose financial
strength appears to support such renewal or when such renewal appears to be in
the Company’s best interest. In such instances, the Company generally requires
payment of accrued interest and may adjust the rate of interest, require a
principal reduction or modify other terms of the loan at the time of
renewal.
  - 46
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Nonperforming
Assets and Potential Problem Loans
 
 Year-end
nonperforming assets and accruing past due loans were as follows:
 
 2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003Loans
      Accounted for on Nonaccrual
              
              $
              14,956
              
              
              $
              8,069
              
              
              $
              8,579
              
              
              $
              7,856
              
              
              $
              7,251Loans
      Past Due 90 Days or More
              
              
              60
              
              
              
              9
              
              
              
              14
              
              
              
              953
              
              
              
              241Renegotiated
      Loans
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Other
      Real Estate Foreclosed
              
              
              1,332
              
              
              
              970
              
              
              
              2,170
              
              
              
              1,127
              
              
              
              2,724Total
      Nonperforming Assets
              
              $
              16,348
              
              
              $
              9,048
              
              
              $
              10,763
              
              
              $
              9,936
              
              
              $
              10,216Nonperforming
      Assets as a Percentage ofTotal
      Loans and Foreclosed Assets
              
              
              1.73
              %
              
              
              0.96
              %
              
              
              1.25
              %
              
              
              1.27
              %
              
              
              1.56
              %Total
      Assets
              
              
              1.35
              %
              
              
              0.75
              %
              
              
              0.97
              %
              
              
              1.00
              %
              
              
              1.18
              %Accruing
      Past Due Loans30–89
      Days Past Due
              
              $
              15,681
              
              
              $
              10,593
              
              
              $
              6,829
              
              
              $
              8,302
              
              
              $
              6,70390
      or More Days Past Due
              
              
              60
              
              
              
              9
              
              
              
              14
              
              
              
              953
              
              
              
              241Total
      Accruing Past Due Loans
              
              $
              15,741
              
              
              $
              10,602
              
              
              $
              6,843
              
              
              $
              9,255
              
              
              $
              6,944
 
 Nonperforming
assets include nonaccrual loans, loans past due 90 days or more, restructured
loans and foreclosed real estate.  Nonperforming assets at December
31, 2007 increased 80.68 percent from December 31, 2006.  The increase
in nonperforming assets was primarily attributable to the under performance of
residential real estate and land development loans given the downturn in the
real estate market the last half of 2007.
 
 Generally,
loans are placed on nonaccrual status if principal or interest payments become
90 days past due and/or management deems the collectibility of the
principal and/or interest to be in question, as well as when required by
regulatory requirements. Loans to a customer whose financial condition has
deteriorated are considered for nonaccrual status whether or not the loan is
90 days or more past due. For consumer loans, collectibility and loss are
generally determined before the loan reaches 90 days past due. Accordingly,
losses on consumer loans are recorded at the time they are determined. Consumer
loans that are 90 days or more past due are generally either in
liquidation/payment status or bankruptcy awaiting confirmation of a plan. Once
interest accruals are discontinued, accrued but uncollected interest is charged
to current year operations. Subsequent receipts on nonaccrual loans are recorded
as a reduction of principal, and interest income is recorded only after
principal recovery is reasonably assured. Classification of a loan as nonaccrual
does not preclude the ultimate collection of loan principal or
interest.
 
 Renegotiated
loans are loans on which, due to deterioration in the borrower’s financial
condition, the original terms have been modified in favor of the borrower or
either principal or interest has been forgiven.
 
 Foreclosed
assets represent property acquired as the result of borrower defaults on loans.
Foreclosed assets are recorded at estimated fair value, less estimated selling
costs, at the time of foreclosure. Write-downs occurring at foreclosure are
charged against the allowance for possible loan losses. On an ongoing basis,
properties are appraised as required by market indications and applicable
regulations. Write-downs are provided for subsequent declines in value and are
included in other noninterest expense along with other expenses related to
maintaining the properties.
  - 47
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Allowance
for Possible Loan Losses
 
 The
allowance for possible loan losses is a reserve established through a provision
for possible loan losses charged to expense, which represents management’s best
estimate of probable losses that have been incurred within the existing
portfolio of loans. The allowance, in the judgment of management, is necessary
to reserve for estimated loan losses and risks inherent in the loan portfolio.
The allowance for possible loan losses includes allowance allocations calculated
in accordance with SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, as amended by SFAS No. 118, and allowance
allocations determined in accordance with SFAS No. 5, Accounting for
Contingencies.The level of the allowance reflects
management’s continuing evaluation of industry concentrations, specific credit
risks, loan loss experience, current loan portfolio quality, present economic,
political and regulatory conditions and unidentified losses inherent in the
current loan portfolio. Portions of the allowance may be allocated for specific
credits; however, the entire allowance is available for any credit that, in
management’s judgment, should be charged off. While management utilizes its best
judgment and information available, the ultimate adequacy of the allowance is
dependent upon a variety of factors beyond the Company’s control, including the
performance of the Company’s loan portfolio, the economy, changes in interest
rates and the view of the regulatory authorities toward loan classifications.
 
 The
Company’s allowance for possible loan losses consists of specific valuation
allowances established for probable losses on specific loans and historical
valuation allowances for other loans with similar risk
characteristics.
 
 The
allowances established for probable losses on specific loans are based on a
regular analysis and evaluation of classified loans.  Loans are
classified based on an internal credit risk grading process that evaluates,
among other things: (i) the obligor’s ability to repay; (ii) the underlying
collateral, if any; and (iii) the economic environment and industry in which the
borrower operates.  This analysis is performed at the subsidiary bank
level and is reviewed at the parent company level.  Once a loan is
classified, it is reviewed to determine whether the loan is impaired and, if
impaired, a portion of the allowance for possible loan losses is specifically
allocated to the loan.  Specific valuation allowances are determined
after considering the borrower’s financial condition, collateral deficiencies,
and economic conditions affecting the borrower’s industry, among other
things.
 
 Historical
valuation allowances are calculated from loss factors applied to loans with
similar risk characteristics.  The loss factors are based on loss
ratios for groups of loans with similar risk characteristics.  The
loss ratios are derived from the proportional relationship between actual loan
losses and the total population of loans in the risk category.  The
historical loss ratios are periodically updated based on actual charge-off
experience.  The Company’s groups of similar loans include similarly
risk-graded groups of loans not reviewed for individual impairment.
 
 Management
evaluates the adequacy of the allowance for each of these components on a
quarterly basis.  Peer comparisons, industry comparisons and
regulatory guidelines are also used in the determination of the general
valuation allowance.
 
 Loans
identified as losses by management, internal loan review and/or bank examiners
are charged off.
  - 48
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 An
allocation for loan losses has been made according to the respective amounts
deemed necessary to provide for the possibility of incurred losses within the
various loan categories.  The allocation is based primarily on
previous charge-off experience adjusted for changes in experience among each
category.  Additional amounts are allocated by evaluating the loss
potential of individual loans that management has considered
impaired.  The reserve for loan loss allocation is subjective since it
is based on judgment and estimates, and therefore is not necessarily indicative
of the specific amounts or loan categories in which the charge-offs may
ultimately occur.  The following table shows a comparison of the
allocation of the reserve for loan losses for the periods
indicated.
 
 2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003Reserve
              
              
              
              %*
              
              
              Reserve
              
              
              
              %*
              
              
              Reserve
              
              
              
              %*
              
              
              Reserve
              
              
              
              %*
              
              
              Reserve
              
              
              
              %*Commercial,
      Financial and Agricultural
              
              $
              3,645
              
              
              
              6
              %
              
              $
              3,597
              
              
              
              7
              %
              
              $
              3,229
              
              
              
              6
              %
              
              $
              3,004
              
              
              
              6
              %
              
              $
              2,470
              
              
              
              7
              %Real
      Estate – Construction
              
              
              2,560
              
              
              
              22
              
              
              
              719
              
              
              
              21
              
              
              
              646
              
              
              
              18
              
              
              
              501
              
              
              
              13
              
              
              
              340
              
              
              
              9Real
      Estate – Farmland
              
              
              621
              
              
              
              4
              
              
              
              599
              
              
              
              4
              
              
              
              538
              
              
              
              4
              
              
              
              501
              
              
              
              5
              
              
              
              426
              
              
              
              5Real
      Estate – Other
              
              
              5,430
              
              
              
              58
              
              
              
              3,896
              
              
              
              58
              
              
              
              3,498
              
              
              
              62
              
              
              
              3,304
              
              
              
              64
              
              
              
              2,981
              
              
              
              65Loans
      to Individuals
              
              
              2,404
              
              
              
              8
              
              
              
              2,398
              
              
              
              8
              
              
              
              2,152
              
              
              
              8
              
              
              
              2,002
              
              
              
              9
              
              
              
              1,703
              
              
              
              11All
      Other Loans
              
              
              853
              
              
              
              2
              
              
              
              780
              
              
              
              2
              
              
              
              699
              
              
              
              2
              
              
              
              700
              
              
              
              3
              
              
              
              596
              
              
              
              3$
              15,513
              
              
              
              100
              %
              
              $
              11,989
              
              
              
              100
              %
              
              $
              10,762
              
              
              
              100
              %
              
              $
              10,012
              
              
              
              100
              %
              
              $
              8,516
              
              
              
              100
              %
 
 *Loan balance in each category
expressed as a percentage of total end of period loans.
 
 Activity
in the allowance for loan losses is presented in the following table. There were
no charge-offs or recoveries related to foreign loans during any of the periods
presented.
  - 49
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 The
following table presents an analysis of the Company’s loan loss experience for
the periods indicated.
 
 ($
      in thousands)
              
              2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003Allowance
      for LoanLosses
      at Beginning of Year
              
              $
              11,989
              
              
              $
              10,762
              
              
              $
              10,012
              
              
              $
              8,516
              
              
              $
              7,364Charge-OffsCommercial,
      Financial and Agricultural
              
              
              957
              
              
              
              1,351
              
              
              
              767
              
              
              
              463
              
              
              
              1,790Real
      Estate
              
              
              1,862
              
              
              
              854
              
              
              
              678
              
              
              
              692
              
              
              
              570Consumer
              
              
              793
              
              
              
              697
              
              
              
              1,369
              
              
              
              618
              
              
              
              507All
      Other
              
              
              296
              
              
              
              471
              
              
              
              232
              
              
              
              363
              
              
              
              2033,908
              
              
              
              3,373
              
              
              
              3,046
              
              
              
              2,136
              
              
              
              3,070RecoveriesCommercial,
      Financial and Agricultural
              
              
              109
              
              
              
              420
              
              
              
              176
              
              
              
              9
              
              
              
              30Real
      Estate
              
              
              992
              
              
              
              20
              
              
              
              18
              
              
              
              36
              
              
              
              39Consumer
              
              
              312
              
              
              
              156
              
              
              
              83
              
              
              
              90
              
              
              
              58All
      Other
              
              
              88
              
              
              
              17
              
              
              
              75
              
              
              
              28
              
              
              
              351,501
              
              
              
              613
              
              
              
              352
              
              
              
              163
              
              
              
              162Net
      Charge-Offs
              
              
              2,407
              
              
              
              2,760
              
              
              
              2,694
              
              
              
              1,973
              
              
              
              2,908Provision
      for Loan Losses
              
              
              5,931
              
              
              
              3,987
              
              
              
              3,444
              
              
              
              3,469
              
              
              
              4,060Allowance
      for Loan Losses at End of Year
              
              $
              15,513
              
              
              $
              11,989
              
              
              $
              10,762
              
              
              $
              10,012
              
              
              $
              8,516Ratio
      of Net Charge-Offs to Average Loans
              
              
              0.25
              %
              
              
              0.30
              %
              
              
              0.33
              %
              
              
              0.27
              %
              
              
              0.46
              %
 
 The
allowance for possible loan losses is maintained at a level considered
appropriate by management, based on estimated probable losses within the
existing loan portfolio. The allowance, in the judgment of management, is
necessary to reserve for estimated loan losses and risks inherent in the loan
portfolio. The provision for loan losses reflects loan quality trends, including
the level of net charge-offs or recoveries, among other factors. The provision
for loan losses increased $1.94 million from $3.99 million in 2006 to $5.93
million in 2007. Provisions were higher in 2007 compared to 2006 primarily due
to the elevated risk of residential real estate and land development loans given
the downturn in the real estate market the last half of
2007.  Nonperforming assets as a percentage of total loans and
foreclosed assets increased to 1.73 percent at December 31, 2007 compared to
0.96 percent a year ago.  During 2006, provision for loan losses
increased $0.54 million from the $3.44 million recorded in 2005.
 
 Net
charge-offs in 2007 decreased $353 thousand compared to 2006 while net
charge-offs in 2006 increased $66 thousand compared to 2005.  Net
charge-offs the past three years have been consistent; however, we anticipate an
increase in 2008 as many problem credits have not had time to run through the
current cycle and brought to any resolution.
  - 50
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Management
believes the level of the allowance for loan losses was appropriate as of
December 31, 2007. Should any of the factors considered by management in
evaluating the adequacy of the allowance for loan losses change, the Company’s
estimate of probable loan losses could also change, which could affect the level
of future provisions for possible loan losses.
 
 Investment
Portfolio
 
 The
following table presents carrying values of investment securities held by the
Company as of December 31, 2007, 2006 and 2005.
 
 ($
      in thousands)
              
              2007
              
              
              2006
              
              
              2005U.S.
      Treasuries and Government Agencies
              
              $
              37,095
              
              
              $
              54,366
              
              
              $
              38,446Obligations
      of State and Political Subdivisions
              
              
              13,984
              
              
              
              11,811
              
              
              
              9,270Corporate
      Obligations
              
              
              5,787
              
              
              
              3,745
              
              
              
              3,023Asset
      Backed Securities
              
              
              1,000
              
              
              
              -
              
              
              
              -Marketable
      Equity Securities
              
              
              2
              
              
              
              349
              
              
              
              300Investment
      Securities
              
              
              57,868
              
              
              
              70,271
              
              
              
              51,039Mortgage
      Backed Securities
              
              
              109,323
              
              
              
              79,036
              
              
              
              73,287Total
      Investment Securities and Mortgage Backed Securities
              
              $
              167,191
              
              
              $
              149,307
              
              
              $
              124,326
 
 The
following table represents expected maturities and weighted-average yields of
investment securities held by the Company as of December 31,
2007.  (Mortgage backed securities are based on the average life at
the projected speed, while Agencies, State and Political Subdivisions and
Corporate Obligations reflect anticipated calls being exercised.)
 
 Within
      1 Year
              
              
              After
      1 Year But
                Within
      5 Years
              
              
              After
      5 Years But
                Within
      10 Years
              
              
              After
      10 YearsAmount
              
              
              Yield
              
              
              Amount
              
              
              Yield
              
              
              Amount
              
              
              Yield
              
              
              Amount
              
              
              YieldU.S.
      Government Agencies
              
              $
              14,121
              
              
              
              3.92
              %
              
              $
              21,475
              
              
              
              4.98
              %
              
              $
              1,499
              
              
              
              5.80
              %
              
              $
              -
              
              
              
              -Mortgage
      Backed Securities
              
              
              6,623
              
              
              
              4.28
              
              
              
              48,143
              
              
              
              4.73
              
              
              
              44,823
              
              
              
              5.32
              
              
              
              9,734
              
              
              
              5.54
              %Obligations
      of State and Political Subdivisions
              
              
              1,869
              
              
              
              4.34
              
              
              
              6,782
              
              
              
              5.09
              
              
              
              5,333
              
              
              
              5.90
              
              
              
              -
              
              
              
              -Corporate
      Obligations
              
              
              2,246
              
              
              
              6.64
              
              
              
              -
              
              
              
              -
              
              
              
              3,541
              
              
              
              5.48
              
              
              
              -
              
              
              
              -Marketable
      Equity Securities
              
              
              -
              
              
              
              -
              
              
              
              1,000
              
              
              
              6.33
              
              
              
              -
              
              
              
              -
              
              
              
              2Total
      Investment Portfolio
              
              $
              24,859
              
              
              
              4.29
              %
              
              $
              77,400
              
              
              
              4.85
              %
              
              $
              55,196
              
              
              
              5.40
              %
              
              $
              9,736
              
              
              
              5.54
              %
  - 51
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Securities
are classified as held to maturity and carried at amortized cost when management
has the positive intent and ability to hold them to maturity. Securities are
classified as available for sale when they might be sold before maturity.
Securities available for sale are carried at fair value, with unrealized holding
gains and losses reported in other comprehensive income. The Company has 99.9
percent of its portfolio classified as available for sale.
 
 At
December 31, 2007, there were no holdings of any one issuer, other than the U.S.
government and its agencies, in an amount greater than 10 percent of the
Company’s stockholders’ equity.
 
 The
average yield of the securities portfolio was 4.77 percent in 2007 compared to
4.34 percent in 2006 and 3.43 percent in 2005. The increase in the average yield
from 2006 to 2007 primarily resulted from the investment of new funds at higher
rates due to Federal Reserve’s rate hike during 2006.  The overall
growth in the securities portfolio over the comparable periods was primarily
funded by deposit growth.
 
 Deposits
 
 The
following table presents the average amount outstanding and the average rate
paid on deposits by the Company for the years 2007, 2006 and 2005.
 
 2007
              
              
              2006
              
              
              2005Average
              
              
              Average
              
              
              Average
              
              
              Average
              
              
              Average
              
              
              Average($
      in thousands)
              
              Amount
              
              
              Rate
              
              
              Amount
              
              
              Rate
              
              
              Amount
              
              
              RateNoninterest-Bearing
      Demand Deposits
              
              $
              76,509
              
              
              
              
              
              $
              73,334
              
              
              
              
              
              $
              68,259Interest-Bearing
      Demand and Savings
              
              
              214,111
              
              
              
              2.13
              %
              
              
              210,461
              
              
              
              1.97
              %
              
              
              202,618
              
              
              
              1.38
              %Time
      Deposits
              
              
              730,917
              
              
              
              5.22
              
              
              
              707,173
              
              
              
              4.59
              
              
              
              607,232
              
              
              
              3.26Total
      Deposits
              
              $
              1,021,537
              
              
              
              4.18
              %
              
              $
              990,968
              
              
              
              3.69
              %
              
              $
              878,109
              
              
              
              2.57
              %
 
 The
following table presents the maturities of the Company's other time deposits as
of December 31, 2007.
 
 Other Time Deposits
              
              
              Other Time Deposits($
      in thousands)
              
              $100,000 or Greater
              
              
              Less Than $100,000
              
              
              TotalMonths
      to Maturity3
      or Less
              
              $
              81,144
              
              
              $
              91,536
              
              
              $
              172,680Over
      3 through 12
              
              
              229,828
              
              
              
              230,430
              
              
              
              460,258Over
      12 Months
              
              
              36,247
              
              
              
              41,413
              
              
              
              77,660$
              347,219
              
              
              $
              363,379
              
              
              $
              710,598
  - 52
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Average
deposits increased $30.6 million in 2007 compared to 2006 and $112.9 million in
2006 compared to 2005.  The increase in 2007 included $3.2 million or
10.4 percent, related to noninterest-bearing deposits while the increase in 2006
included $5.1 million, or 4.5 percent related to noninterest-bearing
deposits.  Accordingly, the ratio of average noninterest-bearing
deposits to total average deposits was 7.5 percent in 2007 from 7.4 percent in
2006 and 7.8 percent in 2005.  The general increase in market rates
had the effect of (i) increasing the average cost of interest-bearing deposits
by 53 basis points in 2007 compared to 2006 and increasing the average cost of
interest-bearing deposits by 120 basis points in 2006 compared to 2005; and (ii)
mitigating a portion of the impact of increasing yields on earning assets on the
Company’s net interest income.
 
 Total
average interest-bearing deposits increased $27.4 million, or 2.99 percent in
2007 compared to 2006 and increased $107.8 million, or 13.31 percent, in 2006
compared to 2005.  The growth in average deposits in 2007 compared to
2006 was primarily in other time deposit accounts.  With the current
interest rate environment, it appears that many customers are choosing to
maintain such funds in time deposit accounts, with the prevalent investment
period continuing to be for one year time deposits.
 
 The
Company supplements deposit sources with brokered deposits.  As of
December 31, 2007, the Company had $54.7 million, or 5.37 percent of total
deposits, in brokered certificates of deposit attracted by external third
parties.
 
 Off-Balance
Sheet Arrangements, Commitments, Guarantees, and Contractual
Obligations
 
 The
following table summarizes the Company’s contractual obligations and other
commitments to make future payments as of December 31, 2007. Payments for
borrowings do not include interest. Payments related to leases are based on
actual payments specified in the underlying contracts. Loan commitments and
standby letters of credit are presented at contractual amounts; however, since
many of these commitments are expected to expire unused or only partially used,
the total amounts of these commitments do not necessarily reflect future cash
requirements.
  - 53
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Payments
      Due by PeriodMore
      than 1
              
              
              3
      Years or
              
              
              5
      Years1
      Year or
              
              
              Year
      but Less
              
              
              More
      but Less
              
              
              orLess
              
              
              Than
      3 Years
              
              
              Than
      5 Years
              
              
              More
              
              
              TotalContractual
      ObligationsSubordinated
      Debentures
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              24,229
              
              
              $
              24,229Federal
      Funds Purchased
              
              
              1,346
              
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              1,346Other
      Borrowed Money
              
              
              100
              
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              100Federal
      Home Loan Bank Advances
              
              
              9,500
              
              
              
              1,000
              
              
              
              41,000
              
              
              
              22,000
              
              
              
              73,500Operating
      Leases
              
              
              123
              
              
              
              183
              
              
              
              176
              
              
              
              57
              
              
              
              539Deposits
      with Stated Maturity Dates
              
              
              632,938
              
              
              
              63,905
              
              
              
              13,699
              
              
              
              56
              
              
              
              710,598644,007
              
              
              
              65,088
              
              
              
              54,875
              
              
              
              46,342
              
              
              
              810,312Other
      CommitmentsLoan
      Commitments
              
              
              93,105
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              93,105Standby
      Letters of Credit
              
              
              3,814
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              3,814Construction
      Contracts
              
              
              1,662
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,66298,581
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              98,581Total
      Contractual Obligations andOther
      Commitments
              
              $
              742,588
              
              
              $
              65,088
              
              
              $
              54,875
              
              
              $
              46,342
              
              
              $
              908,893
 
 In the
ordinary course of business, the Banks have entered into off-balance sheet
financial instruments which are not reflected in the consolidated financial
statements.  These instruments include commitments to extend credit,
standby letters of credit, performance letters of credit, guarantees and
liability for assets held in trust.  Such financial instruments are
recorded in the financial statements when funds are disbursed or the instruments
become payable.  The Company uses the same credit policies for these
off-balance sheet financial instruments as they do for instruments that are
recorded in the consolidated financial statements.
 
 Loan Commitments. The Company
enters into contractual commitments to extend credit, normally with fixed
expiration dates or termination clauses, at specified rates and for specific
purposes. Substantially all of the Company’s commitments to extend credit are
contingent upon customers maintaining specific credit standards at the time of
loan funding. The Company minimizes its exposure to loss under these commitments
by subjecting them to credit approval and monitoring procedures. Management
assesses the credit risk associated with certain commitments to extend credit in
determining the level of the allowance for possible loan losses.
 
 Loan
commitments outstanding at December 31, 2007 are included in the preceding
table.
 
 Standby Letters of
Credit.  Letters of credit are written conditional commitments
issued by the Company to guarantee the performance of a customer to a third
party. In the event the customer does not perform in accordance with the terms
of the agreement with the third party, the Company would be required to fund the
commitment. The maximum potential amount of future payments the Company could be
required to make is represented by the contractual amount of the commitment. If
the commitment is funded, the Company would be entitled to seek recovery from
the customer. The Company’s policies generally require that standby letters of
credit arrangements contain security and debt covenants similar to those
contained in loan agreements. Standby letters of credit outstanding at December
31, 2007 are included in the preceding table.
  - 54
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Capital
and Liquidity
 
 At
December 31, 2007, stockholders’ equity totaled $83.7 million compared to $76.6
million at December 31, 2006. In addition to net income of $8.55 million,
other significant changes in stockholders’ equity during 2007 included $2.63
million of dividends declared and an increase of $212 thousand resulting from
the stock grant plan. The accumulated other comprehensive income component of
stockholders’ equity totaled $272 thousand at December 31, 2007 compared to
$(975) thousand at December 31, 2006. This fluctuation was mostly related
to the after-tax effect of changes in the fair value of securities available for
sale. Under regulatory requirements, the unrealized gain or loss on securities
available for sale does not increase or reduce regulatory capital and is not
included in the calculation of risk-based capital and leverage ratios.
Regulatory agencies for banks and bank holding companies utilize capital
guidelines designed to measure Tier 1 and total capital and take into
consideration the risk inherent in both on-balance sheet and off-balance sheet
items. Tier 1 capital consists of common stock and qualifying preferred
stockholders’ equity less goodwill.  Tier 2 capital consists of
certain convertible, subordinated and other qualifying debt and the allowance
for loan losses up to 1.25 percent of risk-weighted assets.  The
Company has no Tier 2 capital other than the allowance for loan losses and gain
on marketable equity securities.
 
 Using the
capital requirements presently in effect, the Tier 1 ratio as of December 31,
2007 was 10.83 percent and total Tier 1 and 2 risk-based capital was 12.08
percent.  Both of these measures compare favorably with the regulatory
minimum of 4 percent for Tier 1 and 8 percent for total risk-based
capital.  The Company’s Tier 1 leverage ratio as of December 31, 2007
was 8.60 percent, which exceeds the required ratio standard of 4
percent.
 
 For 2007,
average capital was $80.6 million, representing 6.69 percent of average assets
for the year.  This compares to 6.20 percent for 2006.
 
 The
Company paid a quarterly dividend of $0.0875, $0.09, $0.0925 and $0.095 per
common share during the first, second, third and fourth quarters of 2007,
respectively, and quarterly dividends of $0.0775, $0.08, $0.0825 and $0.085 per
common share during the first, second, third and fourth quarters of 2006,
respectively. This equates to a dividend payout ratio of 30.67 percent in 2007
and 23.05 percent in 2006.
 
 The
Company, primarily through the actions of its subsidiary banks, engages in
liquidity management to ensure adequate cash flow for deposit withdrawals,
credit commitments and repayments of borrowed funds. Needs are met through loan
repayments, net interest and fee income and the sale or maturity of existing
assets.  In addition, liquidity is continuously provided through the
acquisition of new deposits, the renewal of maturing deposits and external
borrowings.
 
 Management
monitors deposit flow and evaluates alternate pricing structures to retain and
grow deposits.  To the extent needed to fund loan demand, traditional
local deposit funding sources are supplemented by the use of FHLB borrowings,
brokered deposits and other wholesale deposit sources outside the immediate
market area.  Internal policies have been updated to monitor the use
of various core and noncore funding sources, and to balance ready access with
risk and cost.  Through various asset/liability management strategies,
a balance is maintained among goals of liquidity, safety and earnings
potential.  Internal policies that are consistent with regulatory
liquidity guidelines are monitored and enforced by the Banks.
  - 55
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 The
investment portfolio provides a ready means to raise cash if liquidity needs
arise.  As of December 31, 2007, the Company held $167 million in
bonds (excluding FHLB stock), at current market value in the available for sale
portfolio.  At December 31, 2006, the available for sale bond
portfolio totaled $149 million.  Only marketable investment grade
bonds are purchased.  Although most of the Banks’ bond portfolios are
encumbered as pledges to secure various public funds deposits, repurchase
agreements, and for other purposes, management can restructure and free up
investment securities for a sale if required to meet liquidity
needs.
 
 Management
continually monitors the relationship of loans to deposits as it primarily
determines the Company’s liquidity posture.  Colony had ratios of
loans to deposits of 92.8 percent as of December 31, 2007 and 90.3 percent at
December 31, 2006.  Management employs alternative funding sources
when deposit balances will not meet loan demands.  The ratios of loans
to all funding sources (excluding Subordinated Debentures) at December 31, 2007
and December 31, 2006 were 86.4 percent and 85.2 percent,
respectively.  Management continues to emphasize programs to generate
local core deposits as our Company’s primary funding sources.  The
stability of the Banks’ core deposit base is an important factor in Colony’s
liquidity position.  A heavy percentage of the deposit base is
comprised of accounts of individuals and small businesses with comprehensive
banking relationships and limited volatility.  At December 31, 2007
and December 31, 2006, the Banks had $347.2 million and $366.0 million,
respectively, in certificates of deposit of $100,000 or more.  These
larger deposits represented 34.09 percent and 35.11 percent of respective total
deposits.  Management seeks to monitor and control the use of these
larger certificates, which tend to be more volatile in nature, to ensure an
adequate supply of funds as needed.  Relative interest costs to
attract local core relationships are compared to market rates of interest on
various external deposit sources to help minimize the Company’s overall cost of
funds.
 
 Local
market deposit sources proved insufficient to fund the strong loan growth trends
at Colony over the past several years.  The Company supplemented
deposit sources with brokered deposits.  As of December 31, 2007, the
Company had $54.7 million, or 5.37 percent of total deposits, in brokered
certificates of deposit attracted by external third
parties.  Additionally, the Banks use external wholesale or Internet
services to obtain out-of-market certificates of deposit at competitive interest
rates when funding is needed.
 
 To plan
for contingent sources of funding not satisfied by both local and out-of-market
deposit balances, Colony and its subsidiaries have established multiple
borrowing sources to augment their funds management.  The Company has
borrowing capacity through membership of the Federal Home Loan Bank
program.  The Banks have also established overnight borrowing for
Federal Funds Purchased through various correspondent
banks.  Management believes the various funding sources discussed
above are adequate to meet the Company’s liquidity needs in the future without
any material adverse impact on operating results.
 
 Liquidity
measures the ability to meet current and future cash flow needs as they become
due. The liquidity of a financial institution reflects its ability to meet loan
requests, to accommodate possible outflows in deposits and to take advantage of
interest rate market opportunities. The ability of a financial institution to
meet its current financial obligations is a function of balance sheet structure,
the ability to liquidate assets, and the availability of alternative sources of
funds. The Company seeks to ensure its funding needs are met by maintaining a
level of liquid funds through asset/liability management.
  - 56
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Asset
liquidity is provided by liquid assets which are readily marketable or
pledgeable or which will mature in the near future. Liquid assets include cash,
interest-bearing deposits in banks, securities available for sale, maturities
and cash flow from securities held to maturity, and federal funds sold and
securities purchased under resale agreements.
 
 Liability
liquidity is provided by access to funding sources which include core
deposits.  Should the need arise, the Company also maintains
relationships with the Federal Home Loan Bank and several correspondent banks
that can provide funds on short notice.
 
 Since
Colony is a bank holding company and does not conduct operations, its primary
sources of liquidity are dividends up streamed from subsidiary banks and
borrowings from outside sources.
 
 The
liquidity position of the Company is continuously monitored and adjustments are
made to the balance between sources and uses of funds as deemed appropriate.
Management is not aware of any events that are reasonably likely to have a
material adverse effect on the Company’s liquidity, capital resources or
operations. In addition, management is not aware of any regulatory
recommendations regarding liquidity, which if implemented, would have a material
adverse effect on the Company.
 
 Impact
of Inflation and Changing Prices
 
 The
Company’s financial statements included herein have been prepared in accordance
with accounting principles generally accepted in the United States (GAAP). GAAP
presently requires the Company to measure financial position and operating
results primarily in terms of historic dollars. Changes in the relative value of
money due to inflation or recession are generally not considered. The primary
effect of inflation on the operations of the Company is reflected in increased
operating costs. In management’s opinion, changes in interest rates affect the
financial condition of a financial institution to a far greater degree than
changes in the inflation rate. While interest rates are greatly influenced by
changes in the inflation rate, they do not necessarily change at the same rate
or in the same magnitude as the inflation rate. Interest rates are highly
sensitive to many factors that are beyond the control of the Company, including
changes in the expected rate of inflation, the influence of general and local
economic conditions and the monetary and fiscal policies of the United States
government, its agencies and various other governmental regulatory authorities,
among other things, as further discussed in the next section.
 
 Regulatory
and Economic Policies
 
 The
Company’s business and earnings are affected by general and local economic
conditions and by the monetary and fiscal policies of the United States
government, its agencies and various other governmental regulatory authorities,
among other things. The Federal Reserve Board regulates the supply of money in
order to influence general economic conditions. Among the instruments of
monetary policy available to the Federal Reserve Board are (i) conducting open
market operations in United States government obligations, (ii) changing
the discount rate on financial institution borrowings, (iii) imposing or
changing reserve requirements against financial institution deposits, and
(iv) restricting certain borrowings and imposing or changing reserve
requirements against certain borrowing by financial institutions and their
affiliates. These methods are used in varying degrees and combinations to affect
directly the availability of bank loans and deposits, as well as the interest
rates charged on loans and paid on deposits. For that reason alone, the policies
of the Federal Reserve Board have a material effect on the earnings of the
Company.
  - 57
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Governmental
policies have had a significant effect on the operating results of commercial
banks in the past and are expected to continue to do so in the future; however,
the Company cannot accurately predict the nature, timing or extent of any effect
such policies may have on its future business and earnings.
 
 Recently
Issued Accounting Pronouncements
 
 See Note
1 – Summary of Significant Accounting Policies under the section headed Changes
in Accounting Principles and Effects of New Accounting Pronouncements included
in the Notes to Consolidated Financial Statements.
 
 Quantitative
and Qualitative Disclosures About Market Risk
 AVERAGE
BALANCE SHEETS
 
 2007
              
              
              2006
              
              
              2005Average
              
              
              Income/
              
              
              Yields/
              
              
              Average
              
              
              Income/
              
              
              Yields/
              
              
              Average
              
              
              Income/
              
              
              Yields/($
      in thousands)
              
              Balances
              
              
              Expense
              
              
              Rates
              
              
              Balances
              
              
              Expense
              
              
              Rates
              
              
              Balances
              
              
              Expense
              
              
              RatesAssetsInterest-Earning
      AssetsLoans,
      Net of Unearned Income (1)
              
              $
              947,569
              
              
              $
              81,100
              
              
              
              8.56
              %
              
              $
              912,926
              
              
              $
              75,217
              
              
              
              8.24
              %
              
              $
              819,900
              
              
              $
              58,428
              
              
              
              7.13
              %Investment
      SecuritiesTaxable
              
              
              144,591
              
              
              
              6,805
              
              
              
              4.71
              
              
              
              128,109
              
              
              
              5,474
              
              
              
              4.27
              
              
              
              107,696
              
              
              
              3,586
              
              
              
              3.33Tax-Exempt
      (2)
              
              
              12,442
              
              
              
              683
              
              
              
              5.49
              
              
              
              7,429
              
              
              
              412
              
              
              
              5.55
              
              
              
              6,008
              
              
              
              318
              
              
              
              5.29Total
      Investment Securities
              
              
              157,033
              
              
              
              7,488
              
              
              
              4.77
              
              
              
              135,538
              
              
              
              5,886
              
              
              
              4.34
              
              
              
              113,704
              
              
              
              3,904
              
              
              
              3.43Interest-Bearing
      Deposits
              
              
              2,879
              
              
              
              143
              
              
              
              4.97
              
              
              
              2,753
              
              
              
              133
              
              
              
              4.83
              
              
              
              2,792
              
              
              
              86
              
              
              
              3.08Federal
      Funds Sold
              
              
              28,863
              
              
              
              1,478
              
              
              
              5.12
              
              
              
              41,307
              
              
              
              2,035
              
              
              
              4.93
              
              
              
              38,692
              
              
              
              1,266
              
              
              
              3.27Other
      Interest-Earning Assets
              
              
              5,308
              
              
              
              309
              
              
              
              5.82
              
              
              
              5,192
              
              
              
              279
              
              
              
              5.37
              
              
              
              4,878
              
              
              
              177
              
              
              
              3.63Total
      Interest-Earning Assets
              
              
              1,141,652
              
              
              
              90,518
              
              
              
              7.93
              
              
              
              1,097,716
              
              
              
              83,550
              
              
              
              7.61
              
              
              
              979,966
              
              
              
              63,861
              
              
              
              6.52Noninterest-Earning
      AssetsCash
              
              
              21,575
              
              
              
              
              
              
              
              
              
              
              
              22,372
              
              
              
              
              
              
              
              
              
              
              
              20,014Allowance
      for Loan Losses
              
              
              (13,074
              )
              
              
              
              
              
              
              
              
              
              
              (11,764
              )
              
              
              
              
              
              
              
              
              
              
              (10,499
              )Other
      Assets
              
              
              54,012
              
              
              
              
              
              
              
              
              
              
              
              52,394
              
              
              
              
              
              
              
              
              
              
              
              45,296Total
      Noninterest-Earning Assets
              
              
              62,513
              
              
              
              
              
              
              
              
              
              
              
              63,002
              
              
              
              
              
              
              
              
              
              
              
              54,811Total
      Assets
              
              $
              1,204,165
              
              
              
              
              
              
              
              
              
              
              $
              1,160,718
              
              
              
              
              
              
              
              
              
              
              $
              1,034,777Liabilities
      and Stockholders' EquityInterest-Bearing
      LiabilitiesInterest-Bearing
      Demand and Savings
              
              $
              214,111
              
              
              $
              4,555
              
              
              
              2.13
              %
              
              $
              210,461
              
              
              $
              4,155
              
              
              
              1.97
              %
              
              $
              202,618
              
              
              $
              2,790
              
              
              
              1.38
              %Other
      Time
              
              
              730,917
              
              
              
              38,176
              
              
              
              5.22
              
              
              
              707,173
              
              
              
              32,455
              
              
              
              4.59
              
              
              
              607,232
              
              
              
              19,800
              
              
              
              3.26Total
      Interest-Bearing Deposits
              
              
              945,028
              
              
              
              42,731
              
              
              
              4.52
              
              
              
              917,634
              
              
              
              36,610
              
              
              
              3.99
              
              
              
              809,850
              
              
              
              22,590
              
              
              
              2.79Other
      Interest-Bearing LiabilitiesOther
      Borrowed Money
              
              
              66,200
              
              
              
              2,905
              
              
              
              4.39
              
              
              
              65,794
              
              
              
              2,874
              
              
              
              4.37
              
              
              
              66,601
              
              
              
              2,605
              
              
              
              3.91Subordinated
      Debentures
              
              
              26,011
              
              
              
              2,006
              
              
              
              7.71
              
              
              
              22,718
              
              
              
              1,879
              
              
              
              8.27
              
              
              
              19,074
              
              
              
              1,269
              
              
              
              6.65Federal
      Funds Purchased
              
              
              1,130
              
              
              
              59
              
              
              
              5.22
              
              
              
              563
              
              
              
              29
              
              
              
              5.15
              
              
              
              449
              
              
              
              16
              
              
              
              3.56Total
      Other Interest-Bearing Liabilities
              
              
              93,341
              
              
              
              4,970
              
              
              
              5.32
              
              
              
              89,075
              
              
              
              4,782
              
              
              
              5.37
              
              
              
              86,124
              
              
              
              3,890
              
              
              
              4.52Total
      Interest-Bearing Liabilities
              
              
              1,038,369
              
              
              
              47,701
              
              
              
              4.59
              
              
              
              1,006,709
              
              
              
              41,392
              
              
              
              4.11
              
              
              
              895,974
              
              
              
              26,480
              
              
              
              2.96Noninterest-Bearing
      Liabilities andStockholders'
      EquityDemand
      Deposits
              
              
              76,509
              
              
              
              
              
              
              
              
              
              
              
              73,334
              
              
              
              
              
              
              
              
              
              
              
              68,259Other
      Liabilities
              
              
              8,692
              
              
              
              
              
              
              
              
              
              
              
              8,682
              
              
              
              
              
              
              
              
              
              
              
              5,398Stockholders'
      Equity
              
              
              80,595
              
              
              
              
              
              
              
              
              
              
              
              71,993
              
              
              
              
              
              
              
              
              
              
              
              65,146Total
      Noninterest-Bearing Liabilities and Stockholders' Equity
              
              
              165,796
              
              
              
              
              
              
              
              
              
              
              
              154,009
              
              
              
              
              
              
              
              
              
              
              
              138,803Total
      Liabilities and Stockholders' Equity
              
              $
              1,204,165
              
              
              
              
              
              
              
              
              
              
              $
              1,160,718
              
              
              
              
              
              
              
              
              
              
              $
              1,034,777Interest
      Rate Spread
              
              
              
              
              
              
              
              
              
              
              3.34
              %
              
              
              
              
              
              
              
              
              
              
              3.50
              %
              
              
              
              
              
              
              
              
              
              
              3.56
              %Net
      Interest Income
              
              
              
              
              
              $
              42,817
              
              
              
              
              
              
              
              
              
              
              $
              42,158
              
              
              
              
              
              
              
              
              
              
              $
              37,381Net
      Interest Margin
              
              
              
              
              
              
              
              
              
              
              3.75
              %
              
              
              
              
              
              
              
              
              
              
              3.84
              %
              
              
              
              
              
              
              
              
              
              
              3.81
              %
 
 (1)
              The
      average balance of loans includes the average balance of nonaccrual
      loans.  Income on such loans is recognized and recorded on the
      cash basis.  Taxable equivalent adjustments totaling $127, $130
      and $119 for 2007, 2006 and 2005 respectively, are included in interest on
      loans.  The adjustments are based on a federal tax rate of 34
      percent.
 
 (2)
              Taxable-equivalent
      adjustments totaling $232, $140 and $108 for 2007, 2006, and 2005
      respectively, are included in tax-exempt interest on investment
      securities. The adjustments are based on a federal tax rate of 34 percent
      with appropriate reductions for the effect of disallowed interest expense
      incurred in carrying tax-exempt
obligations.
  - 58
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Colony
Bankcorp, Inc. and Subsidiaries
 Interest
Rate Sensitivity
 
 The
following table is an analysis of the Company’s interest rate-sensitivity
position at December 31, 2007. The interest-bearing rate-sensitivity gap, which
is the difference between interest-earning assets and interest-bearing
liabilities by repricing period, is based upon maturity or first repricing
opportunity, along with a cumulative interest rate-sensitivity
gap.  It is important to note that the table indicates a position at a
specific point in time and may not be reflective of positions at other times
during the year or in subsequent periods. Major changes in the gap position can
be, and are, made promptly as market outlooks change.
 
 Assets
      and Liabilities Repricing Within3
      Months
              
              
              4
      to 12
              
              
              
              
              
              1
      to 5
              
              
              Over
      5or
      Less
              
              
              Months
              
              
              1
      Year
              
              
              Years
              
              
              Years
              
              
              Total($
      in Thousands)Earning
      AssetsInterest-Bearing
      Deposits
              
              $
              1,467
              
              
              $
              -
              
              
              $
              1,467
              
              
              $
              -
              
              
              $
              -
              
              
              $
              1,467Federal
      Funds Sold
              
              
              21,737
              
              
              
              -
              
              
              
              21,737
              
              
              
              -
              
              
              
              -
              
              
              
              21,737Investment
      Securities
              
              
              18,263
              
              
              
              16,893
              
              
              
              35,156
              
              
              
              98,545
              
              
              
              33,490
              
              
              
              167,191Loans,
      Net of Unearned Income
              
              
              438,561
              
              
              
              183,113
              
              
              
              621,674
              
              
              
              311,774
              
              
              
              11,530
              
              
              
              944,978Other
      Interest-Bearing Assets
              
              
              5,533
              
              
              
              -
              
              
              
              5,533
              
              
              
              -
              
              
              
              -
              
              
              
              5,533Total
      Interest-Earning Assets
              
              
              485,561
              
              
              
              200,006
              
              
              
              685,567
              
              
              
              410,319
              
              
              
              45,020
              
              
              
              1,140,906Interest-Bearing
      LiabilitiesInterest-Bearing
      Demand Deposits (1)
              
              
              190,304
              
              
              
              -
              
              
              
              190,304
              
              
              
              -
              
              
              
              -
              
              
              
              190,304Savings
      (1)
              
              
              31,588
              
              
              
              -
              
              
              
              31,588
              
              
              
              -
              
              
              
              -
              
              
              
              31,588Time
      Deposits
              
              
              172,680
              
              
              
              460,258
              
              
              
              632,938
              
              
              
              77,604
              
              
              
              56
              
              
              
              710,598Other
      Borrowings (2)
              
              
              6,100
              
              
              
              6,500
              
              
              
              12,600
              
              
              
              42,000
              
              
              
              19,000
              
              
              
              73,600Subordinated
      Debentures
              
              
              24,229
              
              
              
              -
              
              
              
              24,229
              
              
              
              -
              
              
              
              -
              
              
              
              24,229Federal
      Funds Purchased
              
              
              1,346
              
              
              
              -
              
              
              
              1,346
              
              
              
              -
              
              
              
              -
              
              
              
              1,346Total
      Interest-Bearing Liabilities
              
              
              426,247
              
              
              
              466,758
              
              
              
              893,005
              
              
              
              119,604
              
              
              
              19,056
              
              
              
              1,031,665Interest
      Rate-Sensitivity Gap
              
              
              59,314
              
              
              
              (266,752
              )
              
              
              (207,438
              )
              
              
              290,715
              
              
              
              25,964
              
              
              $
              109,241Cumulative
      Interest-Sensitivity Gap
              
              $
              59,314
              
              
              $
              (207,438
              )
              
              $
              (207,438
              )
              
              $
              83,277
              
              
              $
              109,241Interest
      Rate-Sensitivity Gap as a Percentage of Interest-Earning
      Assets
              
              
              5.20
              %
              
              
              (23.38
              )%
              
              
              (18.18
              )%
              
              
              25.48
              %
              
              
              2.28
              %Cumulative
      Interest Rate-Sensitivity as a Percentage of Interest-Earning
      Assets
              
              
              5.20
              %
              
              
              (18.18
              )%
              
              
              (18.18
              )%
              
              
              7.30
              %
              
              
              9.57
              %
 
 (1)Interest-bearing
Demand and Savings Accounts for repricing purposes are considered to reprice
within 3 months or less.
 
 (2)Short-term
borrowings for repricing purposes are considered to reprice within 3 months or
less.
  - 59
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 The
foregoing table indicates that we had a one-year negative gap of ($207) million,
or (18.18) percent of total assets at December 31, 2007.  In theory,
this would indicate that at December 31, 2007, $207 million more in liabilities
than assets would reprice if there were a change in interest rates over the next
365 days.  Thus, if interest rates were to decline, the gap would
indicate a resulting increase in net interest margin.  However,
changes in the mix of earning assets or supporting liabilities can either
increase or decrease the net interest margin without affecting interest rate
sensitivity.  In addition, the interest rate spread between an asset
and our supporting liability can vary significantly while the timing of
repricing of both the assets and our supporting liability can remain the same,
thus impacting net interest income.  This characteristic is referred
to as a basis risk and, generally, relates to the repricing characteristics of
short-term funding sources such as certificates of deposit.
 
 Gap
analysis has certain limitations.  Measuring the volume of repricing
or maturing assets and liabilities does not always measure the full impact on
the portfolio value of equity or net interest income.  Gap analysis
does not account for rate caps on products; dynamic changes such as increasing
prepay speeds as interest rates decrease, basis risk, or the benefit of nonrate
funding sources.  The majority of our loan portfolio reprices quickly
and completely following changes in market rates, while nonterm deposit rates in
general move slowly and usually incorporate only a fraction of the change in
rates.  Products categorized as nonrate sensitive, such as our
noninterest-bearing demand deposits, in the gap analysis behave like long-term
fixed rate funding sources.  Both of these factors tend to make our
actual behavior more asset sensitive than is indicated in the gap
analysis.  In fact, we experience higher net interest income when
rates rise, opposite what is indicated by the gap analysis.  Also,
during the recent period of declines in interest rates, our net interest margin
has declined.  Therefore, management uses gap analysis, net interest
margin analysis and market value of portfolio equity as our primary interest
rate risk management tools.
 
 The
Company is now utilizing SunTrust Asset/Liability Management Analysis for a more
dynamic analysis of balance sheet structure.  The Company has
established earnings at risk for net interest income in a +/- 200 basis point
rate shock to be no more than a fifteen percent change.  The most
recent analysis as of December 31, 2007 indicates that net interest income would
deteriorate 9.61 percent with a 200 basis point decrease and would improve 4.45
percent with a 200 basis point increase.  The Company has established
equity at risk in a +/- 200 basis point rate shock to be no more than a twenty
percent change.  The most recent analysis as of December 31, 2007
indicates that net economic value of equity percentage change would decrease
0.15 percent with a 200 basis point increase and would decrease 9.57 percent
with a 200 basis point decrease.  The Company has established its
one-year gap to be 0.80 percent to 1.20 percent.  The most recent
analysis as of December 31, 2007 indicates a one-year gap of 0.90
percent.  The analysis reflects net interest margin compression in a
declining interest rate environment.  Given that interest rates are
projected to decline further in 2008 but begin to increase in late 2008 or early
2009, the Company is focusing on areas to minimize margin compression in the
future.  These include minimizing longer term fixed rate loans,
shortening on the yield curve with investments, securing longer term FHLB
advances, securing brokered certificates of deposit for longer terms and
focusing on reduction of nonperforming assets.
  - 60
-
 Table of Contents
  Part
II (Continued)
 Item 7
(Continued)
 
 Return
on Assets and Stockholder’s Equity
 
 The
following table presents selected financial ratios for each of the periods
indicated.
 
 Year
      Ended December 312007
              
              
              2006
              
              
              2005Return
      on Assets
              
              
              0.71
              %
              
              
              0.87
              %
              
              
              0.87
              %Return
      on Equity
              
              
              10.60
              %
              
              
              14.10
              %
              
              
              13.78
              %Dividend
      Payout
              
              
              30.67
              %
              
              
              23.05
              %
              
              
              22.80
              %Equity
      to Assets
              
              
              6.93
              %
              
              
              6.31
              %
              
              
              6.15
              %Dividends
      Declared
              
              $
              0.365
              
              
              $
              0.325
              
              
              $
              0.285
 
 Future
Outlook
 
 Colony is
an emerging company in an industry filled with nonregulated competitors and a
rapid pace of consolidation.  The year brings with it new
opportunities for growth in our existing markets, as well as opportunities to
expand into new markets through acquisitions and denovo
branching.  The Company completed construction of two offices during
2006 – one of which was its second Houston County location in Centerville,
Georgia that was opened during the first quarter 2006 and the other was its
first location in Columbus/Muscogee County that was opened in the third quarter
2006.  Entry into the MSA markets – Savannah, Columbus, Albany, Warner
Robins/Macon and Valdosta – will require multi-branch offices, and the Company
is presently looking for available real estate to purchase in those
markets.  The Company began construction on its second Savannah
location during the fourth quarter 2007 and anticipates opening during the
fourth quarter 2008.  Also, the Company purchased real estate for
another location in Albany, Dougherty County Georgia though no established date
for construction has been set.  In response to the elevated risk of
residential real estate and land development loans, management has extensively
reviewed our loan portfolio with a particular emphasis on our residential and
land development real estate exposure.  Senior management with
experience in problem loan workouts have been identified and assigned
responsibility to oversee the workout and resolution of problem
loans.  The Company will continue to closely monitor our real estate
dependent loans throughout the Company and focus on asset quality during this
economic downturn.
  - 61
-
 Table of Contents
  Part II (Continued)
 Item
7A
 Quantitative
and Qualitative Disclosures about Market Risk
 
 The
information required by this item is located in Item 7 under the heading
Interest Rate Sensitivity.
 
 Item 8
 Financial
Statements and Supplemental Data
 
 The
following consolidated financial statements of the Registrant and its
subsidiaries are included on exhibit 13 of this Annual Report on Form
10-K:
 
 Consolidated Balance Sheets – December
31, 2007 and 2006
 
 Consolidated Statements of Income –
Years Ended December 31, 2007, 2006 and 2005
 
 Consolidated
Statements of Comprehensive Income – Years Ended December 31, 2007, 2006 and
2005
 
 Consolidated
Statements of Stockholders’ Equity – Years Ended December 31, 2007, 2006 and
2005
 
 Consolidated
Statements of Cash Flows – Years Ended December 31, 2007, 2006 and
2005
 
 Notes to
Consolidated Financial Statements
  - 62
-
 Table of Contents
  Part
II (Continued)
 Item 8
(Continued)
 Quarterly
Results of Operations (Unaudited)
 
 The
following is a summary of the unaudited quarterly results of operations for the
years ended December 31, 2007 and 2006:
 
 Three
      Months EndedDecember
      31
              
              
              September
      30
              
              
              June
      30
              
              
              March
      312007
              
              ($
      in Thousands, Except Per Share Data)Interest
      Income
              
              $
              22,336
              
              
              $
              22,931
              
              
              $
              22,636
              
              
              $
              22,257Interest
      Expense
              
              
              11,946
              
              
              
              12,138
              
              
              
              11,811
              
              
              
              11,806Net
      Interest Income
              
              
              10,390
              
              
              
              10,793
              
              
              
              10,825
              
              
              
              10,451Provision
      for Loan Losses
              
              
              3,253
              
              
              
              850
              
              
              
              914
              
              
              
              914Securities
      Gains (Losses)
              
              
              -
              
              
              
              (2
              )
              
              
              2
              
              
              
              184Noninterest
      Income
              
              
              1,805
              
              
              
              1,848
              
              
              
              2,054
              
              
              
              1,926Noninterest
      Expense
              
              
              7,950
              
              
              
              7,756
              
              
              
              7,965
              
              
              
              7,909Income
      Before Income Taxes
              
              
              992
              
              
              
              4,033
              
              
              
              4,002
              
              
              
              3,738Provision
      for Income Taxes
              
              
              240
              
              
              
              1,414
              
              
              
              1,300
              
              
              
              1,264Net
      Income
              
              $
              752
              
              
              $
              2,619
              
              
              $
              2,702
              
              
              $
              2,474Net
      Income Per Common ShareBasic
              
              $
              0.11
              
              
              $
              0.36
              
              
              $
              0.38
              
              
              $
              0.34Diluted
              
              
              0.11
              
              
              
              0.36
              
              
              
              0.38
              
              
              
              0.342006Interest
      Income
              
              $
              22,351
              
              
              $
              21,748
              
              
              $
              20,581
              
              
              $
              18,600Interest
      Expense
              
              
              11,870
              
              
              
              10,954
              
              
              
              9,901
              
              
              
              8,667Net
      Interest Income
              
              
              10,481
              
              
              
              10,794
              
              
              
              10,680
              
              
              
              9,933Provision
      for Loan Losses
              
              
              997
              
              
              
              1,021
              
              
              
              1,047
              
              
              
              922Noninterest
      Income
              
              
              1,826
              
              
              
              1,898
              
              
              
              2,018
              
              
              
              1,608Noninterest
      Expense
              
              
              7,516
              
              
              
              7,680
              
              
              
              7,599
              
              
              
              7,087Income
      Before Income Taxes
              
              
              3,794
              
              
              
              3,991
              
              
              
              4,052
              
              
              
              3,532Provision
      for Income Taxes
              
              
              1,183
              
              
              
              1,369
              
              
              
              1,442
              
              
              
              1,223Net
      Income
              
              $
              2,611
              
              
              $
              2,622
              
              
              $
              2,610
              
              
              $
              2,309Net
      Income Per Common ShareBasic
              
              $
              0.36
              
              
              $
              0.36
              
              
              $
              0.36
              
              
              $
              0.32Diluted
              
              
              0.36
              
              
              
              0.36
              
              
              
              0.36
              
              
              
              0.32
  - 63
-
 Table of Contents
  Part II (Continued)
 Item
9
 Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
 
 There was
no accounting or disclosure disagreement or reportable event with the former or
current auditors that would have required the filing of a report on Form
8-K.
 
 Item 9A
 Controls
and Procedures
 
 As of the
end of the period covered by this report, the Company carried out an evaluation,
under the supervision and with the participation of the Chief Executive Officer
and the Principal Financial and Accounting Officer, of the design and operation
of the disclosure controls and procedures.  Based on this evaluation,
the Chief Executive Officer and Principal Financial and Accounting Officer
concluded that the disclosure controls and procedures are
effective.
 
 Management’s
Report on Internal Control Over Financial Reporting
 
 Colony’s
management is responsible for establishing and maintaining adequate internal
control over financial reporting.  Colony’s internal control over
financial reporting is a process designed under the supervision of the Chief
Executive Officer and Chief Financial Officer to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of Colony’s
financial statements for external purposes in accordance with generally accepted
accounting principles.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
 
 Colony’s
management assessed the effectiveness of Colony’s internal control over
financial reporting as of December 31, 2007 based on the criteria for
effective internal control over financial reporting established in Internal Control-Integrated
Framework, issued by the Committee of Sponsoring Organizations of the
Treadway Commission.  Based on the assessment, management determined
that Colony maintained effective internal control over financial reporting as of
December 31, 2007.
  - 64
-
 Table of Contents
  Part
II (Continued)
 Item 9A
(Continued)
 
 McNair,
McLemore, Middlebrooks & Co., LLP, the independent registered public
accounting firm that audited the consolidated financial statements of Colony
included in this Annual Report on Form 10-K, has issued an attestation report on
management’s assessment of the effectiveness of Colony’s internal control over
financial reporting as of December 31, 2007. The report, which expresses
unqualified opinions on management’s assessment and on the effectiveness of
Colony’s internal control over financial reporting as of December 31, 2007, is
included in Item 8 of this Report under the heading “Report of Independent
Registered Public Accounting Firm.”
 
 Colony
Bankcorp, Inc.
 March 12,
2008
 
 Item 9B
 Other Information
 
 None.
 
 
 Part III
 Item
10
 Directors
and Executive Officers and Corporate Governance
 
 Code
of Ethics
 
 Colony
Bankcorp, Inc. has adopted a Code of Ethics that applies to the Company’s
principal executive officer and principal accounting and financial
officer.  A copy of the Code of Ethics will be provided to any person
without charge, upon written request mailed to Terry Hester, Colony Bankcorp,
Inc., 115 S. Grant Street, Fitzgerald, Georgia 31750.
 
 The
remaining information required by this item is incorporated by reference to the
Company’s definitive Proxy Statements to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this Annual Report.
 
 Item 11
 Executive
Compensation
 
 The
information required by this item is incorporated by reference to the Company’s
definitive Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days after the end of the
fiscal year covered by this Annual Report.
  - 65
-
 Table of Contents
  Part III (Continued)
 Item
12
 Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
 
 EQUITY
COMPENSATION PLAN INFORMATION
 
 Plan
      Category
              
              Number
      of
                Securities
      to be
                Issued
      Upon Stock
                Grant,
      Exercise of
                Outstanding
                Options,
      Warrants
                and
      Rights
                (a)
              
              Weighted-
                Average
      Exercise
                Price
      of
                Outstanding
                Options,
                Warrants
      and
                Rights
                (b)
              
              Number of Securities
                Remaining
      Available
                for
      Future Issuance
                Under
      Equity
                Compensation
      Plans
                (Excluding Securities
                Reflected
      in Column
                (a))
                (c)Equity
      Compensation Plans Approved By Security Holders2004
      Restricted Stock Grant Plan
              
              
              
              
              
              
              128,593Equity
      Compensation Plans Not Approved by Security Holders1999
      Restricted Stock Grant Plan
              
              
              
              
              
              
              1,249129,842
 
 The
remaining information required by this item is incorporated by reference to the
Company’s definitive Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this Annual Report.
 
 Item 13
 Certain
Relationships and Related Transactions and Director Independence
 
 The
information required by this item is incorporated by reference to the Company’s
definitive Proxy Statements to be filed with Securities and Exchange Commission
pursuant to Regulation 14A within 120 days after the fiscal year covered by this
Annual Report.
 
 Item 14
 Principal
Accounting Fees and Services
 
 The
information required by this item is incorporated by reference to the Company’s
definitive Proxy Statements to be filed with Securities and Exchange Commission
pursuant to Regulation 14A within 120 days after the fiscal year covered by this
Annual Report.
  - 66
-
 Table of Contents
  Part IV
 Item
15
 Exhibits,
Financial Statement Schedules
 (a)
              The
      following documents are filed as part of this report:(1)
              Financial
      Statements(2)
              Financial
      Statements Schedules:All
      schedules are omitted as the required information is inapplicable or the
      information is presented in the financial statements or the related
      notes.(3)
              A
      list of the exhibits required by Item 601 of Regulation S-K to be filed as
      a part of this report is shown on the “Exhibit Index” filed
      herewith.Exhibit
      Index3.1
              Articles
      of Incorporation-filed
      as Exhibit 3(a) to the Registrant's Registration Statement on Form 10
      (File No. 0-18486), filed with the Commission on April 25, 1990 and
      incorporated herein by reference.3.2
              Bylaws,
      as Amended-filed
      as Exhibit 3(b) to the Registrant's Registration Statement on Form 10
      (File No. 0-18486), filed with the Commission on April 25, 1990 and
      incorporated herein by reference.4.1
              Instruments
      Defining the Rights of Security Holders-incorporated
      herein by reference to page 1 of the Company's Definitive Proxy Statement
      for Annual Meeting of Stockholders to be held on April 26, 2005, filed
      with the Securities and Exchange Commission on March 2, 2005 (File No.
      000-12436).
 
 10.1
              Deferred
      Compensation Plan and Sample Director Agreement-filed
      as Exhibit 10(a) to the Registrant's Registration Statement on Form 10
      (File No. 0-18486), filed with the Commission on April 25, 1990 and
      incorporated herein by reference.10.2
              Profit-Sharing
      Plan Dated January 1, 1979-filed
      as Exhibit 10(b) to the Registrant's Registration Statement on Form 10
      (File No. 0-18486), filed with the Commission on April 25, 1990 and
      incorporated herein by reference.10.3
              1999
      Restricted Stock Grant Plan and Restricted Stock Grant
      Agreement-filed as Exhibit 10(c)
      the Registrant’s Annual Report on Form 10-K (File 000-12436), filed with
      the Commission on March 30, 2001 and incorporated herein by
      reference.
  - 67
-
 Table of Contents
  Part
IV
 Item 15
(Continued)
 
 10.4
              2004
      Restricted Stock Grant Plan and Restricted Stock Grant
      Agreement-filed
      as Exhibit C to the Registrant’s Definitive Proxy Statement for Annual
      Meeting of Stockholders held on April 27, 2004, filed with the Securities
      and Exchange Commission on March 3, 2004 (File No. 000-12436) and
      incorporated herein by reference.10.5
              Lease
      Agreement – Mobile Home Tracks, LLC c/o Stafford Properties, Inc. and
      Colony Bank Worth-filed
      as Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10Q (File No.
      000-12436), filed with Securities and Exchange Commission on November 5,
      2004 and incorporated herein by reference.11
              Statement
      of Computation of Per Share Earnings13
              Consolidated
      Financial Statements of Colony Bankcorp, Inc. as of December 31, 2007 and
      2006.21
              Subsidiaries
      of the Company31.1
              Certificate
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
              Certificate
      of Chief Financial and Accounting Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232
              Certificate
      of the Chief Executive Officer and Chief Financial Officer Pursuant to
      Section 906 of the Sarbanes-Oxley Act of
2002
  - 68
-
 Table of Contents
  SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, Colony Bankcorp, Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized:
 
 COLONY
BANKCORP, INC.
 
 /s/
      Al D. RossAl
      D. Ross
                President/Director/Chief
      Executive OfficerMarch
      14, 2008Date/s/
      Terry L. HesterTerry
      L. Hester
                Executive
      Vice-President/Chief Financial Officer/DirectorMarch
      14, 2008Date
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
 
 /s/
      Terry Coleman
              
              March
      14, 2008Terry
      Coleman, Director
              
              Date/s/
      L. Morris Downing
              
              March
      14, 2008L.
      Morris Downing, Director
              
              Date/s/
      Edward J. Harrell
              
              March
      14, 2008Edward
      J. Harrell, Director
              
              Date/s/
      Mark H. Massee
              
              March
      14, 2008Mark
      H. Massee, Director
              
              Date/s/
      James D. Minix
              
              March
      14, 2008James
      D, Minix, Director
              
              Date
  - 69
-
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 /s/
      Charles E. Myler
              
              March
      14, 2008Charles
      E. Myler, Director
              
              Date/s/
      W. B. Roberts, Jr.
              
              March
      14, 2008W.
      B. Roberts, Jr., Director
              
              Date/s/
      Jonathan W. R. Ross
              
              March
      14, 2008Jonathan
      W. R. Ross, Director
              
              Date/s/
      B. Gene Waldron
              
              March
      14, 2008B.
      Gene Waldron, Director
              
              Date