EXHIBIT
NO. 13


McNair,
McLemore, Middlebrooks & Co., LLP


CERTIFIED
PUBLIC ACCOUNTANTS


389
Mulberry Street • Post Office Box One • Macon, GA 31202


Telephone
(478) 746-6277 • Facsimile (478) 743-6858


www.mmmcpa.com




RALPH
      S. McLEMORE, SR., CPA (1902-1981)SIDNEY
      B. McNAIR, CPA (1913-1992)RICHARD
      A. WHITTEN, JR., CPASIDNEY
      E. MIDDLEBROOKS, CPA, PC
                
                ELIZABETH
      WARE HARDIN, CPARAY
      C. PEARSON, CPA
                
                CAROLINE
      E. GRIFFIN, CPAJ.
      RANDOLPH NICHOLS, CPA
                
                RONNIE
      K. GILBERT, CPAWILLIAM
      H. EPPS, JR., CPA
                
                RON
      C. DOUTHIT, CPARAYMOND
      A. PIPPIN, JR., CPA
                
                CHARLES
      A. FLETCHER, CPAJERRY
      A. WOLFE, CPA
                
                MARJORIE
      HUCKABEE CARTER, CPAW.
      E. BARFIELD, JR., CPA
                
                BRYAN
      A. ISGETT, CPAHOWARD
      S. HOLLEMAN, CPA
                
                DAVID
      PASCHAL MUSE, JR., CPAF.
      GAY McMICHAEL, CPA
                
                KATHY
      W. FLETCHER, CPA





March 13,
2009





REPORT
OF INDEPENDENT


REGISTERED
PUBLIC ACCOUNTING FIRM





The Board
of Directors and Stockholders


Colony
Bankcorp, Inc.





We have
audited the accompanying consolidated balance sheets of Colony Bankcorp, Inc. and
Subsidiary as of December 31, 2008 and 2007 and the related consolidated
statements of income, comprehensive income, changes in stockholders’ equity and
cash flows for each of the years in the three-year period ended December 31,
2008.  These financial statements are the responsibility of the
Company’s management.  Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.





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





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Colony Bankcorp, Inc. and
Subsidiary as of December 31, 2008 and 2007, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 2008 in conformity with accounting principles generally accepted in
the United States of America.





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Colony Bankcorp, Inc.’s internal control over
financial reporting as of December 31, 2008, based on criteria established in
Internal Control-Integrated
Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO),
and our report dated March 13, 2009 expressed an unqualified opinion on the
effectiveness of Colony Bankcorp, Inc.’s internal control over financial
reporting.





/s/
McNair, McLemore, Middlebrooks & Co., LLP


McNAIR,
McLEMORE, MIDDLEBROOKS & CO., LLP


- 1
-


COLONY
BANKCORP, INC. AND SUBSIDIARY


CONSOLIDATED
BALANCE SHEETS


DECEMBER
      31ASSETS2008
                    
                    
                    2007Cash
      and Cash EquivalentsCash
      and Due from Banks
                    
                    $
                    29,427,430
                    
                    
                    $
                    28,369,037Federal
      Funds Sold
                    
                    
                    30,941
                    
                    
                    
                    21,737,14329,458,371
                    
                    
                    
                    50,106,180Interest-Bearing
      Deposits
                    
                    
                    146,987
                    
                    
                    
                    1,466,690Investment
      SecuritiesAvailable
      for Sale, at Fair Value
                    
                    
                    207,644,579
                    
                    
                    
                    167,123,042Held
      to Maturity, at Cost (Fair Value of $63,254 and $72,005 as of December 31,
      2008 and 2007, Respectively)
                    
                    
                    59,886
                    
                    
                    
                    68,170207,704,465
                    
                    
                    
                    167,191,212Federal
      Home Loan Bank Stock, at Cost
                    
                    
                    6,272,400
                    
                    
                    
                    5,532,700Loans
                    
                    
                    961,036,525
                    
                    
                    
                    945,278,642Allowance
      for Loan Losses
                    
                    
                    (17,015,883
                    )
                    
                    
                    (15,512,940
                    )Unearned
      Interest and Fees
                    
                    
                    (179,257
                    )
                    
                    
                    (300,577
                    )943,841,385
                    
                    
                    
                    929,465,125Premises
      and Equipment
                    
                    
                    29,671,881
                    
                    
                    
                    27,808,838Other
      Real Estate
                    
                    
                    12,811,819
                    
                    
                    
                    1,332,391Goodwill
                    
                    
                    2,412,338
                    
                    
                    
                    2,412,338Other
      Intangible Assets
                    
                    
                    366,505
                    
                    
                    
                    402,253Other
      Assets
                    
                    
                    20,095,784
                    
                    
                    
                    23,058,742Total
      Assets
                    
                    $
                    1,252,781,935
                    
                    
                    $
                    1,208,776,469





The
accompanying notes are an integral part of these balance
sheets.


- 2
-


COLONY
BANKCORP, INC. AND SUBSIDIARY


CONSOLIDATED
BALANCE SHEETS


DECEMBER
      31LIABILITIES
      AND STOCKHOLDERS’ EQUITY2008
                  
                  
                  2007DepositsNoninterest-Bearing
                  
                  $
                  77,496,891
                  
                  
                  $
                  86,111,783Interest-Bearing
                  
                  
                  929,494,577
                  
                  
                  
                  932,490,2031,006,991,468
                  
                  
                  
                  1,018,601,986Borrowed
      MoneyFederal
      Funds Purchased
                  
                  
                  2,274,000
                  
                  
                  
                  1,346,000Securities
      Sold Under Agreements to Repurchase
                  
                  
                  40,000,000
                  
                  
                  
                  -Subordinated
      Debentures
                  
                  
                  24,229,000
                  
                  
                  
                  24,229,000Other
      Borrowed Money
                  
                  
                  91,000,000
                  
                  
                  
                  73,600,000157,503,000
                  
                  
                  
                  99,175,000Other
      Liabilities
                  
                  
                  5,072,312
                  
                  
                  
                  7,256,365Commitments
      and ContingenciesStockholders’
      EquityCommon
      Stock, Par Value $1 a Share; Authorized 20,000,000 Shares, Issued
      7,212,313 and 7,200,913 Shares as of December 31, 2008 and 2007,
      Respectively
                  
                  
                  7,212,313
                  
                  
                  
                  7,200,913Paid-In
      Capital
                  
                  
                  24,535,683
                  
                  
                  
                  24,420,497Retained
      Earnings
                  
                  
                  51,302,025
                  
                  
                  
                  52,086,834Restricted
      Stock – Unearned Compensation
                  
                  
                  (210,993
                  )
                  
                  
                  (237,002
                  )Accumulated
      Other Comprehensive Income, Net of Tax
                  
                  
                  376,127
                  
                  
                  
                  271,87683,215,155
                  
                  
                  
                  83,743,118Total
      Liabilities and Stockholders’ Equity
                  
                  $
                  1,252,781,935
                  
                  
                  $
                  1,208,776,469





The
accompanying notes are an integral part of these balance
sheets.


- 3
-


COLONY
BANKCORP, INC. AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF INCOME


FOR
      THE YEARS ENDED DECEMBER 312008
                    
                    
                    2007
                    
                    
                    2006Interest
      IncomeLoans,
      Including Fees
                    
                    $
                    66,732,488
                    
                    
                    $
                    80,973,666
                    
                    
                    $
                    75,086,845Federal
      Funds Sold
                    
                    
                    273,476
                    
                    
                    
                    1,477,985
                    
                    
                    
                    2,034,823Deposits
      with Other Banks
                    
                    
                    27,452
                    
                    
                    
                    142,785
                    
                    
                    
                    133,321Investment
      SecuritiesU.
      S. Government Agencies
                    
                    
                    7,140,902
                    
                    
                    
                    6,437,743
                    
                    
                    
                    5,198,384State,
      County and Municipal
                    
                    
                    410,298
                    
                    
                    
                    549,031
                    
                    
                    
                    381,085Corporate
      Obligations
                    
                    
                    414,319
                    
                    
                    
                    269,283
                    
                    
                    
                    162,377Other
      Investments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,808Dividends
      on Other Investments
                    
                    
                    298,264
                    
                    
                    
                    308,840
                    
                    
                    
                    278,97475,297,199
                    
                    
                    
                    90,159,333
                    
                    
                    
                    83,279,617Interest
      ExpenseDeposits
                    
                    
                    32,801,362
                    
                    
                    
                    42,730,760
                    
                    
                    
                    36,610,386Federal
      Funds Purchased
                    
                    
                    513,961
                    
                    
                    
                    59,145
                    
                    
                    
                    28,853Borrowed
      Money
                    
                    
                    4,607,347
                    
                    
                    
                    4,910,945
                    
                    
                    
                    4,752,64237,922,670
                    
                    
                    
                    47,700,850
                    
                    
                    
                    41,391,881Net
      Interest Income
                    
                    
                    37,374,529
                    
                    
                    
                    42,458,483
                    
                    
                    
                    41,887,736Provision
      for Loan Losses
                    
                    
                    12,937,750
                    
                    
                    
                    5,930,756
                    
                    
                    
                    3,987,000Net
      Interest Income After Provision for Loan Losses
                    
                    
                    24,436,779
                    
                    
                    
                    36,527,727
                    
                    
                    
                    37,900,736Noninterest
      IncomeService
      Charges on Deposits
                    
                    
                    4,699,616
                    
                    
                    
                    4,771,239
                    
                    
                    
                    4,580,181Other
      Service Charges, Commissions and Fees
                    
                    
                    981,124
                    
                    
                    
                    921,502
                    
                    
                    
                    831,472Mortgage
      Fee Income
                    
                    
                    609,044
                    
                    
                    
                    966,897
                    
                    
                    
                    767,803Securities
      Gains
                    
                    
                    1,195,314
                    
                    
                    
                    183,656
                    
                    
                    
                    -Other
                    
                    
                    1,520,092
                    
                    
                    
                    973,687
                    
                    
                    
                    1,170,7259,005,190
                    
                    
                    
                    7,816,981
                    
                    
                    
                    7,350,181Noninterest
      ExpensesSalaries
      and Employee Benefits
                    
                    
                    16,238,080
                    
                    
                    
                    17,866,304
                    
                    
                    
                    16,870,488Occupancy
      and Equipment
                    
                    
                    4,190,845
                    
                    
                    
                    4,039,327
                    
                    
                    
                    4,034,909Directors’
      Fees
                    
                    
                    578,315
                    
                    
                    
                    632,547
                    
                    
                    
                    638,721Legal
      and Professional Fees
                    
                    
                    1,379,696
                    
                    
                    
                    1,144,229
                    
                    
                    
                    1,070,605Other
      Real Estate and Repossession Expense
                    
                    
                    332,864
                    
                    
                    
                    100,959
                    
                    
                    
                    162,384Loss
      on Sale of Other Real Estate
                    
                    
                    49,448
                    
                    
                    
                    48,384
                    
                    
                    
                    20,263FDIC
      Assessment
                    
                    
                    603,093
                    
                    
                    
                    189,635
                    
                    
                    
                    166,151Other
                    
                    
                    7,483,574
                    
                    
                    
                    7,557,904
                    
                    
                    
                    6,918,03830,855,915
                    
                    
                    
                    31,579,289
                    
                    
                    
                    29,881,559Income
      Before Income Taxes
                    
                    
                    2,586,054
                    
                    
                    
                    12,765,419
                    
                    
                    
                    15,369,358Income
      Taxes
                    
                    
                    557,230
                    
                    
                    
                    4,218,463
                    
                    
                    
                    5,217,363Net
      Income
                    
                    $
                    2,028,824
                    
                    
                    $
                    8,546,956
                    
                    
                    $
                    10,151,995Net
      Income Per Share of Common StockBasic
                    
                    $
                    0.28
                    
                    
                    $
                    1.19
                    
                    
                    $
                    1.41Diluted
                    
                    $
                    0.28
                    
                    
                    $
                    1.19
                    
                    
                    $
                    1.41Cash
      Dividends Declared Per Share of Common Stock
                    
                    $
                    0.39
                    
                    
                    $
                    0.365
                    
                    
                    $
                    0.325Weighted
      Average Shares Outstanding
                    
                    
                    7,199,121
                    
                    
                    
                    7,188,696
                    
                    
                    
                    7,176,894





The
accompanying notes are an integral part of these statements.


- 4
-


COLONY
BANKCORP, INC. AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME


FOR
THE YEARS ENDED DECEMBER 31


2008
                  
                  
                  2007
                  
                  
                  2006Net
      Income
                  
                  $
                  2,028,824
                  
                  
                  $
                  8,546,956
                  
                  
                  $
                  10,151,995Other
      Comprehensive Income, Net of TaxGains
      on Securities Arising During the Year
                  
                  
                  893,158
                  
                  
                  
                  1,367,910
                  
                  
                  
                  377,840Reclassification
      Adjustment
                  
                  
                  (788,907
                  )
                  
                  
                  (121,213
                  )
                  
                  
                  -Change
      in Net Unrealized Gains on Securities Available for Sale, Net of
      Reclassification Adjustment and Tax Effects
                  
                  
                  104,251
                  
                  
                  
                  1,246,697
                  
                  
                  
                  377,840Comprehensive
      Income
                  
                  $
                  2,133,075
                  
                  
                  $
                  9,793,653
                  
                  
                  $
                  10,529,835








The
accompanying notes are an integral part of these statements.


- 5
-




COLONY
      BANKCORP, INC. AND SUBSIDIARY CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR
      THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006Shares
                    Issued
                  
                  
                  Common
                    Stock
                  
                  
                  Paid-In
                    Capital
                  
                  
                  Retained
                    Earnings
                  
                  
                  Restricted
      Stock -
                    Unearned
                    Compensation
                  
                  
                  Accumulated
      Other Comprehensive Income (Loss)
                  
                  
                  TotalBalance,
      December 31, 2005
                  
                  
                  7,181,320
                  
                  
                  $
                  7,181,320
                  
                  
                  $
                  23,999,775
                  
                  
                  $
                  38,601,441
                  
                  
                  $
                  (301,883
                  )
                  
                  $
                  (1,352,661
                  )
                  
                  $
                  68,127,992Issuance
      of Restricted Stock
                  
                  
                  12,790
                  
                  
                  
                  12,790
                  
                  
                  
                  303,123
                  
                  
                  
                  
                  
                  
                  
                  (315,913
                  )
                  
                  
                  
                  
                  
                  
                  -Forfeiture
      of Restricted Stock
                  
                  
                  (4,173
                  )
                  
                  
                  (4,173
                  )
                  
                  
                  (106,663
                  )
                  
                  
                  
                  
                  
                  
                  110,836
                  
                  
                  
                  
                  
                  
                  
                  -Tax
      Benefit of Restricted Stock
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  61,157
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  61,157Amortization
      of Unearned Compensation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  229,042
                  
                  
                  
                  
                  
                  
                  
                  229,042Change
      in Net Unrealized Gains (Losses) on Securities Available for Sale, Net of
      Reclassification Adjustment and Tax Effects
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  377,840
                  
                  
                  
                  377,840Dividends
      Declared
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (2,336,865
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (2,336,865
                  )Net
      Income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  10,151,995
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  10,151,995Balance,
      December 31, 2006
                  
                  
                  7,189,937
                  
                  
                  
                  7,189,937
                  
                  
                  
                  24,257,392
                  
                  
                  
                  46,416,571
                  
                  
                  
                  (277,918
                  )
                  
                  
                  (974,821
                  )
                  
                  
                  76,611,161Cumulative
      Effect of Change in Accounting for Uncertainty in Income
    Taxes
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (247,312
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (247,312
                  )Issuance
      of Restricted Stock
                  
                  
                  16,175
                  
                  
                  
                  16,175
                  
                  
                  
                  270,122
                  
                  
                  
                  
                  
                  
                  
                  (286,297
                  )
                  
                  
                  
                  
                  
                  
                  -Forfeiture
      of Restricted Stock
                  
                  
                  (5,199
                  )
                  
                  
                  (5,199
                  )
                  
                  
                  (110,514
                  )
                  
                  
                  
                  
                  
                  
                  115,713
                  
                  
                  
                  
                  
                  
                  
                  -Tax
      Benefit of Restricted Stock
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3,497
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3,497Amortization
      of Unearned Compensation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  211,500
                  
                  
                  
                  
                  
                  
                  
                  211,500Change
      in Net Unrealized Gains (Losses) on Securities Available for Sale, Net of
      Reclassification Adjustment and Tax Effects
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,246,697
                  
                  
                  
                  1,246,697Dividends
      Declared
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (2,629,381
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (2,629,381
                  )Net
      Income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  8,546,956
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  8,546,956Balance,
      December 31, 2007
                  
                  
                  7,200,913
                  
                  
                  
                  7,200,913
                  
                  
                  
                  24,420,497
                  
                  
                  
                  52,086,834
                  
                  
                  
                  (237,002
                  )
                  
                  
                  271,876
                  
                  
                  
                  83,743,118Issuance
      of Restricted Stock
                  
                  
                  15,500
                  
                  
                  
                  15,500
                  
                  
                  
                  220,100
                  
                  
                  
                  
                  
                  
                  
                  (235,600
                  )
                  
                  
                  
                  
                  
                  
                  -Forfeiture
      of Restricted Stock
                  
                  
                  (4,100
                  )
                  
                  
                  (4,100
                  )
                  
                  
                  (69,070
                  )
                  
                  
                  
                  
                  
                  
                  73,170
                  
                  
                  
                  
                  
                  
                  
                  -Tax
      Loss of Restricted Stock
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (35,844
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (35,844
                  )Amortization
      of Unearned Compensation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  188,439
                  
                  
                  
                  
                  
                  
                  
                  188,439Change
      in Net Unrealized Gains (Losses) on Securities Available for Sale, Net of
      Reclassification Adjustment and Tax Effects
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  104,251
                  
                  
                  
                  104,251Dividends
      Declared
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (2,813,633
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (2,813,633
                  )Net
      Income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,028,824
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,028,824Balance,
      December 31, 2008
                  
                  
                  7,212,313
                  
                  
                  $
                  7,212,313
                  
                  
                  $
                  24,535,683
                  
                  
                  $
                  51,302,025
                  
                  
                  $
                  (210,993
                  )
                  
                  $
                  376,127
                  
                  
                  $
                  83,215,155





The
accompanying notes are an integral part of these statements.


- 6
-




COLONY
      BANKCORP, INC. AND SUBSIDIARY
                  CONSOLIDATED
      STATEMENTS OF CASH FLOWS
                  FOR
      THE YEARS ENDED DECEMBER 312008
                
                
                2007
                
                
                2006Cash
      Flows from Operating ActivitiesNet
      Income
                
                $
                2,028,824
                
                
                $
                8,546,956
                
                
                $
                10,151,995Adjustments
      to Reconcile Net Income to Net Cash Provided from Operating
      ActivitiesDepreciation
                
                
                2,028,158
                
                
                
                1,875,779
                
                
                
                1,933,290Amortization
      and Accretion
                
                
                777,051
                
                
                
                529,805
                
                
                
                720,446Provision
      for Loan Losses
                
                
                12,937,750
                
                
                
                5,930,756
                
                
                
                3,987,000Deferred
      Income Taxes
                
                
                (250,215
                )
                
                
                (1,233,259
                )
                
                
                112,518Securities
      Gains
                
                
                (1,195,314
                )
                
                
                (183,656
                )
                
                
                -(Gain)
      Loss on Sale of Equipment
                
                
                (857
                )
                
                
                (5,813
                )
                
                
                7,507(Gain)
      Loss on Sale of Other Real Estate and Repossessions
                
                
                59,623
                
                
                
                53,851
                
                
                
                (14,239
                )Unrealized
      Loss on Other Real Estate
                
                
                -
                
                
                
                -
                
                
                
                32,773Increase
      in Cash Surrender Value of Life Insurance
                
                
                (235,305
                )
                
                
                (15,427
                )
                
                
                (185,850
                )Change
      InInterest
      Receivable
                
                
                2,875,146
                
                
                
                362,311
                
                
                
                (2,913,483
                )Prepaid
      Expenses
                
                
                18,698
                
                
                
                144,931
                
                
                
                87,542Interest
      Payable
                
                
                (816,819
                )
                
                
                291,225
                
                
                
                1,040,748Accrued
      Expenses and Accounts Payable
                
                
                (815,214
                )
                
                
                (109,441
                )
                
                
                344,075Other
                
                
                (121,645
                )
                
                
                (1,018,977
                )
                
                
                (301,677
                )17,289,881
                
                
                
                15,169,041
                
                
                
                15,002,645Cash
      Flows from Investing ActivitiesInterest-Bearing
      Deposits in Other Banks
                
                
                1,319,703
                
                
                
                1,608,791
                
                
                
                (1,440,066
                )Purchase
      of Investment Securities Available for Sale
                
                
                (157,485,718
                )
                
                
                (60,521,076
                )
                
                
                (48,498,815
                )Proceeds
      from Sale of Investment Securities Available for Sale
                
                
                65,298,695
                
                
                
                16,984,665
                
                
                
                -Proceeds
      from Maturities, Calls and Paydowns of Investment
    SecuritiesAvailable
      for Sale
                
                
                52,666,161
                
                
                
                27,603,088
                
                
                
                23,868,423Held
      to Maturity
                
                
                13,573
                
                
                
                12,054
                
                
                
                18,035Proceeds
      from Sale of Premises and Equipment
                
                
                29,888
                
                
                
                267,120
                
                
                
                4,691Net
      Loans to Customers
                
                
                (42,435,526
                )
                
                
                (8,333,042
                )
                
                
                (88,764,174
                )Purchase
      of Premises and Equipment
                
                
                (3,920,230
                )
                
                
                (2,492,797
                )
                
                
                (3,722,786
                )Other
      Real Estate and Repossessions
                
                
                3,392,500
                
                
                
                2,318,696
                
                
                
                4,136,207Federal
      Home Loan Bank Stock
                
                
                (739,700
                )
                
                
                (445,900
                )
                
                
                (52,600
                )Investment
      in Capital Trusts
                
                
                -
                
                
                
                (434,000
                )
                
                
                (155,000
                )Liquidation
      of Statutory Trusts
                
                
                -
                
                
                
                434,000
                
                
                
                -Other
      Investments
                
                
                -
                
                
                
                (420,560
                )
                
                
                (400,000
                )(81,860,654
                )
                
                
                (23,418,961
                )
                
                
                (115,006,085
                )Cash
      Flows from Financing ActivitiesInterest-Bearing
      Customer Deposits
                
                
                (2,995,624
                )
                
                
                (32,620,017
                )
                
                
                99,529,936Noninterest-Bearing
      Customer Deposits
                
                
                (8,614,892
                )
                
                
                8,776,104
                
                
                
                (1,442,462
                )Proceeds
      from Other Borrowed Money
                
                
                122,400,000
                
                
                
                41,100,000
                
                
                
                41,500,000Principal
      Payments on Other Borrowed Money
                
                
                (65,000,000
                )
                
                
                (29,000,000
                )
                
                
                (50,226,206
                )Dividends
      Paid
                
                
                (2,794,520
                )
                
                
                (2,556,438
                )
                
                
                (2,264,319
                )Proceeds
      from Issuance of Subordinated Debentures
                
                
                -
                
                
                
                14,434,000
                
                
                
                5,155,000Principal
      Payments of Subordinated Debentures
                
                
                -
                
                
                
                (14,434,000
                )
                
                
                -Federal
      Funds Purchased
                
                
                928,000
                
                
                
                276,000
                
                
                
                1,070,00043,922,964
                
                
                
                (14,024,351
                )
                
                
                93,321,949Net
      Decrease in Cash and Cash Equivalents
                
                
                (20,647,809
                )
                
                
                (22,274,271
                )
                
                
                (6,681,491
                )Cash
      and Cash Equivalents, Beginning
                
                
                50,106,180
                
                
                
                72,380,451
                
                
                
                79,061,942Cash
      and Cash Equivalents, Ending
                
                $
                29,458,371
                
                
                $
                50,106,180
                
                
                $
                72,380,451





The
accompanying notes are an integral part of these statements.


- 7
-


COLONY
BANKCORP, INC. AND SUBSIDIARY





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS








(1)  Summary
of Significant Accounting Policies





Principles
of Consolidation





Colony
Bankcorp, Inc. (the Company) is a bank holding company located in Fitzgerald,
Georgia. The Company merged all of its operations into one sole operating
subsidiary effective August 1, 2008.  The consolidated financial
statements include the accounts of Colony Bankcorp, Inc. and its wholly-owned
subsidiary, Colony Bank (which includes its wholly-owned subsidiary, Colony
Mortgage Corp.), Fitzgerald, Georgia.  All significant intercompany
accounts have been eliminated in consolidation. The accounting and reporting
policies of Colony Bankcorp, Inc. conform to generally accepted accounting
principles and practices utilized in the commercial banking
industry.





Nature
of Operations





The Bank
provides a full range of retail and commercial banking services for consumers
and small- to medium-size businesses located primarily in middle and south
Georgia. Colony Bank is headquartered in Fitzgerald, Georgia with banking
offices in Albany, Ashburn, Broxton, Centerville, Chester, Columbus, Cordele,
Douglas, Eastman, Fitzgerald, Leesburg, Moultrie, Pitts, Quitman, Rochelle,
Savannah, Soperton, Sylvester, Thomaston, Tifton, Valdosta and Warner
Robins.  Lending and investing activities are funded primarily by
deposits gathered through its retail banking office network.





Use
of Estimates





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





Reclassifications





In
certain instances, amounts reported in prior years’ consolidated financial
statements and note disclosures have been reclassified to conform to statement
presentations selected for 2008.  Such reclassifications had no effect
on previously reported stockholders’ equity or net income.


- 8
-


(1)  Summary
of Significant Accounting Policies (Continued)





Concentrations
of Credit Risk





Lending
is concentrated in commercial and real estate primarily to local borrowers. The
Company has a high concentration of real estate loans that could pose an adverse
credit risk particularly with the current economic downturn in the real estate
market.  In management’s opinion, the balance of the loan portfolio is
sufficiently diversified to avoid significant concentration of credit
risk.  Although the Company has a diversified loan portfolio, a
substantial portion of borrowers’ ability to honor their contracts is dependent
upon the viability of the real estate economic sector.  The continued
downturn of the housing and real estate market that began in 2007 has resulted
in an increase of real estate dependent problem loans.  These loans
are centered primarily in the Company’s larger MSA markets.  Declining
collateral real estate values that secure land development, construction and
speculative real estate loans in the Company’s larger MSA markets have resulted
in increased loan loss provisions in 2008.





The
success of Colony is dependent, to a certain extent, upon the economic
conditions in the geographic markets it serves.  Adverse changes in
the economic conditions in these geographic markets would likely have a material
adverse effect on the Company’s results of operations and financial condition.
The operating results of Colony depend primarily on its net interest income.
Accordingly, operations are subject to risks and uncertainties surrounding the
exposure to changes in the interest rate environment.





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





Investment
Securities





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





Securities
available for sale are reported at estimated fair value.  Unrealized
gains and losses on securities available for sale are excluded from earnings and
are reported, net of deferred taxes, in accumulated other comprehensive income,
a component of stockholders’ equity.  Declines in the fair value of
held to maturity and available for sale securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized
losses.  In estimating other than temporary impairment losses,
management considers (1) the length of time and the extent to which the fair
value has been less than cost, (2) the financial condition and near-term
prospects of the issuer and (3) the intent and ability of the Company to retain
its investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value.  Gains and losses from sales of
securities available for sale are computed using the specific identification
method.  This caption includes securities, which may be sold to meet
liquidity needs arising from unanticipated deposit and loan fluctuations,
changes in regulatory capital requirements, or unforeseen changes in market
conditions.


- 9
-


(1)  Summary
of Significant Accounting Policies (Continued)





Federal
Home Loan Bank Stock





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





Loans





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





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





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





Allowance
for Loan Losses





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





The
allowance for loan losses is evaluated on a regular basis by management and is
based upon management’s periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower’s ability to repay, estimated
value of any underlying collateral and prevailing economic
conditions.  This evaluation is inherently subjective, as it requires
estimates that are susceptible to significant revisions as more information
becomes available.





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


- 10
-


(1)  Summary
of Significant Accounting Policies (Continued)





Allowance
for Loan Losses (Continued)





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





Premises
and Equipment





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





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





Description
                
                Life
      in Years
                
                MethodBanking
      Premises
                
                15-40
                
                Straight-Line
      and AcceleratedFurniture
      and Equipment
                
                5-10
                
                Straight-Line
      and Accelerated





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





Goodwill
and Intangible Assets





Goodwill
represents the excess of the cost over the fair value of the net assets
purchased in a business combination.  Impairment testing of goodwill
is performed annually or more frequently if events or circumstances indicate
possible impairment.  No impairment was identified as a result of the
testing performed during 2008 or 2007.





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


- 11
-


(1)  Summary
of Significant Accounting Policies (Continued)





Transfers
of Financial Assets





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





Statement
of Cash Flows





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





Securities
Sold Under Repurchase Agreements





The
Company sells securities under agreements to repurchase.  These
repurchase agreements are treated as borrowings.  The obligations to
repurchase securities sold are reflected as a liability and the securities
underlying the agreements are reflected as assets in the consolidated balance
sheets.





Advertising
Costs





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





Income
Taxes





The
provision for income taxes is based upon income for financial statement
purposes, adjusted for nontaxable income and nondeductible
expenses.  Deferred income taxes have been provided when different
accounting methods have been used in determining income for income tax purposes
and for financial reporting purposes.





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


- 12
-


(1)  Summary
of Significant Accounting Policies (Continued)





Income
Taxes (Continued)





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





Other
Real Estate





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





Comprehensive
Income





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





Off-Balance
Sheet Credit Related Financial Instruments





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


- 13
-


(1)  Summary
of Significant Accounting Policies (Continued)





Changes
in Accounting Principles and Effects of New Accounting
Pronouncements





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





FASB Interpretation No.48, Accounting for Uncertainty in
Income Taxes, an Interpretation of FASB Statement
109.Interpretation No. 48 prescribes a recognition threshold
and a measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax
return.  Benefits from tax positions should be recognized in the
financial statements only when it is more likely than not that the tax position
will be sustained upon examination by the appropriate taxing authority that
would have full knowledge of all relevant information.  A tax position
that meets the more-likely-than-not recognition threshold is measured at the
largest amount of benefit that is greater than fifty percent likely of being
realized upon ultimate settlement.  Tax positions that previously
failed to meet the more-likely-than-not recognition threshold should be
recognized in the first subsequent financial reporting period in which that
threshold is met.  Previously recognized tax positions that no longer
meet the more-likely-than-not recognition threshold should be derecognized in
the first subsequent financial reporting period in which that threshold is no
longer met.  Interpretation No. 48 also provides guidance on the
accounting for and disclosure of unrecognized tax benefits, interest and
penalties.  The adoption of Interpretation No. 48 on January 1,
2007 did not significantly impact the Company’s consolidated financial
statements.




FSP No.48-1 Definition of Settlement in
FASB Interpretation No.48.FSP No.
48-1 provides guidance on how to determine whether a tax position is effectively
settled for the purpose of recognizing previously unrecognized tax benefits.
FSP No. 48-1 was effective retroactively to January 1, 2007 and did
not significantly impact the Company’s consolidated financial statements.


- 14
-


(1)  Summary
of Significant Accounting Policies (Continued)





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





In
September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements.  SFAS No. 157 defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurement.  SFAS No. 157 also emphasizes that fair value is a
market-based measurement, not an entity-specific measurement, and sets out a
fair value hierarchy with the highest priority being quoted prices in active
markets.  Under SFAS No. 157, fair value measurements are disclosed by
level within that hierarchy.  In February 2008, the FASB issued FASB Staff
Position No. 157-2, Effective
Date of FASB Statement No. 157, which permits a one-year deferral for the
implementation of SFAS No. 157 with regard to nonfinancial assets and
liabilities that are not recognized or disclosed at fair value in the financial
statements on a recurring basis.  The Company adopted SFAS No. 157 for the
fiscal year beginning January 1, 2008, except for nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis for which delayed application is
permitted until the fiscal year beginning January 1, 2009.  The Company is
currently assessing the potential effect of the adoption of the remaining
provisions of SFAS No. 157 on its financial position, results of operations and
cash flows.  The adoption of the remaining provisions of SFAS No. 157 is
not expected to have a material impact on the Company’s financial position,
results of operations or cash flows.





In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an Amendment to FASB Statement No.
115.  This statement permits entities to choose to measure
many  financial  instruments  and
certain  other items at fair value  that  are
not  currently  required  to
be  measured  at fair  value.   The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions.  This  statement  requires
a  business  entity to report unrealized  gains
and losses on items for which the fair  value  option has
been elected in  earnings at
each  subsequent  reporting  date.  An
entity may decide whether to elect the fair value option for each eligible item
on its election date, subject to certain requirements described in the
statement.  SFAS No. 159 became effective for the Company on January
1, 2008.  The Company elected not to adopt the fair value
option.





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





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


- 15
-


(1)  Summary
of Significant Accounting Policies (Continued)





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





FSP No.
EITF 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions are Participated
Securities.  FSP EITF 03-6-1 provides that unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be
included in the computation of earnings per share pursuant to the two-class
method.  FSP EITF 03-6-1 will be effective on January 1,
2009.  All previously reported earnings per share data will be
retrospectively adjusted to conform with the provisions of FSP EITF
03-6-1.  FSP EITF 03-6-1 is not expected to have a significant impact
on the Company’s consolidated financial statements.






(2)  Cash
and Balances Due from Banks





Components
of cash and balances due from banks are as follows as of December
31:





2008
                
                
                2007Cash
      on Hand and Cash Items
                
                $
                9,227,763
                
                
                $
                8,527,336Noninterest-Bearing
      Deposits with Other Banks
                
                
                20,199,667
                
                
                
                19,841,701$
                29,427,430
                
                
                $
                28,369,037






(3)  Investment
Securities





Investment
securities as of December 31, 2008 are summarized as follows:





Amortized
                Cost
              
              
              Gross
                Unrealized
                Gains
              
              
              Gross
                Unrealized
                Losses
              
              
              Fair
                ValueSecurities
      Available for SaleU.S.
      GovernmentAgenciesMortgage-Backed
              
              $
              190,197,764
              
              
              $
              1,861,970
              
              
              $
              (309,684
              )
              
              $
              191,750,050State,
      County and Municipal
              
              
              9,226,505
              
              
              
              44,138
              
              
              
              (219,856
              )
              
              
              9,050,787Corporate
      Obligations
              
              
              6,650,420
              
              
              
              155,230
              
              
              
              (629,628
              )
              
              
              6,176,022Asset-Backed
      Securities
              
              
              1,000,000
              
              
              
              -
              
              
              
              (332,280
              )
              
              
              667,720$
              207,074,689
              
              
              $
              2,061,338
              
              
              $
              (1,491,448
              )
              
              $
              207,644,579Securities
      Held to MaturityState,
      County and Municipal
              
              $
              59,886
              
              
              $
              3,368
              
              
              $
              -
              
              
              $
              63,254





The
amortized cost and fair value of investment securities as of December 31, 2008,
by contractual maturity, are shown hereafter.  Expected maturities
will differ from contractual maturities because issuers have the right to call
or prepay obligations with or without call or prepayment
penalties.


- 16
-


(3)  Investment
Securities (Continued)





SecuritiesAvailable
      for Sale
                  
                  
                  Held
      to MaturityAmortized
                    Cost
                  
                  
                  Fair
                    Value
                  
                  
                  Amortized
                    Cost
                  
                  
                  Fair
                    ValueDue
      in One Year or Less
                  
                  $
                  2,716,130
                  
                  
                  $
                  2,703,435
                  
                  
                  $
                  -
                  
                  
                  $
                  -Due
      After One Year Through Five Years
                  
                  
                  5,239,129
                  
                  
                  
                  4,884,055
                  
                  
                  
                  -
                  
                  
                  
                  -Due
      After Five Years Through Ten Years
                  
                  
                  5,279,959
                  
                  
                  
                  5,359,410
                  
                  
                  
                  59,886
                  
                  
                  
                  63,254Due
      After Ten Years
                  
                  
                  3,641,707
                  
                  
                  
                  2,947,629
                  
                  
                  
                  -
                  
                  
                  
                  -16,876,925
                  
                  
                  
                  15,894,529
                  
                  
                  
                  59,886
                  
                  
                  
                  63,254Mortgage
      Backed Securities
                  
                  
                  190,197,764
                  
                  
                  
                  191,750,050
                  
                  
                  
                  -
                  
                  
                  
                  -$
                  207,074,689
                  
                  
                  $
                  207,644,579
                  
                  
                  $
                  59,886
                  
                  
                  $
                  63,254





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





Amortized
                Cost
              
              
              Gross
                Unrealized
                Gains
              
              
              Gross
                Unrealized
                Losses
              
              
              Fair
                ValueSecurities
      Available for SaleU.S.
      Government AgenciesMortgage-Backed
              
              $
              109,023,711
              
              
              $
              758,105
              
              
              $
              (459,043
              )
              
              $
              109,322,773Other
              
              
              36,817,832
              
              
              
              314,276
              
              
              
              (36,536
              )
              
              
              37,095,572State,
      County and Municipal
              
              
              14,178,545
              
              
              
              32,979
              
              
              
              (295,869
              )
              
              
              13,915,655Corporate
      Obligations
              
              
              5,689,011
              
              
              
              105,029
              
              
              
              (6,748
              )
              
              
              5,787,292Asset-Backed
      Securities
              
              
              1,000,000
              
              
              
              -
              
              
              
              -
              
              
              
              1,000,000Marketable
      Equity Securities
              
              
              2,010
              
              
              
              -
              
              
              
              (260
              )
              
              
              1,750$
              166,711,109
              
              
              $
              1,210,389
              
              
              $
              (798,456
              )
              
              $
              167,123,042Securities
      Held to MaturityState,
      County and Municipal
              
              $
              68,170
              
              
              $
              3,835
              
              
              $
              -
              
              
              $
              72,005





Proceeds
from sales of investments available for sale were $65,298,695 in 2008,
$16,984,665 in 2007 and $0 in 2006.  Gross realized gains totaled
$1,201,896 in 2008, $211,676 in 2007 and $0 in 2006.  Gross realized
losses totaled $6,582 in 2008, $28,020 in 2007 and $0 in 2006.





Investment
securities having a carrying value approximating $145,647,000 and $89,145,000 as
of December 31, 2008 and 2007, respectively, were pledged to secure public
deposits and for other purposes.


- 17
-


(3)  Investment
Securities (Continued)





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





Less
      Than 12 Months
                  
                  
                  12
      Months or Greater
                  
                  
                  TotalFair
                    Value
                  
                  
                  Gross
      Unrealized Losses
                  
                  
                  Fair
                    Value
                  
                  
                  Gross
      Unrealized Losses
                  
                  
                  Fair
                    Value
                  
                  
                  Gross
      Unrealized LossesDecember
      31, 2008U.S.
      Government AgenciesMortgage-Backed
                  
                  $
                  52,276,619
                  
                  
                  $
                  (266,923
                  )
                  
                  $
                  708,302
                  
                  
                  $
                  (42,761
                  )
                  
                  $
                  52,984,921
                  
                  
                  $
                  (309,684
                  )State,
      County and Municipal
                  
                  
                  5,053,601
                  
                  
                  
                  (211,683
                  )
                  
                  
                  91,827
                  
                  
                  
                  (8,173
                  )
                  
                  
                  5,145,428
                  
                  
                  
                  (219,856
                  )Corporate
      Obligations
                  
                  
                  5,020,792
                  
                  
                  
                  (629,628
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,020,792
                  
                  
                  
                  (629,628
                  )Asset-Backed
      Securities
                  
                  
                  667,720
                  
                  
                  
                  (332,280
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  667,720
                  
                  
                  
                  (332,280
                  )$
                  63,018,732
                  
                  
                  $
                  (1,440,514
                  )
                  
                  $
                  800,129
                  
                  
                  $
                  (50,934
                  )
                  
                  $
                  63,818,861
                  
                  
                  $
                  (1,491,448
                  )December
      31, 2007U.S.
      Government AgenciesMortgage-Backed
                  
                  $
                  13,721,144
                  
                  
                  $
                  (56,190
                  )
                  
                  $
                  30,761,318
                  
                  
                  $
                  (402,853
                  )
                  
                  $
                  44,482,462
                  
                  
                  $
                  (459,043
                  )Other
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  14,100,741
                  
                  
                  
                  (36,536
                  )
                  
                  
                  14,100,741
                  
                  
                  
                  (36,536
                  )State,
      County and Municipal
                  
                  
                  6,917,719
                  
                  
                  
                  (255,263
                  )
                  
                  
                  3,114,838
                  
                  
                  
                  (40,606
                  )
                  
                  
                  10,032,557
                  
                  
                  
                  (295,869
                  )Corporate
      Obligations
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  995,090
                  
                  
                  
                  (6,748
                  )
                  
                  
                  995,090
                  
                  
                  
                  (6,748
                  )Marketable
      Equity Securities
                  
                  
                  1,750
                  
                  
                  
                  (260
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,750
                  
                  
                  
                  (260
                  )$
                  20,640,613
                  
                  
                  $
                  (311,713
                  )
                  
                  $
                  48,971,987
                  
                  
                  $
                  (486,743
                  )
                  
                  $
                  69,612,600
                  
                  
                  $
                  (798,456
                  )





Management
evaluates securities for other than temporary impairment at least on a quarterly
basis, and more frequently when economic or market concerns warrant such
evaluation. Consideration is given to (1) the length of time and the extent to
which the fair value has been less than cost, (2) the financial condition and
near-term prospects of the issuer and (3) the intent and ability of the Company
to retain its investment in the issuer for a period of time sufficient to allow
for any anticipated recovery in fair value.





At
December 31, 2008, the debt securities with unrealized losses have depreciated
2.28 percent from the Company’s amortized cost basis. These securities are
guaranteed by either the U.S. Government, other governments or U.S.
corporations. In analyzing an issuer’s financial condition, management considers
whether the securities are issued by the federal government or its agencies,
whether downgrades by bond rating agencies have occurred and the results of
reviews of the issuer’s financial condition.  The unrealized losses
are largely due to increases in market interest rates over the yields available
at the time the underlying securities were purchased.  As management
has the ability to hold debt securities until maturity, or for the foreseeable
future if classified as available-for-sale, no declines are deemed to be other
than temporary.


- 18
-


(4)  Loans





The
composition of loans as of December 31 are:





2008
                
                
                2007Commercial,
      Financial and Agricultural
                
                $
                86,378,778
                
                
                $
                52,322,654Real
      Estate-Construction
                
                
                160,373,797
                
                
                
                211,483,898Real
      Estate-Farmland
                
                
                54,158,907
                
                
                
                42,438,731Real
      Estate-Other
                
                
                600,653,523
                
                
                
                544,654,646Installment
      Loans to Individuals
                
                
                44,163,516
                
                
                
                72,350,201All
      Other Loans
                
                
                15,308,004
                
                
                
                22,028,512$
                961,036,525
                
                
                $
                945,278,642





Nonaccrual
loans are loans for which principal and interest are doubtful of collection in
accordance with original loan terms and for which accruals of interest have been
discontinued due to payment delinquency.  Nonaccrual loans totaled
$35,123,955 and $14,955,945 as of December 31, 2008 and 2007, respectively, and
total recorded investment in loans past due 90 days or more and still accruing
interest approximated $250,500 and $60,100, respectively.  Foregone
interest on nonaccrual loans approximated $1,328,600 in 2008, $576,000 in 2007
and $533,000 in 2006.





The
following table details impaired loan data as of December 31 for the years ended
as indicated:





2008
                
                
                2007Total
      Investment in Impaired Loans
                
                $
                35,123,955
                
                
                $
                14,955,945Less
      Allowance for Impaired Loan Losses
                
                
                (1,721,131
                )
                
                
                (1,323,108
                )Net
      Investment, December 31
                
                $
                33,402,824
                
                
                $
                13,632,837Average
      Investment during the Year
                
                $
                24,291,239
                
                
                $
                8,086,620Income
      Recognized during the Year
                
                $
                1,301,500
                
                
                $
                812,378Income
      Collected during the Year
                
                $
                1,496,785
                
                
                $
                910,725


- 19
-


(5)  Allowance
for Loan Losses





Transactions
in the allowance for loan losses are summarized below for the years ended
December 31:





2008
                  
                  
                  2007
                  
                  
                  2006Balance,
      Beginning
                  
                  $
                  15,512,940
                  
                  
                  $
                  11,989,359
                  
                  
                  $
                  10,761,915Provision
      Charged to Operating Expenses
                  
                  
                  12,937,750
                  
                  
                  
                  5,930,756
                  
                  
                  
                  3,987,000Loans
      Charged Off
                  
                  
                  (11,966,439
                  )
                  
                  
                  (3,908,011
                  )
                  
                  
                  (3,373,273
                  )Loan
      Recoveries
                  
                  
                  531,632
                  
                  
                  
                  1,500,836
                  
                  
                  
                  613,717Balance,
      Ending
                  
                  $
                  17,015,883
                  
                  
                  $
                  15,512,940
                  
                  
                  $
                  11,989,359






(6)  Premises
and Equipment





Premises
and equipment are comprised of the following as of December 31:





2008
                
                
                2007Land
                
                $
                7,805,167
                
                
                $
                7,799,149Building
                
                
                23,460,842
                
                
                
                20,900,517Furniture,
      Fixtures and Equipment
                
                
                13,529,356
                
                
                
                12,641,372Leasehold
      Improvements
                
                
                990,198
                
                
                
                994,283Construction
      in Progress
                
                
                127,155
                
                
                
                448,08745,912,718
                
                
                
                42,783,408Accumulated
      Depreciation
                
                
                (16,240,837
                )
                
                
                (14,974,570
                )$
                29,671,881
                
                
                $
                27,808,838





Depreciation
charged to operations totaled $2,028,158 in 2008, $1,875,779 in 2007 and
$1,933,290 in 2006.





Certain
Company facilities and equipment are leased under various operating
leases.  Rental expense approximated $374,000 for 2008, $360,000 for
2007 and $329,000 for 2006.





Future
minimum rental payments as of December 31, 2008 are as follows:





Year
      Ending December 31
                    
                    Amount2009
                    
                    $
                    134,8382010
                    
                    
                    125,9182011
                    
                    
                    125,9182012
                    
                    
                    122,8132013
      and Thereafter
                    
                    
                    98,796$
                    608,283


- 20
-


(7)  Goodwill
and Intangible Assets





The
following is an analysis of the goodwill and core deposit intangible activity
for the years ended December 31:


2008
                
                
                2007GoodwillBalance,
      Beginning
                
                $
                2,412,338
                
                
                $
                2,412,338Goodwill
      Acquired
                
                
                -
                
                
                
                -Balance,
      Ending
                
                $
                2,412,338
                
                
                $
                2,412,338





Core
      Deposit Intangible
                
                
                Accumulated
      Amortization
                
                
                Net
      Core Deposit IntangibleCore
      Deposit IntangibleBalance,
      December 31, 2007
                
                $
                1,056,693
                
                
                $
                (654,440
                )
                
                $
                402,253Amortization
      Expense
                
                
                -
                
                
                
                (35,748
                )
                
                
                (35,748
                )Balance,
      December 31, 2008
                
                $
                1,056,693
                
                
                $
                (690,188
                )
                
                $
                366,505





Amortization
expense related to the core deposit intangible was $35,748, $36,461 and $81,201
for the years ended December 31, 2008, 2007 and 2006, respectively.





The
following table reflects the expected amortization schedule for the core deposit
intangible at December 31, 2008:





2009
                  
                  $
                  35,7492010
                  
                  
                  35,7492011
                  
                  
                  35,7492012
                  
                  
                  35,7492013
      and Thereafter
                  
                  
                  223,509$
                  366,505


- 21
-


(8)  Income
Taxes





The
components of income tax expense for the years ended December 31 are as
follows:





2008
                    
                    
                    2007
                    
                    
                    2006Current
      Federal Expense
                    
                    $
                    861,723
                    
                    
                    $
                    5,339,925
                    
                    
                    $
                    4,994,008Deferred
      Federal (Benefit) Expense
                    
                    
                    (250,215
                    )
                    
                    
                    (1,233,259
                    )
                    
                    
                    112,518Federal
      Income Tax Expense
                    
                    
                    611,508
                    
                    
                    
                    4,106,666
                    
                    
                    
                    5,106,526Current
      State Income Tax (Benefit) Expense
                    
                    
                    (54,278
                    )
                    
                    
                    111,797
                    
                    
                    
                    110,837$
                    557,230
                    
                    
                    $
                    4,218,463
                    
                    
                    $
                    5,217,363





The
federal income tax expense of $611,508 in 2008, $4,106,666 in 2007 and
$5,106,526 in 2006 is less than the income taxes computed by applying the
federal statutory rates to income before income taxes.  The reasons
for the differences are as follows:





2008
                
                
                2007
                
                
                2006Statutory
      Federal Income Taxes
                
                $
                879,258
                
                
                $
                4,340,243
                
                
                $
                5,290,356Tax-Exempt
      Interest
                
                
                (239,097
                )
                
                
                (234,863
                )
                
                
                (188,408
                )Interest
      Expense Disallowance
                
                
                35,869
                
                
                
                46,847
                
                
                
                28,211Premiums
      on Officers’ Life Insurance
                
                
                (54,464
                )
                
                
                (47,369
                )
                
                
                (50,419
                )Meal
      and Entertainment Disallowance
                
                
                13,810
                
                
                
                14,488
                
                
                
                16,644State
      Income Taxes
                
                
                -
                
                
                
                (2,281
                )
                
                
                (46,441
                )Other
                
                
                (23,868
                )
                
                
                (10,399
                )
                
                
                56,583Actual
      Federal Income Taxes
                
                $
                611,508
                
                
                $
                4,106,666
                
                
                $
                5,106,526


- 22
-


(8)  Income
Taxes (Continued)





Deferred
taxes in the accompanying consolidated balance sheets as of December 31 include
the following:





2008
                
                
                2007Deferred
      Tax AssetsAllowance
      for Loan Losses
                
                $
                5,785,400
                
                
                $
                5,274,506Deferred
      Compensation
                
                
                381,896
                
                
                
                393,617Restricted
      Stock
                
                
                411,238
                
                
                
                347,169Other
                
                
                298,390
                
                
                
                263,6186,876,924
                
                
                
                6,278,910Deferred
      Tax LiabilitiesPremises
      and Equipment
                
                
                (1,237,807
                )
                
                
                (1,013,824
                )Vested
      Restricted Stock
                
                
                (269,014
                )
                
                
                (190,117
                )Other
                
                
                (236,107
                )
                
                
                (191,188
                )(1,742,928
                )
                
                
                (1,395,129
                )Deferred
      Tax Assets (Liabilities) on Unrealized Securities Gains
      (Losses)
                
                
                (193,763
                )
                
                
                (140,058
                )Net
      Deferred Tax Assets
                
                $
                4,940,233
                
                
                $
                4,743,723





As
discussed in Note 1, the Company applied the provisions of FASB Interpretation
No. 48, Accounting for
Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109,
on January 1, 2007.  An analysis of activity related to unrecognized
tax benefits follows as of December 31, 2008.





Balance,
      Beginning
                    
                    $
                    309,739Positions
      Taken During the Current Year
                    
                    
                    30,709Reductions
      Resulting from Lapse of Statutes of Limitation
                    
                    
                    (43,627
                    )Balance,
      Ending
                    
                    $
                    296,821





(9)  Fair
Value Measurements





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





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





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





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


- 23
-


(9)  Fair
Value Measurements (Continued)





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





Assets





Securities





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





Impaired
loans





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





Assets
and Liabilities Measured at Fair Value on a Recurring Basis





The
following table presents the recorded amount of the Company’s assets measured at
fair value on a recurring basis as of December 31, 2008 aggregated by the level
in the fair value hierarchy within which those measurements fall.




Fair
      Value Measurements at Reporting Date UsingDecember
      31,
                  2008
                
                
                Quoted
      Prices
                  in
      Active
                  Markets
      for
                  Identical
      Assets
                  (Level
      1)
                
                
                Significant
      Other Observable
                  Inputs
                  (Level
      2)
                
                
                Significant
                  Unobservable
                  Inputs
                  (Level
      3)Securities
      Available for SaleU.S.
      Government AgenciesMortgage-Backed
                
                $
                191,750
                
                
                $
                -
                
                
                $
                191,750
                
                
                $
                -State,
      County and Municipal
                
                
                9,051
                
                
                
                -
                
                
                
                9,051
                
                
                
                -Corporate
      Obligations
                
                
                6,176
                
                
                
                -
                
                
                
                5,417
                
                
                
                759Asset-Backed
      Securities
                
                
                668
                
                
                
                -
                
                
                
                -
                
                
                
                668$
                207,645
                
                
                $
                -
                
                
                $
                206,218
                
                
                $
                1,427


- 24
-


(9)  Fair
Value Measurements (Continued)





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





The table
below presents a reconciliation and statement of income classification of gains
and losses for all assets measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) for the year ended December 31,
2008.





Fair
Value Measurements Using Significant Unobservable Inputs (Level 3)





Available
      for
                    Sale
      Securities(In
      Thousands)Balance,
      Beginning
                  
                  $
                  -Total
      Unrealized Gains (Losses) Included InNet
      Income
                  
                  
                  -Other
      Comprehensive Income
                  
                  
                  (573
                  )Purchases,
      Sales, Issuances and Settlements, Net
                  
                  
                  -Transfers
      In and (Out) of Level 3
                  
                  
                  2,000Balance,
      Ending
                  
                  $
                  1,427






(10)
Deposits





The
aggregate amount of overdrawn deposit accounts reclassified as loan balances
totaled $321,931 and $573,939 as of December 31, 2008 and 2007,
respectively.





Components
of interest-bearing deposits as of December 31 are as follows:





2008
                
                
                2007Interest-Bearing
      Demand
                
                $
                194,210,807
                
                
                $
                190,303,611Savings
                
                
                33,349,191
                
                
                
                31,588,035Time,
      $100,000 and Over
                
                
                333,498,421
                
                
                
                347,219,102Other
      Time
                
                
                368,436,158
                
                
                
                363,379,455$
                929,494,577
                
                
                $
                932,490,203





At
December 31, 2008 and 2007, the Company had brokered deposits of $131,957,550
and $54,737,011, respectively.  Of the $131,957,550 brokered deposits
at December 31, 2008, $20,870,777 represented Certificate of Deposits Account
Registry Service (CDARS) reciprocal deposits in which customers placed core
deposits into the CDARS program for FDIC insurance coverage and the Company
received reciprocal brokered deposits in a like amount.  Thus,
brokered deposits less the reciprocal deposits totaled $111,086,773 at December
31, 2008.  The aggregate amount of short-term jumbo certificates of
deposit, each with a minimum denomination of $100,000, was approximately
$301,151,000 and $310,971,000 as of December 31, 2008 and 2007,
respectively.


- 25
-


(10)
Deposits (Continued)





As of
December 31, 2008, the scheduled maturities of certificates of deposit are as
follows:





Year
                  
                  Amount2009
                  
                  $
                  632,562,4382010
                  
                  
                  33,816,2662011
                  
                  
                  29,112,2062012
                  
                  
                  4,351,4832013
      and Thereafter
                  
                  
                  2,092,186$
                  701,934,579






(11)
Securities Sold Under Repurchase Agreements





The
Company has securities sold under repurchase agreements in the amount of
$40,000,000 at December 31, 2008.  Barclay’s Master Repurchase
Agreement originated on June 26, 2008 with the initial draw of $20,000,000 on
June 30, 2008.  The Repurchase Agreement matures on June 30, 2011 and
has a one-time call option on December 30, 2009.  Interest payments
are due quarterly at a fixed rate of 3.34 percent.  The Repurchase
Agreement is secured by U.S. Government mortgage-backed securities.





South
Street Securities Master Repurchase Agreement originated on October 27, 2008
with the initial draw of $20,000,000 on October 31, 2008.  The
Repurchase Agreement is overnight borrowing at a floating interest
rate.  Interest payments are due monthly, and at December 31, 2008,
the floating interest rate was 0.82 percent.  The Repurchase Agreement
is secured by U.S. Government mortgage-backed securities.






(12)
Other Borrowed Money





Other
borrowed money at December 31 is summarized as follows:





2008
                  
                  
                  2007Federal
      Home Loan Bank Advances
                  
                  $
                  91,000,000
                  
                  
                  $
                  73,500,000Silverton
      Bank Note Payable
                  
                  
                  -
                  
                  
                  
                  100,000$
                  91,000,000
                  
                  
                  $
                  73,600,000





Advances
from the Federal Home Loan Bank (FHLB) have maturities ranging from 2009 to 2019
and interest rates ranging from 0.46 percent to 5.93 percent.  Under
the Blanket Agreement for Advances and Security Agreement with the FHLB,
residential first mortgage loans, commercial loans, mortgage-backed securities
and cash balances held by the FHLB are pledged as collateral for the FHLB
advances outstanding.  At December 31, 2008, the Company had available
line of credit commitments totaling $130,890,562, of which $39,890,562 was
available.


- 26
-


(12)
Other Borrowed Money (Continued)





Silverton
Bank note payable originated on March 5, 2008 as a line of credit with funds
available of $1,000,000 at a rate of The Wall Street prime minus 0.75
percent.  Interest payments are due monthly with the entire balance
due March 5, 2009.  The debt is secured by all furniture, fixtures,
equipment and software of Colony Management Services.  Colony
Bankcorp, Inc. guarantees the debt.  This note was paid off in
September 2008.





The
aggregate stated maturities of other borrowed money at December 31, 2008 are as
follows:





Year
                  
                  Amount2009
                  
                  $
                  19,000,0002010
                  
                  
                  1,000,0002011
                  
                  
                  -2012
                  
                  
                  41,000,0002013
      and Thereafter
                  
                  
                  30,000,000$
                  91,000,000





The
Company also has available federal funds lines of credit with various financial
institutions totaling $64,000,000, of which there was $2,274,000 outstanding at
December 31, 2008.






(13)
Subordinated Debentures (Trust Preferred Securities)





During
the second quarter of 2004, the Company formed a third subsidiary whose sole
purpose was to issue $4,500,000 in Trust Preferred Securities through a pool
sponsored by FTN Financial Capital Markets.  The Trust Preferred
Securities have a maturity of 30 years and are redeemable after 5 years with
certain exceptions.  At December 31, 2008, the floating rate
securities had a 4.55 percent interest rate, which will reset quarterly at the
three-month LIBOR rate plus 2.68 percent.





During
the second quarter of 2006, the Company formed a fourth subsidiary whose sole
purpose was to issue $5,000,000 in Trust Preferred Securities in a private
placement by SunTrust Bank Capital Markets.  The Trust Preferred
Securities have a maturity of 30 years and are redeemable after 5 years with
certain exceptions.  At December 31, 2008, the floating rate
securities had a 2.96 percent interest rate, which will reset quarterly at the
three-month LIBOR rate plus 1.50 percent.





During
the first quarter of 2007, the Company formed a fifth subsidiary whose sole
purpose was to issue $9,000,000 in Trust Preferred Securities through a pool
sponsored by Trapeza Capital Management, LLC.  The Trust Preferred
Securities have a maturity of 30 years and are redeemable after 5 years
with certain exceptions.  At December 31, 2008, the floating rate
securities had a 3.12 percent interest rate, which will reset quarterly at the
three-month LIBOR rate plus 1.65 percent.  Proceeds from this issuance
were used to pay off the Trust Preferred Securities with the first subsidiary
formed in March 2002 as the Company exercised its option to
call.


- 27
-


(13)
Subordinated Debentures (Trust Preferred Securities) (Continued)





During
the third quarter of 2007, the Company formed a sixth subsidiary whose sole
purpose was to issue $5,000,000 in Trust Preferred Securities through a pool
sponsored by Trapeza Capital Management, LLC.  The Trust Preferred
Securities have a maturity of 30 years and are redeemable after 5 years
with certain exceptions.  At December 31, 2008, the floating rate
securities had a 4.87 percent interest rate, which will reset quarterly at the
three-month LIBOR rate plus 1.40 percent.  Proceeds from this issuance
were used to pay off the Trust Preferred Securities with the second subsidiary
formed in December 2002 as the Company exercised its option to
call.





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





The total
aggregate principal amount of trust preferred certificates outstanding at
December 31, 2008 was $23,500,000.  The total aggregate principal
amount of subordinated debentures outstanding at December 31, 2008 was
$24,229,000.






(14)
Restricted Stock - Unearned Compensation





In 1999,
the board of directors of Colony Bankcorp, Inc. adopted a restricted stock grant
plan which awards certain executive officers common shares of the
Company.  The maximum number of shares (split-adjusted) which may be
subject to restricted stock awards is 64,701.  To date, 77,052 shares
have been issued under this plan and 12,351 shares have been forfeited; thus,
there are no remaining shares which may be issued at December 31,
2008.  The shares are recorded at fair market value (on the date
granted) as a separate component of stockholders’ equity.  The cost of
these shares is being amortized against earnings using the straight-line method
over three years (the restriction period).





In April
2004, the stockholders of Colony Bankcorp, Inc. adopted a second restricted
stock grant plan which awards certain executive officers common shares of the
Company.  The maximum number of shares which may be subject to
restricted stock awards (split-adjusted) is 143,500.  To date, 34,406
shares have been issued under this plan and 8,148 shares have been forfeited;
thus, remaining shares which may be issued are 117,242 at December 31,
2008.   The shares are recorded at fair market value (on the date
granted) as a separate component of stockholders’ equity. The cost of these
shares is being amortized against earnings using the straight-line method over
three years (the restriction period).








(15)
Profit Sharing Plan





The
Company has a profit sharing plan that covers substantially all employees who
meet certain age and service requirements.  It is the Company’s policy
to make contributions to the plan as approved annually by the board of
directors.  The total provision for contributions to the plan was
$206,179 for 2008, $583,690 for 2007 and $662,730 for 2006.


- 28
-


(16)
Commitments and Contingencies





Credit-Related Financial
Instruments.  The Company is a party to credit related
financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers.  These
financial instruments include commitments to extend credit, standby letters of
credit and commercial letters of credit.  Such commitments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheets.





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





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





Contract
      Amount2008
                
                
                2007Commitments
      to Extend Credit
                
                $
                73,610,000
                
                
                $
                93,105,000Standby
      Letters of Credit
                
                
                2,710,000
                
                
                
                3,814,000





Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract.  Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee.  The commitments for equity lines of credit
may expire without being drawn upon.  Therefore, the total commitment
amounts do not necessarily represent future cash requirements.  The
amount of collateral obtained, if it is deemed necessary by the Company, is
based on management’s credit evaluation of the customer.





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





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





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


- 29
-


(17)
Deferred Compensation Plan





Colony
Bank, the wholly-owned subsidiary, has deferred compensation plans covering
certain former directors and certain officers choosing to participate through
individual deferred compensation contracts.  In accordance with terms
of the contracts, the Bank is committed to pay the participant’s deferred
compensation over a specified number of years, beginning at age
65.  In the event of a participant’s death before age 65, payments are
made to the participant’s named beneficiary over a specified number of years,
beginning on the first day of the month following the death of the
participant.





Liabilities
accrued under the plans totaled $1,123,223 and $1,158,597 as of December 31,
2008 and 2007, respectively.  Benefit payments under the contracts
were $211,816 in 2008 and $187,059 in 2007.  Provisions charged to
operations totaled $178,542 in 2008, $238,003 in 2007 and $164,997 in
2006.





Fee
income recognized with deferred compensation plans totaled $160,187 in 2008,
$139,322 in 2007 and $148,290 in 2006.








(18)
Interest Income and Expense





Interest
income of $426,779, $506,896 and $311,828 from state, county and municipal bonds
was exempt from regular income taxes in 2008, 2007 and 2006,
respectively.





Interest
on deposits includes interest expense on time certificates of $100,000 or more
totaling $14,596,774, $18,700,653 and $16,189,086 for the years ended December
31, 2008, 2007 and 2006, respectively.








(19)
Supplemental Cash Flow Information





Cash
payments for the following were made during the years ended December
31:





2008
                
                
                2007
                
                
                2006Interest
      Expense
                
                $
                38,739,489
                
                
                $
                47,409,625
                
                
                $
                40,351,134Income
      Taxes
                
                $
                1,875,000
                
                
                $
                6,380,000
                
                
                $
                5,371,395





Noncash
financing and investing activities for the years ended December 31 are as
follows:





2008
                      
                      
                      2007
                      
                      
                      2006Acquisitions
      of Real Estate Through Loan Foreclosures
                      
                      $
                      14,748,105
                      
                      
                      $
                      2,576,332
                      
                      
                      $
                      2,815,716Unrealized
      Gain on Investment Securities
                      
                      $
                      (157,957
                      )
                      
                      $
                      (1,888,934
                      )
                      
                      $
                      (572,485
                      )


- 30
-


(20)
Related Party Transactions





The
aggregate balance of direct and indirect loans to directors, executive officers
or principal holders of equity securities of the Company was $7,641,037 as of
December 31, 2008 and $16,544,057 as of December 31, 2007.  All such
loans were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and do not involve more than a normal risk of
collectibility.  A summary of activity of related party loans is shown
below:





2008
                  
                  
                  2007Balance,
      Beginning
                  
                  $
                  16,544,057
                  
                  
                  $
                  18,142,109New
      Loans
                  
                  
                  5,871,138
                  
                  
                  
                  10,009,867Repayments
                  
                  
                  (4,282,192
                  )
                  
                  
                  (10,981,245
                  )Transactions
      Due to Changes in Directors
                  
                  
                  (10,491,966
                  )
                  
                  
                  (626,674
                  )Balance,
      Ending
                  
                  $
                  7,641,037
                  
                  
                  $
                  16,544,057








(21)
Fair Value of Financial Instruments





SFAS No.
107, Disclosures about Fair
Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized on the face
of the balance sheet, for which it is practicable to estimate that
value.  The assumptions used in the estimation of the fair value of
Colony Bankcorp, Inc. and Subsidiary’s financial instruments are detailed
hereafter.  Where quoted prices are not available, fair values are
based on estimates using discounted cash flows and other valuation
techniques.  The use of discounted cash flows can be significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows.  The following disclosures should not be considered
a surrogate of the liquidation value of the Company, but rather a good-faith
estimate of the increase or decrease in value of financial instruments held by
the Company since purchase, origination or issuance.





Cash and Short-Term
Investments - For cash, due from banks, bank-owned deposits and federal
funds sold, the carrying amount is a reasonable estimate of fair
value.





Investment Securities- Fair
values for investment securities are based on quoted market prices where
available.  If quoted market prices are not available, estimated fair
values are based on quoted market prices of comparable instruments.





Federal Home Loan Bank Stock –
The fair value of Federal Home Loan Bank stock approximates carrying
value.





Loans - The fair value of
fixed rate loans is estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with similar
credit ratings.  For variable rate loans, the carrying amount is a
reasonable estimate of fair value.





Deposit Liabilities - The fair
value of demand deposits, savings accounts and certain money market deposits is
the amount payable on demand at the reporting date.  The fair value of
fixed maturity certificates of deposit is estimated by discounting the future
cash flows using the rates currently offered for deposits of similar remaining
maturities.





Federal Funds Purchased –The
carrying value of federal funds purchased approximates fair
value.


- 31
-


(21)
Fair Value of Financial Instruments (Continued)





Subordinated Debentures –Fair
value approximates carrying value due to the variable interest rates of the
subordinated debentures.





Securities Sold Under Agreements to
Repurchase and Other Borrowed Money – The fair value of other borrowed
money is calculated by discounting contractual cash flows using an estimated
interest rate based on current rates available to the Company for debt of
similar remaining maturities and collateral terms.





Unrecognized Financial
Instruments – Fair values for off-balance sheet, credit-related financial
instruments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties’ credit standing.  The fees associated with these
instruments are not material.





The
carrying amount and estimated fair values of the Company’s financial instruments
as of December 31 are as follows:




2008
                
                
                2007Carrying
                
                
                Estimated
                
                
                Carrying
                
                
                EstimatedAmount
                
                
                Fair
      Value
                
                
                Amount
                
                
                Fair
      Value(in
      Thousands)AssetsCash
      and Short-Term Investments
                
                $
                29,605
                
                
                $
                29,605
                
                
                $
                51,573
                
                
                $
                51,573Investment
      Securities Available for Sale
                
                
                207,645
                
                
                
                207,645
                
                
                
                167,123
                
                
                
                167,123Investment
      Securities Held to Maturity
                
                
                60
                
                
                
                63
                
                
                
                68
                
                
                
                72Federal
      Home Loan Bank Stock
                
                
                6,272
                
                
                
                6,272
                
                
                
                5,533
                
                
                
                5,533Loans,
      Net
                
                
                943,841
                
                
                
                959,613
                
                
                
                929,465
                
                
                
                928,156LiabilitiesDeposits
                
                
                1,006,991
                
                
                
                1,009,967
                
                
                
                1,018,602
                
                
                
                1,020,855Federal
      Funds Purchased
                
                
                2,274
                
                
                
                2,274
                
                
                
                1,346
                
                
                
                1,346Subordinated
      Debentures
                
                
                24,229
                
                
                
                24,229
                
                
                
                24,229
                
                
                
                24,229Securities
      Sold Under Agreements to Repurchase
                
                
                40,000
                
                
                
                40,765
                
                
                
                -
                
                
                
                -Other
      Borrowed Money
                
                
                91,000
                
                
                
                94,067
                
                
                
                73,600
                
                
                
                72,301





Fair
value estimates are made at a specific point in time, based on relevant market
information and information about the financial instrument.  These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company’s entire holdings of a particular financial
instrument.  Because no market exists for a significant portion of the
Company’s financial instruments, fair value estimates are based on many
judgments.  These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision.  Changes in assumptions could significantly
affect the estimates.





Fair
value estimates are based on existing on and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments.  Significant assets and liabilities that are
not considered financial instruments include deferred income taxes and premises
and equipment.  In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in the
estimates.


- 32
-


(22)
Regulatory Capital Matters





The
amount of dividends payable to the parent company from the subsidiary bank is
limited by various banking regulatory agencies.  Upon approval by
regulatory authorities, the Bank may pay cash dividends to the parent company in
excess of regulatory limitations.





The
Company is subject to various regulatory capital requirements administered by
the federal banking agencies.  Failure to meet minimum capital
requirements can initiate certain mandatory and, possibly, additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company’s consolidated financial
statements.  Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company must meet specific capital
guidelines that involve quantitative measures of the Company’s assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices.  The Company’s capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.





Quantitative
measures established by regulation to ensure capital adequacy require the
Company to maintain minimum amounts and ratios of total and Tier I capital to
risk-weighted assets, and of Tier I capital to average assets.  The
amounts and ratios as defined in regulations are presented
hereafter.  Management believes, as of December 31, 2008, the Company
meets all capital adequacy requirements to which it is subject under the
regulatory framework for prompt corrective action.  In the opinion of
management, there are no conditions or events since prior notification of
capital adequacy from the regulators that have changed the institution’s
category.


- 33
-




(22)
Regulatory Capital Matters (Continued)





The
following table summarizes regulatory capital information as of December 31,
2008 and 2007 on a consolidated basis and for its wholly-owned subsidiary, as
defined.





To
      Be WellCapitalized
      UnderFor
      Capital
                          
                          
                          Prompt
      CorrectiveActual
                          
                          
                          Adequacy
      Purposes
                          
                          
                          Action
      ProvisionsAmount
                          
                          
                          Ratio
                          
                          
                          Amount
                          
                          
                          Ratio
                          
                          
                          Amount
                          
                          
                          RatioAs
      of December 31, 2008
                          
                          (In
      Thousands)Total
      Capital to Risk-Weighted AssetsConsolidated
                          
                          $
                          115,604
                          
                          
                          
                          12.06
                          %
                          
                          $
                          76,684
                          
                          
                          
                          8.00
                          %
                          
                          
                          N/A
                          
                          
                          
                          N/AColony
      Bank
                          
                          
                          114,545
                          
                          
                          
                          11.97
                          
                          
                          
                          76,547
                          
                          
                          
                          8.00
                          
                          
                          $
                          95,684
                          
                          
                          
                          10.00
                          %Tier
      I Capital to Risk-Weighted AssetsConsolidated
                          
                          
                          103,560
                          
                          
                          
                          10.80
                          
                          
                          
                          38,342
                          
                          
                          
                          4.00
                          
                          
                          
                          N/A
                          
                          
                          
                          N/AColony
      Bank
                          
                          
                          102,522
                          
                          
                          
                          10.71
                          
                          
                          
                          38,273
                          
                          
                          
                          4.00
                          
                          
                          
                          57,470
                          
                          
                          
                          6.00Tier
      I Capital to Average AssetsConsolidated
                          
                          
                          103,560
                          
                          
                          
                          8.39
                          
                          
                          
                          49,380
                          
                          
                          
                          4.00
                          
                          
                          
                          N/A
                          
                          
                          
                          N/AColony
      Bank
                          
                          
                          102,522
                          
                          
                          
                          8.33
                          
                          
                          
                          49,205
                          
                          
                          
                          4.00
                          
                          
                          
                          61,506
                          
                          
                          
                          5.00As
      of December 31, 2007Total
      Capital to Risk-Weighted AssetsConsolidated
                          
                          
                          116,222
                          
                          
                          
                          12.08
                          
                          
                          
                          76,944
                          
                          
                          
                          8.00
                          
                          
                          
                          N/A
                          
                          
                          
                          N/AColony
      Bank
                          
                          
                          113,618
                          
                          
                          
                          11.86
                          
                          
                          
                          76,644
                          
                          
                          
                          8.00
                          
                          
                          
                          95,805
                          
                          
                          
                          10.00Tier
      I Capital to Risk-Weighted AssetsConsolidated
                          
                          
                          104,157
                          
                          
                          
                          10.83
                          
                          
                          
                          38,472
                          
                          
                          
                          4.00
                          
                          
                          
                          N/A
                          
                          
                          
                          N/AColony
      Bank
                          
                          
                          101,679
                          
                          
                          
                          10.61
                          
                          
                          
                          38,322
                          
                          
                          
                          4.00
                          
                          
                          
                          57,483
                          
                          
                          
                          6.00Tier
      I Capital to Average AssetsConsolidated
                          
                          
                          104,157
                          
                          
                          
                          8.60
                          
                          
                          
                          48,467
                          
                          
                          
                          4.00
                          
                          
                          
                          N/A
                          
                          
                          
                          N/AColony
      Bank
                          
                          
                          101,679
                          
                          
                          
                          8.46
                          
                          
                          
                          48,055
                          
                          
                          
                          4.00
                          
                          
                          
                          60,069
                          
                          
                          
                          5.00


- 34
-


(23)
Financial Information of Colony Bankcorp, Inc. (Parent Only)





The
parent company’s balance sheets as of December 31, 2008 and 2007 and the related
statements of income and comprehensive income and cash flows for each of the
years in the three-year period then ended are as follows:





COLONY
      BANKCORP, INC. (PARENT ONLY)
                    BALANCE
      SHEETS
                    DECEMBER
      31ASSETS2008
                  
                  
                  2007Cash
                  
                  $
                  2,227
                  
                  
                  $
                  972,960Premises
      and Equipment, Net
                  
                  
                  1,542,040
                  
                  
                  
                  1,235,508Investment
      in Subsidiary, at Equity
                  
                  
                  105,506,392
                  
                  
                  
                  104,594,496Other
                  
                  
                  1,293,424
                  
                  
                  
                  2,219,676Total
      Assets
                  
                  $
                  108,344,083
                  
                  
                  $
                  109,022,640LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilitiesDividends
      Payable
                  
                  $
                  703,201
                  
                  
                  $
                  684,087Other
                  
                  
                  196,727
                  
                  
                  
                  366,435899,928
                  
                  
                  
                  1,050,522Subordinated
      Debt
                  
                  
                  24,229,000
                  
                  
                  
                  24,229,000Stockholders’
      EquityCommon
      Stock, Par Value $1 a Share; Authorized 20,000,000 Shares, Issued
      7,212,313 and 7,200,913 Shares as of December 31, 2008 and 2007,
      Respectively
                  
                  
                  7,212,313
                  
                  
                  
                  7,200,913Paid-In
      Capital
                  
                  
                  24,535,683
                  
                  
                  
                  24,420,497Retained
      Earnings
                  
                  
                  51,302,025
                  
                  
                  
                  52,086,834Restricted
      Stock – Unearned Compensation
                  
                  
                  (210,993
                  )
                  
                  
                  (237,002
                  )Accumulated
      Other Comprehensive Income, Net of Tax
                  
                  
                  376,127
                  
                  
                  
                  271,87683,215,155
                  
                  
                  
                  83,743,118Total
      Liabilities and Stockholders’ Equity
                  
                  $
                  108,344,083
                  
                  
                  $
                  109,022,640


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(23)
Financial Information of Colony Bankcorp, Inc. (Parent Only)
(Continued)





COLONY
      BANKCORP, INC. (PARENT ONLY)
                  STATEMENTS
      OF INCOME AND COMPREHENSIVE INCOME
                  FOR
      THE YEARS ENDED DECEMBER 312008
                
                
                2007
                
                
                2006IncomeDividends
      from Subsidiary
                
                $
                5,038,854
                
                
                $
                5,662,500
                
                
                $
                6,800,000Other
                
                
                92,111
                
                
                
                281,885
                
                
                
                168,7635,130,965
                
                
                
                5,944,385
                
                
                
                6,968,763ExpensesInterest
                
                
                1,270,942
                
                
                
                2,005,971
                
                
                
                1,926,647Amortization
                
                
                2,250
                
                
                
                295,093
                
                
                
                30,317Salaries
      and Employee Benefits
                
                
                876,166
                
                
                
                974,524
                
                
                
                1,013,523Other
                
                
                1,240,339
                
                
                
                889,093
                
                
                
                735,8213,389,697
                
                
                
                4,164,681
                
                
                
                3,706,308Income
      Before Taxes and Equity in Undistributed Earnings of
      Subsidiary
                
                
                1,741,268
                
                
                
                1,779,704
                
                
                
                3,262,455Income
      Tax Benefits
                
                
                979,911
                
                
                
                1,213,835
                
                
                
                1,027,921Income
      Before Equity in Undistributed Earnings of Subsidiary
                
                
                2,721,179
                
                
                
                2,993,539
                
                
                
                4,290,376Equity
      in Undistributed Earnings (Losses) of Subsidiary
                
                
                (692,355
                )
                
                
                5,553,417
                
                
                
                5,861,619Net
      Income
                
                
                2,028,824
                
                
                
                8,546,956
                
                
                
                10,151,995Other
      Comprehensive Income, Net of TaxGains
      on Securities Arising During the Year
                
                
                893,158
                
                
                
                1,367,910
                
                
                
                377,840Reclassification
      Adjustment
                
                
                (788,907
                )
                
                
                (121,213
                )
                
                
                -Change
      in Net Unrealized Gains on Securities Available for Sale, Net of
      Reclassification Adjustment and Tax Effects
                
                
                104,251
                
                
                
                1,246,697
                
                
                
                377,840Comprehensive
      Income
                
                $
                2,133,075
                
                
                $
                9,793,653
                
                
                $
                10,529,835


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(23)
Financial Information of Colony Bankcorp, Inc. (Parent Only)
(Continued)





COLONY
      BANKCORP, INC. (PARENT ONLY)
                    STATEMENTS
      OF CASH FLOWS
                    FOR
      THE YEARS ENDED DECEMBER 312008
                  
                  
                  2007
                  
                  
                  2006Cash
      Flows from Operating ActivitiesNet
      Income
                  
                  $
                  2,028,824
                  
                  
                  $
                  8,546,956
                  
                  
                  $
                  10,151,995Adjustments
      to Reconcile Net Income to Net CashProvided
      from Operating ActivitiesDepreciation
      and Amortization
                  
                  
                  275,299
                  
                  
                  
                  294,121
                  
                  
                  
                  309,388Equity
      in Undistributed Earnings of Subsidiary
                  
                  
                  692,355
                  
                  
                  
                  (5,553,417
                  )
                  
                  
                  (5,861,619
                  )Other
                  
                  
                  720,701
                  
                  
                  
                  (436,928
                  )
                  
                  
                  (267,646
                  )3,717,179
                  
                  
                  
                  2,850,732
                  
                  
                  
                  4,332,118Cash
      Flows from Investing ActivitiesCapital
      Infusion in Subsidiary
                  
                  
                  (1,500,000
                  )
                  
                  
                  (1,500,000
                  )
                  
                  
                  (2,500,000
                  )Purchases
      of Premises and Equipment
                  
                  
                  (393,392
                  )
                  
                  
                  (44,915
                  )
                  
                  
                  (73,749
                  )Investment
      in Capital Trusts
                  
                  
                  -
                  
                  
                  
                  (434,000
                  )
                  
                  
                  (155,000
                  )Liquidation
      of Statutory Trusts
                  
                  
                  -
                  
                  
                  
                  434,000
                  
                  
                  
                  -(1,893,392
                  )
                  
                  
                  (1,544,915
                  )
                  
                  
                  (2,728,749
                  )Cash
      Flows from Financing ActivitiesDividends
      Paid
                  
                  
                  (2,794,520
                  )
                  
                  
                  (2,556,438
                  )
                  
                  
                  (2,264,320
                  )Principal
      Payments on Notes and Debentures
                  
                  
                  -
                  
                  
                  
                  (14,434,000
                  )
                  
                  
                  (2,500,000
                  )Proceeds
      from Notes and Debentures
                  
                  
                  -
                  
                  
                  
                  14,434,000
                  
                  
                  
                  5,155,000(2,794,520
                  )
                  
                  
                  (2,556,438
                  )
                  
                  
                  390,680Increase
      (Decrease) in Cash
                  
                  
                  (970,733
                  )
                  
                  
                  (1,250,621
                  )
                  
                  
                  1,994,049Cash,
      Beginning
                  
                  
                  972,960
                  
                  
                  
                  2,223,581
                  
                  
                  
                  229,532Cash,
      Ending
                  
                  $
                  2,227
                  
                  
                  $
                  972,960
                  
                  
                  $
                  2,223,581


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(24)
Earnings Per Share





SFAS No.
128 establishes standards for computing and presenting basic and diluted
earnings per share. Basic earnings per share is calculated and presented based
on income available to common stockholders divided by the weighted average
number of shares outstanding during the reporting periods. Diluted earnings per
share reflects the potential dilution of restricted stock. The following
presents earnings per share for the years ended December 31, 2008, 2007 and 2006
under the requirements of Statement 128:





December
      31, 2008
              
              Income
      Numerator
              
              
              Common
                Shares
                Denominator
              
              
              EPSBasic
      EPSIncome
      Available to Common Stockholders
              
              $
              2,028,824
              
              
              
              7,199,121
              
              
              $
              0.28Dilutive
      Effect of Potential Common StockRestricted
      Stock
              
              
              
              
              
              
              -Diluted
      EPSIncome
      Available to Common Stockholders After Assumed Conversions of Dilutive
      Securities
              
              $
              2,028,824
              
              
              
              7,199,121
              
              
              $
              0.28December
      31, 2007Basic
      EPSIncome
      Available to Common Stockholders
              
              $
              8,546,956
              
              
              
              7,188,696
              
              
              $
              1.19Dilutive
      Effect of Potential Common StockRestricted
      Stock
              
              
              
              
              
              
              8,635Diluted
      EPSIncome
      Available to Common Stockholders After Assumed Conversions of Dilutive
      Securities
              
              $
              8,546,956
              
              
              
              7,197,331
              
              
              $
              1.19December
      31, 2006Basic
      EPSIncome
      Available to Common Stockholders
              
              $
              10,151,995
              
              
              
              7,176,894
              
              
              $
              1.41Dilutive
      Effect of Potential Common StockRestricted
      Stock
              
              
              
              
              
              
              843Diluted
      EPSIncome
      Available to Common Stockholders After Assumed Conversions of Dilutive
      Securities
              
              $
              10,151,995
              
              
              
              7,177,737
              
              
              $
              1.41


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(25)
Subsequent Events





On
December 4, 2008, Colony Bankcorp, Inc. received preliminary approval for
participation in the U.S. Treasury Capital Program (CPP).  On January
9, 2009, Colony consummated the sale of $28,000,000 in preferred stock and
related warrants to the U.S. Treasury.  The Company issued 28,000
shares of Series A preferred stock along with warrants to purchase 500,000
shares of common stock.  The preferred stock has a 5 percent dividend
rate per annum for the first five years and a 9 percent dividend rate per annum
thereafter that is payable quarterly in arrears starting on February 15,
2009.  The 500,000 shares of common stock issuable upon exercise of
the warrants, which shares, if issued, would represent ownership of
approximately 6.5 percent of our common stock as of January 28,
2009.






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