SECURITIES
        AND EXCHANGE COMMISSION
 WASHINGTON,
        DC 20549
 
 FORM
        10-Q
 
 QUARTERLY
        REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
 EXCHANGE
        ACT OF 1934
 
  FOR
                    QUARTER ENDED SEPTEMBER 30, 2007
                COMMISSION
                    FILE NUMBER 0-12436
 
 COLONY
        BANKCORP, INC.
 (EXACT
        NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
 
 GEORGIA
              
              58-1492391(STATE
                  OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
              
              (I.R.S.
                  EMPLOYER IDENTIFICATION NUMBER)
 
 
 115
        SOUTH GRANT STREET, FITZGERALD, GEORGIA 31750
 ADDRESS
        OF PRINCIPAL EXECUTIVE OFFICES
 
 
 229/426-6000
 REGISTRANT’S
        TELEPHONE NUMBER INCLUDING AREA CODE
 
 
 INDICATE
        BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED REPORTS REQUIRED TO BE
        FILED
        BY SECTIONS 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE
        PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED
        TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS
        FOR
        THE PAST 90 DAYS.
 
 YES    x                      NO
 
 INDICATE
        BY CHECK MARK WHETHER THE REGISTRANT IS A LARGE ACCELERATED FILER, AN
        ACCELERATED FILER OR A NONACCELERATED FILER.   SEE DEFINITION OF
        ACCELERATED FILER AND LARGE ACCELERATED FILER IN RULE 12b-2 OF THE EXCHANGE
        ACT.  (CHECK ONE)
 
 LARGE
                  ACCELERATED FILER
              ACCELERATED
                  FILER    x
              NON
                  ACCELERATED FILER
 
 INDICATE
        BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE
        12B-2 OF THE ACT).
 
 YES                      NO   x
 
 INDICATE
        THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER’S CLASSES OF COMMON
        STOCK, AS OF THE LATEST PRACTICABLE DATE.
 
 
 CLASS
              
              OUTSTANDING
                  AT NOVEMBER 7, 2007COMMON
                  STOCK, $1 PAR VALUE
              
              7,204,775
  
 
  TABLEOF
        CONTENTS
  PagePART
                  I – Financial InformationForward
                  Looking Statement Disclosure
              3Item
                  1.
              Financial
                  Statements
              4Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition and
                  Results of Operation
              28Item
                  3.
              Quantitative
                  and Qualitative Disclosures  About Market
                  Risk
              48Item
                  4.
              Controls
                  and Procedures
              51PART
                  II – Other InformationItem
                  1.
              Legal
                  Proceedings
              52Item
                  1A.
              Rick
                  Factors
              52Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              52Item
                  3.
              Defaults
                  Upon Senior Securities
              52Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              52Item
                  5.
              Other
                  Information
              52Item
                  6.
              Exhibits
              53Signatures
              54
  2
 ***Table
            of Contents***
  **Forward
        Looking Statement Disclosure**
 
 Statements
        in this Quarterly Report regarding future events or performance are
“forward-looking statements” within the meaning of the Private Securities
        Litigation Reform Act of 1995 (the PSLRA) and are made pursuant to the safe
        harbors of the PSLRA.  Actual results of Colony Bankcorp, Inc. (the
        Company) could be quite different from those expressed or implied by the
        forward-looking statements.  Any statements containing the words
“could,” “may,” “will,” “should,” “plan,” “believe,” “anticipates,” “estimates,”
“predicts,” “expects,” “projections,” “potential,” “continue,” or words of
        similar import, constitute “forward-looking statements”, as do any other
        statements that expressly or implicitly predict future events, results, or
        performance.   Factors that could cause results to differ from
        results expressed or implied by our forward-looking statements include, among
        others, risks discussed in the text of this Quarterly Report as well as the
        following specific items:
 
 ·
              General
                  economic conditions, whether national or regional, that could affect
                  the
                  demand for loans or lead to increased loan
                  losses;
 
 ·
              Competitive
                  factors, including increased competition with community, regional,
                  and
                  national financial institutions, that may lead to pricing pressures
                  that
                  reduce yields the Company achieves on loans and increase rates
                  the Company
                  pays on deposits, loss of the Company’s most valued customers, defection
                  of key employees or groups of employees, or other
                  losses;
 
 ·
              Increasing
                  or decreasing interest rate environments, including the shape and
                  level of
                  the yield curve, that could lead to decreases in net interest margin,
                  lower net interest and fee income, including lower gains on sales
                  of
                  loans, and changes in the value of the Company’s investment
                  securities;
 
 ·
              Changing
                  business or regulatory conditions, or new legislation, affecting
                  the
                  financial services industry that could lead to increased costs,
                  changes in
                  the competitive balance among financial institutions, or revisions
                  to our
                  strategic focus;
 
 ·
              Changes
                  or failures in technology or third party vendor relationships in
                  important
                  revenue production or service areas, or increases in required investments
                  in technology that could reduce our revenue, increase our costs
                  or lead to
                  disruptions in our business.
 
 ·
              Readers
                  are cautioned not to place undue reliance on our forward-looking
                  statements, which reflect management’s analysis only as of the date of the
                  statements.  The Company does not intend to publicly revise or
                  update forward-looking statements to reflect events or circumstances
                  that
                  arise after the date of this
                  report.
 
 Readers
        should carefully review all disclosures we file from time to time with the
        Securities and Exchange Commission (SEC).
  3
 ***Table
            of Contents***
  **PART
        1.   FINANCIAL INFORMATION**
 ITEM
        1.
 
 **FINANCIAL
        STATEMENTS**
 
 THE
        FOLLOWING FINANCIAL STATEMENTS ARE PROVIDED FOR COLONY BANKCORP, INC. AND
        SUBSIDIARIES: COLONY BANK OF FITZGERALD, COLONY BANK ASHBURN, COLONY BANK
        WILCOX, COLONY BANK OF DODGE COUNTY, COLONY BANK WORTH, COLONY BANK SOUTHEAST,
        COLONY MANAGEMENT SERVICES, INC., AND COLONY BANK QUITMAN, FSB.
 
 A.
              CONSOLIDATED
                  BALANCE SHEETS – SEPTEMBER 30, 2007 AND DECEMBER 31,
                  2006.
 
 B.
              CONSOLIDATED
                  STATEMENTS OF INCOME – FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND
                  2006 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND
                  2006.
 
 C.
              CONSOLIDATED
                  STATEMENTS OF COMPREHENSIVE INCOME – FOR THE THREE MONTHS ENDED SEPTEMBER
                  30, 2007 AND 2006 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
                  AND
                  2006.
 
 D.
              CONSOLIDATED
                  STATEMENTS OF CASH FLOWS – FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
                  AND 2006.
 
 THE
        CONSOLIDATED FINANCIAL STATEMENTS FURNISHED HAVE NOT BEEN AUDITED BY INDEPENDENT
        CERTIFIED PUBLIC ACCOUNTANTS, BUT REFLECT, IN THE OPINION OF MANAGEMENT,
        ALL
        ADJUSTMENTS (CONSISTING SOLELY OF NORMAL RECURRING ADJUSTMENTS) NECESSARY
        FOR A
        FAIR PRESENTATION OF THE RESULTS OF OPERATIONS FOR THE PERIODS
        PRESENTED.
 
 THE
        RESULTS OF OPERATIONS FOR THE NINE
        MONTH PERIOD ENDED SEPTEMBER 30, 2007 ARE NOT NECESSARILY INDICATIVE OF THE
        RESULTS TO BE EXPECTED FOR THE FULL YEAR.
  4
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
  **COLONY
                    BANKCORP, INC. AND SUBSIDIARIES****CONSOLIDATED
                    BALANCE SHEETS****SEPTEMBER
                    30, 2007 AND DECEMBER 31, 2006****(DOLLARS
                    IN THOUSANDS)**
 **September
                  30, 2007**
              
              
              December
                  31, 2006ASSETS
              
              **(Unaudited)****Cash
                  and Cash Equivalents**Cash
                  and Due from Banks
              
              **$**
              **22,405**
              
              
              $
              27,231Federal
                  Funds Sold
              
              ****
              **17,129**
              
              
              
              45,149****
              **39,534**
              
              
              
              72,380**Interest-Bearing
                  Deposits**
              
              ****
              **3,616**
              
              
              
              3,076**Investment
                  Securities**Available
                  for Sale, at Fair Value
              
              ****
              **155,605**
              
              
              
              149,236Held
                  to Maturity, at Cost (Fair Value of $69 and $71, as of September
                  30, 2007
                  and December 31, 2006, Respectively)
              
              ****
              **69**
              
              
              
              71****
              **155,674**
              
              
              
              149,307**Federal
                  Home Loan Bank Stock, at Cost**
              
              ****
              **5,533**
              
              
              
              5,087**Loans**
              
              ****
              **968,292**
              
              
              
              942,273Allowance
                  for Loan Losses
              
              ****
              **(13,821**
              **)**
              
              
              (11,989
              )Unearned
                  Interest and Fees
              
              ****
              **(405**
              **)**
              
              
              (501
              )****
              **954,066**
              
              
              
              929,783**Premises
                  and Equipment**
              
              ****
              **27,541**
              
              
              
              27,453**Other
                  Real Estate**
              
              ****
              **1,240**
              
              
              
              970**Goodwill**
              
              ****
              **2,412**
              
              
              
              2,412**Other
                  Intangible Assets**
              
              ****
              **411**
              
              
              
              439**Other
                  Assets**
              
              ****
              **23,243**
              
              
              
              22,597**Total
                  Assets**
              
              **$**
              **1,213,270**
              
              
              $
              1,213,504**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Deposits**Noninterest-Bearing
              
              **$**
              **74,158**
              
              
              $
              77,336Interest-Bearing
              
              ****
              **944,597**
              
              
              
              965,110****
              **1,018,755**
              
              
              
              1,042,446**Borrowed
                  Money**Federal
                  Funds Purchased
              
              ****
              **476**
              
              
              
              1,070Subordinated
                  Debentures
              
              ****
              **29,384**
              
              
              
              24,229Other
                  Borrowed Money
              
              ****
              **73,600**
              
              
              
              61,500****
              **103,460**
              
              
              
              86,799**Other
                  Liabilities**
              
              ****
              **8,134**
              
              
              
              7,648**Commitments
                  and Contingencies****Stockholders'
                  Equity**Common
                  Stock, Par Value $1 a Share, Authorized 20,000,000 Shares, Issued
                  7,204,775 and 7,189,937 Shares as of September 30, 2007 and December
                  31,
                  2006, Respectively
              
              ****
              **7,205**
              
              
              
              7,190Paid-In
                  Capital
              
              ****
              **24,503**
              
              
              
              24,257Retained
                  Earnings
              
              ****
              **52,019**
              
              
              
              46,417Restricted
                  Stock - Unearned Compensation
              
              ****
              **(343**
              **)**
              
              
              (278
              )Accumulated
                  Other Comprehensive Loss, Net of Tax
              
              ****
              **(463**
              **)**
              
              
              (975
              )****
              **82,921**
              
              
              
              76,611**Total
                  Liabilities and Stockholders' Equity**
              
              **$**
              **1,213,270**
              
              
              $
              1,213,504
 
 
 The
        accompanying notes are an integral part of these statements.
  5
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 **COLONY
                      BANKCORP, INC. AND SUBSIDIARIES****CONSOLIDATED
                      STATEMENTS OF INCOME****THREE
                      MONTHS ENDED SEPTEMBER 30, 2007 AND 2006****AND
                      NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006****(UNAUDITED)****(DOLLARS
                      IN THOUSANDS)**
 
 
 **Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****9/30/2007**
              
              
              9/30/2006
              
              
              **9/30/2007**
              
              
              9/30/2006**Interest
                  Income**Loans,
                  Including Fees
              
              **$**
              **20,735**
              
              
              $
              19,665
              
              
              **$**
              **60,923**
              
              
              $
              55,070Federal
                  Funds Sold
              
              ****
              **237**
              
              
              
              462
              
              
              ****
              **1,204**
              
              
              
              1,458Deposits
                  with Other Banks
              
              ****
              **36**
              
              
              
              38
              
              
              ****
              **111**
              
              
              
              92Investment
                  SecuritiesU.S.
                  Government Agencies
              
              ****
              **1,632**
              
              
              
              1,370
              
              
              ****
              **4,749**
              
              
              
              3,716State,
                  County and Municipal
              
              ****
              **136**
              
              
              
              95
              
              
              ****
              **407**
              
              
              
              274Corporate
                  Obligations and Asset-Backed Securities
              
              ****
              **79**
              
              
              
              43
              
              
              ****
              **205**
              
              
              
              116Dividends
                  on Other Investments
              
              ****
              **76**
              
              
              
              75
              
              
              ****
              **225**
              
              
              
              203****
              **22,931**
              
              
              
              21,748
              
              
              ****
              **67,824**
              
              
              
              60,929**Interest
                  Expense**Deposits
              
              ****
              **10,853**
              
              
              
              9,762
              
              
              ****
              **32,133**
              
              
              
              25,938Federal
                  Funds Purchased
              
              ****
              **13**
              
              
              
              12
              
              
              ****
              **50**
              
              
              
              28Borrowed
                  Money
              
              ****
              **1,272**
              
              
              
              1,180
              
              
              ****
              **3,572**
              
              
              
              3,556****
              **12,138**
              
              
              
              10,954
              
              
              ****
              **35,755**
              
              
              
              29,522**Net
                  Interest Income**
              
              ****
              **10,793**
              
              
              
              10,794
              
              
              ****
              **32,069**
              
              
              
              31,407Provision
                  for Loan Losses
              
              ****
              **850**
              
              
              
              1,021
              
              
              ****
              **2,678**
              
              
              
              2,990**Net
                  Interest Income After Provision for Loan Losses**
              
              ****
              **9,943**
              
              
              
              9,773
              
              
              ****
              **29,391**
              
              
              
              28,417**Noninterest
                  Income**Service
                  Charges on Deposits
              
              ****
              **1,224**
              
              
              
              1,193
              
              
              ****
              **3,556**
              
              
              
              3,380Other
                  Service Charges, Commissions and Fees
              
              ****
              **218**
              
              
              
              207
              
              
              ****
              **703**
              
              
              
              625Mortgage
                  Fee Income
              
              ****
              **225**
              
              
              
              180
              
              
              ****
              **763**
              
              
              
              516Securities
                  Gains (Losses)
              
              ****
              **(2**
              **)**
              
              
              ----
              
              
              ****
              **184**
              
              
              
              -----Other
              
              ****
              **181**
              
              
              
              318
              
              
              ****
              **806**
              
              
              
              1,003****
              **1,846**
              
              
              
              1,898
              
              
              ****
              **6,012**
              
              
              
              5,524**Noninterest
                  Expenses**Salaries
                  and Employee Benefits
              
              ****
              **4,464**
              
              
              
              4,350
              
              
              ****
              **13,693**
              
              
              
              12,676Occupancy
                  and Equipment
              
              ****
              **1,025**
              
              
              
              1,047
              
              
              ****
              **3,036**
              
              
              
              3,035Other
              
              ****
              **2,267**
              
              
              
              2,283
              
              
              ****
              **6,901**
              
              
              
              6,655****
              **7,756**
              
              
              
              7,680
              
              
              ****
              **23,630**
              
              
              
              22,366**Income
                  Before Income Taxes**
              
              ****
              **4,033**
              
              
              
              3,991
              
              
              ****
              **11,773**
              
              
              
              11,575**Income
                  Taxes**
              
              ****
              **1,414**
              
              
              
              1,369
              
              
              ****
              **3,978**
              
              
              
              4,034**Net
                  Income**
              
              **$**
              **2,619**
              
              
              $
              2,622
              
              
              **$**
              **7,795**
              
              
              $
              7,541**Net
                  Income Per Share of Common Stock**Basic
              
              **$**
              **0.36**
              
              
              $
              0.36
              
              
              **$**
              **1.08**
              
              
              $
              1.05Diluted
              
              **$**
              **0.36**
              
              
              $
              0.36
              
              
              **$**
              **1.08**
              
              
              $
              1.05**Cash
                  Dividends Declared Per Share of Common Stock**
              
              **$**
              **0.09**
              
              
              $
              0.08
              
              
              **$**
              **0.27**
              
              
              $
              0.24**Weighted
                  Average Basic Shares Outstanding**
              
              ****
              **7,193,603**
              
              
              
              7,181,894
              
              
              ****
              **7,187,586**
              
              
              
              7,176,186**Weighted
                  Average Diluted Shares Outstanding**
              
              ****
              **7,202,424**
              
              
              
              7,181,894
              
              
              ****
              **7,198,270**
              
              
              
              7,177,042
 
 
 The
        accompanying notes are an integral part of these statements.
  6
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 **COLONY
        BANKCORP INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF COMPREHENSIVE INCOME**
 **THREE
        MONTHS ENDED SEPTEMBER 30, 2007 AND 2006**
 **AND
        NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006**
 **(UNAUDITED)**
 **(DOLLARS
        IN THOUSANDS)**
 
 
 **Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****09/30/07**
              
              
              09/30/06
              
              
              **09/30/07**
              
              
              09/30/06**Net
                  Income**
              
              **$**
              **2,619**
              
              
              $
              2,622
              
              
              **$**
              **7,795**
              
              
              $
              7,541**Other
                  Comprehensive Income, Net of Tax**Gains
                  (Losses) on Securities Arising During the Year
              
              ****
              **1,040**
              
              
              
              1,209
              
              
              ****
              **633**
              
              
              
              242Reclassification
                  Adjustment
              
              ****
              **2**
              
              
              
              0
              
              
              ****
              **(121**
              **)**
              
              
              0Unrealized
                  Gains (Losses) on Securities
              
              ****
              **1,042**
              
              
              
              1,209
              
              
              ****
              **512**
              
              
              
              242**Comprehensive
                  Income**
              
              **$**
              **3,661**
              
              
              $
              3,831
              
              
              **$**
              **8,307**
              
              
              $
              7,783
 
 
 The
        accompanying notes are an integral part of these statements.
  7
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 **COLONY
        BANKCORP, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **NINE
        MONTHS ENDED SEPTEMBER 30, 2007 AND 2006**
 **(UNAUDITED)**
 **(DOLLARS
        IN THOUSANDS)**
 
 
 **2007**
              
              
              2006**CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  Income
              
              **$**
              **7,795**
              
              
              $
              7,541Adjustments
                  to Reconcile Net Income to Net CashProvided
                  by Operating Activities:Depreciation
              
              ****
              **1,391**
              
              
              
              1,441Provision
                  for Loan Losses
              
              ****
              **2,678**
              
              
              
              2,990Securities
                  Gains
              
              ****
              **(184**
              **)**
              
              
              ----Amortization
                  and Accretion
              
              ****
              **428**
              
              
              
              573(Gain)
                  Loss on Sale of Other Real Estate and Repossessions
              
              ****
              **53**
              
              
              
              (111
              )Gain
                  on Sale of Equipment
              
              ****
              **(6**
              **)**
              
              
              ---Decrease
                  (Increase) in Cash Surrender Value of Life Insurance
              
              ****
              **20**
              
              
              
              (106
              )Other
                  Prepaids, Deferrals and Accruals, Net
              
              ****
              **(692**
              **)**
              
              
              (732
              )****
              **11,483**
              
              
              
              11,596**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Federal
                  Home Loan Bank Stock
              
              ****
              **(446**
              **)**
              
              
              (188
              )Purchases
                  of Investment Securities Available for Sale
              
              ****
              **(39,256**
              **)**
              
              
              (34,121
              )Proceeds
                  from Maturities, Calls, and Paydowns ofInvestment
                  Securities:Available
                  for Sale
              
              ****
              **16,786**
              
              
              
              18,545Held
                  to Maturity
              
              ****
              **8**
              
              
              
              9Proceeds
                  from Sale of Investment SecuritiesAvailable
                  for Sale
              
              ****
              **16,985**
              
              
              
              ---Other
                  Investments
              
              ****
              **---**
              
              
              
              (200
              )Interest-Bearing
                  Deposits in Other Banks
              
              ****
              **(542**
              **)**
              
              
              (1,521
              )Net
                  Loans to Customers
              
              ****
              **(29,526**
              **)**
              
              
              (84,190
              )Purchase
                  of Premises and Equipment
              
              ****
              **(1,730**
              **)**
              
              
              (3,328
              )Other
                  Real Estate and Repossessions
              
              ****
              **2,209**
              
              
              
              4,590Proceeds
                  from Sale of Premises and Equipment
              
              ****
              **258**
              
              
              
              5Investment
                  in Capital Trust
              
              ****
              **(434**
              **)**
              
              
              (155
              )Liquidation
                  of Statutory Trust
              
              ****
              **279**
              
              
              
              ---****
              **(35,409**
              **)**
              
              
              (100,554
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Noninterest-Bearing
                  Customer Deposits
              
              ****
              **(3,178**
              **)**
              
              
              (6,745
              )Interest-Bearing
                  Customer Deposits
              
              ****
              **(20,513**
              **)**
              
              
              78,714Federal
                  Funds Purchased
              
              ****
              **(594**
              **)**
              
              
              ---Dividends
                  Paid
              
              ****
              **(1,890**
              **)**
              
              
              (1,671
              )Proceeds
                  from Other Borrowed Money
              
              ****
              **41,100**
              
              
              
              35,500Principal
                  Payments on Other Borrowed Money
              
              ****
              **(29,000**
              **)**
              
              
              (42,226
              )Proceeds
                  from Issuance of Subordinated Debentures
              
              ****
              **14,434**
              
              
              
              5,155Principal
                  Payments on Subordinated Debentures
              
              ****
              **(9,279**
              **)**
              
              
              ---****
              **(8,920**
              **)**
              
              
              68,727Net
                  Increase (Decrease) in Cash and Cash Equivalents
              
              ****
              **(32,846**
              **)**
              
              
              (20,231
              )Cash
                  and Cash Equivalents at Beginning of Period
              
              ****
              **72,380**
              
              
              
              79,062Cash
                  and Cash Equivalents at End of Period
              
              **$**
              **39,534**
              
              
              $
              58,831
 
 
 The
        accompanying notes are an integral part of these statements.
  8
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 
 **COLONY
        BANKCORP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 
 **(1)****Summary
        of Significant Accounting Policies**
 
 **Principles
        of Consolidation**
 
 Colony
        Bankcorp, Inc. (the Company) is a multi-bank holding company located in
        Fitzgerald, Georgia. The consolidated financial statements include the accounts
        of Colony Bankcorp, Inc. and its wholly-owned subsidiaries, Colony Bank of
        Fitzgerald, Fitzgerald, Georgia; Colony Bank Ashburn (which includes its
        wholly-owned subsidiary, Georgia First Mortgage Company), Ashburn, Georgia;
        Colony Bank Worth, Sylvester, Georgia; Colony Bank of Dodge County, Eastman,
        Georgia; Colony Bank Wilcox, Rochelle, Georgia; Colony Bank Southeast, Broxton,
        Georgia; Colony Bank Quitman, FSB, Quitman, Georgia (the Banks); and Colony
        Management Services, Inc., Fitzgerald, Georgia. All significant intercompany
        accounts have been eliminated in consolidation. The accounting and reporting
        policies of Colony Bankcorp, Inc. conform to generally accepted accounting
        principles and practices utilized in the commercial banking
        industry.
 
 All
        dollars in notes to consolidated financial statements are rounded to the
        nearest
        thousand.
 
 **Nature
        of Operations**
 
 The
        Banks
        provide a full range of retail and commercial banking services for consumers
        and
        small to medium size businesses located primarily in middle and south Georgia.
        Lending and investing activities are funded primarily by deposits gathered
        through its retail branch office network.
 
 **Use
        of Estimates**
 
 In
        preparing the financial statements, management is required to make estimates
        and
        assumptions that affect the reported amounts of assets and liabilities as
        of the
        balance sheet date and revenues and expenses for the period. Actual results
        could differ significantly from those estimates. Material estimates that
        are
        particularly susceptible to significant change in the near term relate to
        the
        determination of the allowance for loan losses, the valuation of real estate
        acquired in connection with foreclosures or in satisfaction of loans and
        the
        valuation of goodwill and other intangible assets.
 
 **Reclassifications**
 
 In
        certain instances, amounts reported in prior years’ consolidated financial
        statements have been reclassified to conform to statement presentations selected
        for 2007. Such reclassifications had no effect on previously reported
        stockholders’ equity or net income.
 
 **Concentrations
        of Credit Risk**
 
 Lending
        is concentrated in commercial and real estate loans to local borrowers. The
        Company has a high concentration of real estate loans; however, these loans
        are
        well collateralized and, in management’s opinion, do not pose an adverse credit
        risk. In addition, the balance of the loan portfolio is sufficiently diversified
        to avoid significant concentration of credit risk. Although the Company has
        a
        diversified loan portfolio, a substantial portion of borrowers’ ability to honor
        their contracts is dependent upon the viability of the real estate economic
        sector.
 
 The
        success of Colony is dependent, to a certain extent, upon the economic
        conditions in the geographic markets it serves. No assurance can be given
        that
        the current economic conditions will continue. Adverse changes in the economic
        conditions in these geographic markets would likely have a material adverse
        effect on the Company’s results of operations and financial condition. The
        operating results of Colony depend primarily on its net interest income.
        Accordingly, operations are subject to risks and uncertainties surrounding
        the
        exposure to changes in the interest rate environment.
 
 **Accounting
        Policies**
 
 The
        accounting and reporting policies of Colony Bankcorp, Inc. and its subsidiaries
        are in accordance with accounting principles generally accepted and conform
        to
        general practices within the banking industry. The significant accounting
        policies followed by Colony and the methods of applying those policies are
        summarized hereafter.
  9
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 **(1)****Summary
        of Significant Accounting Policies (Continued)**
 
 **Investment
        Securities**
 
 Investment
        securities are recorded under Statement of Financial Accounting Standards
        (SFAS)
        No. 115, whereby the Company classifies its securities as trading, available
        for
        sale or held to maturity. Securities that are held principally for resale
        in the
        near term are classified as trading. Trading securities are carried at fair
        value, with realized and unrealized gains and losses included in noninterest
        income. Securities acquired with both the intent and ability to be held to
        maturity are classified as held to maturity and reported at amortized cost.
        All
        other securities not classified as trading or held to maturity are considered
        available for sale.
 
 Securities
        available for sale are reported at estimated fair value. Unrealized gains
        and
        losses on securities available for sale are excluded from earnings and are
        reported, net of deferred taxes, in accumulated other comprehensive income,
        a
        component of stockholders’ equity. Declines in the fair value of
        held-to-maturity and available-for-sale securities below their cost that
        are
        deemed to be other than temporary are reflected in earnings as realized losses.
        In estimating other-than-temporary impairment losses, management considers
        (1)
        the length of time and the extent to which the fair value has been less than
        cost, (2) the financial condition and near-term prospects of the issuer and
        (3)
        the intent and ability of the Company to retain its investment in the issuer
        for
        a period of time sufficient to allow for any anticipated recovery in fair
        value.
        Gains and losses from sales of securities available for sale are computed
        using
        the specific identification method. This caption includes securities, which
        may
        be sold to meet liquidity needs arising from unanticipated deposit and loan
        fluctuations, changes in regulatory capital requirements, or unforeseen changes
        in market conditions.
 
 **Federal
        Home Loan Bank Stock**
 
 Investment
        in stock of a Federal Home Loan Bank (FHLB) is****required
        for every federally insured institution that utilizes its services. FHLB
        stock
        is considered restricted, as defined in SFAS No. 115; accordingly, the
        provisions of SFAS No. 115 are not applicable to this investment. The FHLB
        stock
        is reported in the consolidated financial statements at cost. Dividend income
        is
        recognized when earned.
 
 **Loans**
 
 Loans
        that the Company has the ability and intent to hold for the foreseeable future
        or until maturity are recorded at their principal amount outstanding, net
        of
        unearned interest and fees.  Loan origination fees, net of certain
        direct origination costs, are deferred and amortized over the estimated terms
        of
        the loans using the straight-line method.  Interest income on loans is
        recognized using the effective interest method.
 
 A
        loan is
        considered to be delinquent when payments have not been made according to
        contractual terms, typically evidenced by nonpayment of a monthly installment
        by
        the due date.
 
 When
        management believes there is sufficient doubt as to the collectibility of
        principal or interest on any loan or generally when loans are 90 days or
        more
        past due, the accrual of applicable interest is discontinued and the loan
        is
        designated as nonaccrual, unless the loan is well secured and in the process
        of
        collection. Interest payments received on nonaccrual loans are either applied
        against principal or reported as income, according to management’s judgment as
        to the collectibility of principal. Loans are returned to an accrual status
        when
        factors indicating doubtful collectibility on a timely basis no longer
        exist.
 
 **Allowance
        for Loan Losses**
 
 The
        allowance for loan losses is established as losses are estimated to have
        occurred through a provision for loan losses charged to earnings. Loan losses
        are charged against the allowance when management believes the uncollectibility
        of a loan balance is confirmed. Subsequent recoveries, if any, are credited
        to
        the allowance.
  10
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 
 **(1)****Summary
        of Significant Accounting Policies (Continued)**
 
 **Allowance
        for Loan Losses (Continued)**
 
 The
        allowance for loan losses is evaluated on a regular basis by management and
        is
        based upon management’s periodic review of the collectibility of the loans in
        light of historical experience, the nature and volume of the loan portfolio,
        adverse situations that may affect the borrower’s ability to repay, estimated
        value of any underlying collateral and prevailing economic conditions. This
        evaluation is inherently subjective, as it requires estimates that are
        susceptible to significant revisions as more information becomes
        available.
 
 The
        allowance consists of specific, general and unallocated components. The specific
        component relates to loans that are classified as either doubtful or
        substandard. For such loans that are also classified as impaired, an allowance
        is established when the discounted cash flows (or collateral value or observable
        market price) of the impaired loan is lower than the carrying value of
        that
 loan.
        The
        general component covers nonclassified loans and is based on historical loss
        experience adjusted for qualitative factors. An unallocated component is
        maintained to cover uncertainties that could affect management’s estimate of
        probable losses. The unallocated component of the allowance reflects the
        margin
        of imprecision inherent in the underlying assumptions used in the methodologies
        for estimating specific and general losses in the portfolio.
 
 A
        loan is
        considered impaired when, based on current information and events, it is
        probable that the Company will be unable to collect the scheduled payments
        of
        principal or interest when due according to the contractual terms of the
        loan
        agreement. Factors considered by management in determining impairment include
        payment status, collateral value and the probability of collecting scheduled
        principal and interest payments when due. Loans that experience insignificant
        payment delays and payment shortfalls generally are not classified as impaired.
        Management determines the significance of payment delays and payment shortfalls
        on a case-by-case basis, taking into consideration all of the circumstances
        surrounding the loan and the borrower, including the length of the delay,
        the
        reasons for the delay, the borrower’s prior payment record and the amount of the
        shortfall in relation to the principal and interest owed. Impairment is measured
        on a loan-by-loan basis by either the present value of expected future cash
        flows discounted at the loan’s effective interest rate, the loan’s obtainable
        market price or the fair value of the collateral if the loan is collateral
        dependent.
 
 **Premises
        and Equipment**
 
 Premises
        and equipment are recorded at acquisition cost net of accumulated
        depreciation.
 
 Depreciation
        is charged to operations over the estimated useful lives of the assets. The
        estimated useful lives and methods of depreciation are as follows:
 
 Description
              
              Life
                  in Years
              
              MethodBanking
                  Premises
              
              15-40
              
              Straight-Line
                  and AcceleratedFurniture
                  and Equipment
              
              5-10
              
              Straight-Line
                  and AcceleratedLeasehold
                  Improvements
              
              5-20
              
              Straight-Line
                  and Accelerated
 
 Expenditures
        for major renewals and betterments are capitalized. Maintenance and repairs
        are
        charged to operations as incurred. When property and equipment are retired
        or
        sold, the cost and accumulated depreciation are removed from the respective
        accounts and any gain or loss is reflected in other income or
        expense.
 
 **Goodwill
        and Intangible Assets**
 
 Goodwill
        represents the excess of the cost over the fair value of the net assets
        purchased in a business combination.  Impairment testing of goodwill
        is performed annually or more frequently if events or circumstances indicate
        possible impairment.  No impairment has been identified as a result of
        the testing performed.
  11
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 
 **(1)****Summary
        of Significant Accounting Policies (Continued)**
 
 **Goodwill
        and Intangible Assets (Continued)**
 
 Intangible
        assets consist of core deposit intangibles acquired in connection with a
        business combination.  The core deposit intangible is initially
        recognized based on a valuation performed as of the consummation
        date.  The core deposit intangible is amortized by the straight-line
        method over the average remaining life of the acquired customer
        deposits.  Amortization periods are reviewed annually in connection
        with the annual impairment testing of goodwill.
 
 **Transfers
        of Financial Assets**
 
 Transfers
        of financial assets are accounted for as sales, when control over the assets
        has
        been surrendered. Control over transferred assets is deemed to be surrendered
        when (1) the assets have been isolated from the Company, (2) the transferee
        obtains the right (free of conditions that constrain it from taking advantage
        of
        that right) to pledge or exchange the transferred assets and (3) the Company
        does not maintain effective control over the transferred assets through an
        agreement to repurchase them before their maturity.
 
 **Statement
        of Cash Flows**
 
 For
        reporting cash flows, cash and cash equivalents include cash on hand,
        noninterest-bearing amounts due from banks and federal funds sold. Cash flows
        from demand deposits, NOW accounts, savings accounts, loans and certificates
        of
        deposit are reported net.
 
 **Income
        Taxes**
 
 The
        provision for income taxes is based upon income for financial statement
        purposes, adjusted for nontaxable income and nondeductible expenses. Deferred
        income taxes have been provided when different accounting methods have been
        used
        in determining income for income tax purposes and for financial reporting
        purposes. Deferred tax assets and liabilities are recognized based on future
        tax
        consequences attributable to differences arising from the financial statement
        carrying values of assets and liabilities and their tax bases. The differences
        relate primarily to depreciable assets (use of different depreciation methods
        for financial statement and income tax purposes) and allowance for loan losses
        (use of the allowance method for financial statement purposes and
 the
        direct write-off method for tax purposes). In the event of changes in the
        tax
        laws, deferred tax assets and liabilities are adjusted in the period of the
        enactment of those changes, with effects included in the income tax provision.
        The Company and its subsidiaries file a consolidated federal income tax return.
        Each subsidiary pays its proportional share of federal income taxes to the
        Company based on its taxable income.
 
 **Other
        Real Estate**
 
 Other
        real estate generally represents real estate acquired through foreclosure
        and is
        initially recorded at the lower of cost or estimated market value at the
        date of
        acquisition. Losses from the acquisition of property in full or partial
        satisfaction of debt are recorded as loan losses. Subsequent declines in
        value,
        routine holding costs and gains or losses upon disposition are included in
        other
        losses.
 
 **Comprehensive
        Income**
 
 Accounting
        principles generally require that recognized revenue, expenses, gains and
        losses
        be included in net income. Certain changes in assets and liabilities, such
        as
        unrealized gains and losses on securities available for sale, represent equity
        changes from economic events of the period other than transactions with owners
        and are not reported in the consolidated statements of income but as a separate
        component of the equity section of the consolidated balance sheets. Such
        items
        are considered components of other comprehensive income. SFAS No. 130,
*Reporting Comprehensive Income,*requires the presentation in the
        financial statements of net income and all items of other comprehensive income
        as total comprehensive income.
 
 **Off-Balance
        Sheet Credit Related Financial Instruments**
 
 In
        the
        ordinary course of business, the Company has entered into commitments to
        extend
        credit, commercial letters of credit and standby letters of credit. Such
        financial instruments are recorded when they are funded.
  12
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 
 **(1)****Summary
        of Significant Accounting Policies (Continued)**
 
 **Changes
        in Accounting Principles and Effects of New Accounting
        Pronouncements**
 
 In
        February 2006, the Financial Accounting Standard Board (FASB) issued SFAS
        No.
        155, *Accounting for Certain Hybrid Financial**Instruments – an
        amendment of FASB Statements No. 133 and 140*. This
        statement  provides entities with relief from having to separately
        determine the fair value of an embedded derivative that would otherwise be
        required to be bifurcated from its host contract in accordance with the
        requirements of SFAS 133.  Entities can make an irrevocable election
        to measure such hybrid financial instruments at fair value in its entirety,
        with
        subsequent changes in fair value recognized in earnings.  This
        election can be made on an instrument-by-instrument basis.  The
        effective date of this standard is for all financial instruments acquired,
        issued or subject to a remeasurement event occurring after the beginning
        of an
        entity’s first fiscal year that begins after September 15, 2006.  The
        adoption of this statement did not have an impact on our financial position,
        results of operations or disclosures.
 
 In
        March
        2006, the FASB issued SFAS No. 156, *Accounting for Servicing of Financial
        Assets*.  This statement, which is an amendment to SFAS No. 140,
        will simplify the accounting for servicing assets and liabilities, such as
        those
        common with mortgage securitization activities.  Specifically, SFAS
        No. 156 addresses the recognition and measurement of separately recognized
        servicing assets and liabilities and provides an approach to simplify efforts
        to
        obtain hedge-like (offset) accounting.  SFAS No. 156 also clarifies
        when an obligation to service financial assets should be separately recognized
        as a servicing initially measured at fair value, if practicable, and permits
        an
        entity with a separately recognized servicing asset or servicing liability
        to
        choose either the amortization or fair value methods for subsequent
        measurement.  The provisions of SFAS No. 156 are effective as of the
        beginning of the first fiscal year that begins after September 15,
        2006.  The adoption of this statement did not have an impact on our
        financial position, results of operations or disclosures.
 
 In
        July
        2006, the FASB issued FASB Interpretation No. 48, *Accounting for Uncertainty
        in Income Taxes: An Interpretation of FASB**Statement No. 109* (FIN
        48), which clarifies the accounting for uncertainty in tax
        positions.  This Interpretation requires that the Company recognize in
        the financial statements, the impact of a tax position, if that position
        is more
        likely than not to be sustained on audit, based on the technical merits of
        the
        position.  The provisions of FIN 48 are effective as of the beginning
        of the 2007 fiscal year, with the cumulative effect of the change in accounting
        principle recorded as an adjustment to opening retained earnings.  The
        cumulative change in accounting recorded directly to retained earnings and
        the
        effect on 2007 income from operations was not material.
 
 In
        September 2006, the FASB issued SFAS No. 157, *Fair Value
        Measurements*.  SFAS No. 157 enhances existing guidance for
        measuring assets and liabilities using fair value.  Before the
        issuance of SFAS No. 157, guidance for applying fair value was incorporated
        in
        several accounting pronouncements.  SFAS No. 157 provides a single
        definition of fair value, together with a framework for measuring it, and
        requires additional disclosure about the use of fair value to measure assets
        and
        liabilities.  SFAS No. 157 also emphasizes that fair value is
        market-based measurement, not an entity-specific measurement, and sets out
        a
        fair value hierarchy with the highest priority being quoted prices in active
        markets.  Under SFAS No. 157, fair value measurements are disclosed by
        level within that hierarchy.  While SFAS No. 157 does not add any new
        fair value measurements, it does change current practice.  Changes to
        practice include: (1) a requirement for an entity to include its own credit
        standing in the measurement of its liabilities; (2) a modification of the
        transaction price presumption; (3) a prohibition on the use of block discounts
        when valuing large blocks of securities for broker-dealers and investment
        companies; and (4) a requirement to adjust the value of restricted stock
        for the
        effect of the restriction even if the restriction lapses within one
        year.  SFAS No. 157 is effective for financial statement issued for
        fiscal years beginning after November 15, 2007 and interim periods within
        those
        fiscal years.  The Company does not expect the adoption of this
        standard to have a material effect on the financial position, results of
        operations or disclosures.
 
 In
        September 2006, the FASB issued No. 158, *Employers’ Accounting for Defined
        Benefit Pension and Other Postretirement Plans - an**Amendment of FASB
        Statements No. 87, 88, 106 and 123(R) (FASB 158)*.  This statement
        requires companies to recognize a net liability or asset to report the funded
        status of their defined benefit pension and other post retirement plans on
        the
        balance sheet.  SFAS 158 requires additional new disclosures to be
        made in companies’ financial statements.  SFAS 158 is effective for
        publicly-held companies for fiscal years ending after December 15, 2006,
        except
        for the measurement date provisions, which are effective for fiscal years
        ending
        after December 15, 2008.  The adoption of this standard did not have
        an effect on the Company’s results of operations or financial
        position.
 
 In
        September 2006, the Emerging Issues Task Force issued EITF Issue No. 06-04,
        *Accounting for Deferred Compensation and Postretirement Benefit Aspects
        of
        Endorsement Split-Dollar Life Insurance Arrangements*(“EITF
        06-04”).  EITF 06-04 establishes that for certain split-dollar life
        insurance arrangements, an employer should recognize a liability for future
        benefits in accordance with currently existing accounting pronouncements
        based
        on the substantive agreement with the employee.  EITF 06-04 will be
        effective
  13
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 **(1)****Summary
        of Significant Accounting Policies (Continued)**
 
 **Changes
        in Accounting Principles and Effects of New Accounting Pronouncements
        (Continued)**
 
 for
        fiscal years beginning after December 15, 2007.  Colony is currently
        evaluating the impact of the adoption of EITF 06-04 and has not yet determined
        the impact EITF 06-04 will have on the Colony’s consolidated financial
        statements upon adoption.
 
 In
        February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for
        Financial Assets and Financial Liabilities – 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.  This statement shall be effective as of the beginning of
        each reporting entity’s first fiscal year that begins
 after
        November 15, 2007.  The Company is currently assessing the impact of
        SFAS No. 159 on its financial position, results of operations and
        disclosures.
 
 **(2)****Cash
        and Due from Banks**
 
 Components
        of cash and balances due from banks are as follows as of September 30, 2007
        and
        December 31, 2006:
 
 **September
                  30, 2007**
              
              
              December
                  31, 2006Cash
                  on Hand and Cash Items
              
              **$**
              **8,746**
              
              
              $
              8,308Noninterest-Bearing
                  Deposits with Other Banks
              
              ****
              **13,659**
              
              
              
              18,923**$**
              **22,405**
              
              
              $
              27,231
 
 As
        of  September 30, 2007, the Banks had required deposits  of
        approximately $3,517 with the Federal Reserve that was
 satisfied
        with cash on hand.
 
 **(3)****Investment
        Securities**
 
 Investment
        securities as of September 30, 2007 are summarized as follows:
 
 **Amortized**
                **Cost**
              
              
              **Gross**
                **Unrealized**
                **Gains**
              
              
              **Gross**
                **Unrealized**
                **Losses**
              
              
              **Fair**
                **Value****Securities
                  Available for Sale:**U.S.
                  Government AgenciesMortgage
                  Backed
              
              **$**
              **95,783**
              
              
              **$**
              **186**
              
              
              **$**
              **(715**
              **)**
              
              **$**
              **95,254**Other
              
              ****
              **41,306**
              
              
              ****
              **147**
              
              
              ****
              **(177**
              **)**
              
              ****
              **41,276**State,
                  County & Municipal
              
              ****
              **14,438**
              
              
              ****
              **17**
              
              
              ****
              **(136**
              **)**
              
              ****
              **14,319**Corporate
                  Obligations
              
              ****
              **3,777**
              
              
              ****
              **--**
              
              
              ****
              **(23**
              **)**
              
              ****
              **3,754**Asset-Backed
                  Securities
              
              ****
              **1,000**
              
              
              ****
              **--**
              
              
              ****
              **--**
              
              
              ****
              **1,000**Marketable
                  Equity Securities
              
              ****
              **2**
              
              
              ****
              **--**
              
              
              ****
              **--**
              
              
              ****
              **2****$**
              **156,306**
              
              
              **$**
              **350**
              
              
              **$**
              **(1,051**
              **)**
              
              **$**
              **155,605****Securities
                  Held to Maturity:**State,
                  County and Municipal
              
              **$**
              **69**
              
              
              **$**
              **--**
              
              
              **$**
              **--**
              
              
              **$**
              **69**
 
 
 The
        amortized cost and fair value of investment securities as of September 30,
        2007,
        by contractual maturity, are shown hereafter.  Expected maturities
        will differ from contractual maturities because issuers have the right to
        call
        or prepay obligations with or without call or prepayment
        penalties.
  14
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 
 **Securities****Available
                  for Sale**
              
              
              **Held
                  to Maturity****Amortized
                  Cost**
              
              
              **Fair
                  Value**
              
              
              **Amortized Cost**
              
              
              **Fair
                  Value**Due
                  in One Year or Less
              
              **$**
              **15,909**
              
              
              **$**
              **15,821**Due
                  After One Year Through Five Years
              
              ****
              **31,957**
              
              
              ****
              **31,884**Due
                  After Five Years Through Ten Years
              
              ****
              **8,628**
              
              
              ****
              **8,623**
              
              
              **$**
              **69**
              
              
              **$**
              **69**Due
                  After Ten Years
              
              ****
              **4,027**
              
              
              ****
              **4,021**
              
              
              ****
              **--**
              
              
              ****
              **--******
              **60,521**
              
              
              ****
              **60,349**
              
              
              ****
              **69**
              
              
              ****
              **69**Mortgage
                  Backed Securities
              
              ****
              **95,783**
              
              
              ****
              **95,254**
              
              
              ****
              **--**
              
              
              ****
              **--**Marketable
                  Equity Securities
              
              **2**
              
              
              **2**
              
              
              ****
              **--**
              
              
              ****
              **--****$**
              **156,306**
              
              
              **$**
              **155,605**
              
              
              **$**
              **69**
              
              
              **$**
              **69**
 
 Investment
        securities as of December 31, 2006 are summarized as follows:
 
 **Amortized**
                **Cost**
              
              
              **Gross**
                **Unrealized**
                **Gains**
              
              
              **Gross**
                **Unrealized**
                **Losses**
              
              
              **Fair**
                **Value****Securities
                  Available for Sale:**U.S.
                  Government AgenciesMortgage
                  Backed
              
              $
              80,053
              
              
              $
              107
              
              
              $
              (1,124
              )
              
              $
              79,036Other
              
              
              54,870
              
              
              
              65
              
              
              
              (569
              )
              
              
              54,366State,
                  County & Municipal
              
              
              11,840
              
              
              
              36
              
              
              
              (136
              )
              
              
              11,740Corporate
                  Obligations
              
              
              3,787
              
              
              
              --
              
              
              
              (42
              )
              
              
              3,745Marketable
                  Equity Securities
              
              
              163
              
              
              
              193
              
              
              
              (7
              )
              
              
              349$
              150,713
              
              
              $
              401
              
              
              $
              (1,878
              )
              
              $
              149,236**Securities
                  Held to Maturity:**State,
                  County and Municipal
              
              $
              71
              
              
              $
              --
              
              
              $
              --
              
              
              $
              71
 
 
 Proceeds
        from the sale of investments available for sale during first nine months
        of 2007
        totaled $16,985 compared to $0 for nine months of 2006.  The sale of
        investments available for sale during 2007 resulted in gross realized gains
        of
        $214 and gross realized losses of $30.
 
 Investment
        securities having a carry value approximating $80,534 and $86,141 as of
        September 30, 2007 and December 31, 2006, respectively, were pledged to secure
        public deposits and for other purposes.
 
 Information
        pertaining to securities with gross unrealized losses at September 30, 2007
        and
        December 31, 2006 aggregated by investment category and length of time that
        individual securities have been in a continuous loss position,
        follows:
  15
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 
 **Less
                  Than 12 Months**
              
              
              **12
                  Months or Greater**
              
              
              **Total****Fair
                  Value**
              
              
              **Gross
                  Unrealized Losses**
              
              
              **Fair
                  Value**
              
              
              **Gross
                  Unrealized Losses**
              
              
              **Fair
                  Value**
              
              
              **Gross
                  Unrealized Losses****September
                  30, 2007**U.S.
                  Government AgenciesMortgage
                  Backed
              
              **$**
              **21,210**
              
              
              **$**
              **(75**
              **)**
              
              **$**
              **45,367**
              
              
              **$**
              **(640**
              **)**
              
              **$**
              **66,577**
              
              
              **$**
              **(715**
              **)**Other
              
              ****
              **--**
              
              
              ****
              **--**
              
              
              ****
              **24,941**
              
              
              ****
              **(177**
              **)**
              
              ****
              **24,941**
              
              
              ****
              **(177**
              **)**State,
                  County and Municipal
              
              ****
              **6,301**
              
              
              ****
              **(83**
              **)**
              
              ****
              **4,737**
              
              
              ****
              **(53**
              **)**
              
              ****
              **11,038**
              
              
              ****
              **(136**
              **)**Corporate
                  Obligations
              
              ****
              **984**
              
              
              ****
              **(16**
              **)**
              
              ****
              **997**
              
              
              ****
              **(7**
              **)**
              
              ****
              **1,981**
              
              
              ****
              **(23**
              **)****$**
              **28,495**
              
              
              **$**
              **(174**
              **)**
              
              **$**
              **76,042**
              
              
              **$**
              **(877**
              **)**
              
              **$**
              **104,537**
              
              
              **$**
              **(1,051**
              **)****December
                  31, 2006**U.S.
                  Government AgenciesMortgage
                  Backed
              
              $
              11,989
              
              
              $
              (55
              )
              
              $
              52,140
              
              
              $
              (1,070
              )
              
              $
              64,129
              
              
              $
              (1,125
              )Other
              
              
              5,462
              
              
              
              (25
              )
              
              
              31,033
              
              
              
              (544
              )
              
              
              36,495
              
              
              
              (569
              )State,
                  County and Municipal
              
              
              2,709
              
              
              
              (69
              )
              
              
              5,397
              
              
              
              (67
              )
              
              
              8,106
              
              
              
              (136
              )Corporate
                  Obligations
              
              
              1,750
              
              
              
              (24
              )
              
              
              995
              
              
              
              (17
              )
              
              
              2,745
              
              
              
              (41
              )Marketable
                  Equity Securities
              
              
              --
              
              
              
              --
              
              
              
              53
              
              
              
              (7
              )
              
              
              53
              
              
              
              (7
              )$
              21,910
              
              
              $
              (173
              )
              
              $
              89,618
              
              
              $
              (1,705
              )
              
              $
              111,528
              
              
              $
              (1,878
              )
 
 Management
        evaluates securities for other-than-temporary impairment at least on a quarterly
        basis, and more frequently when economic or market concerns warrant such
        evaluation.  Consideration is given to (1) the length of time and the
        extent to which the fair
 value
        has
        been less than cost, (2) the financial condition and near-term prospects
        of the
        issuer and (3) the intent and ability of the Company to retain its investment
        in
        the issuer for a period of time sufficient to allow for any anticipated recovery
        in fair value.
 
 At
        September 30, 2007, the debt securities with unrealized losses have depreciated
        1.00 percent from the Company’s amortized cost basis.  These
        securities are guaranteed by either U.S. Government or other
        governments.  These unrealized losses relate principally to current
        interest rates for similar type of securities.  In analyzing an
        issuer’s financial condition, management considers whether the securities are
        issued by the federal government or its agencies, whether downgrades by bond
        rating agencies have occurred and the results of reviews of the issuer’s
        financial condition.  As management has the ability to hold debt
        securities until maturity, or for the foreseeable future if classified as
        available-for-sale, no declines are deemed to be
        other-than-temporary.
 
 **(4)****Loans**
 
 The
        composition of loans as of  September 30, 2007 and December 31, 2006
        was as follows:
 
 **September
                  30, 2007**
              
              
              December
                  31, 2006Commercial,
                  Financial and Agricultural
              
              **$**
              **60,742**
              
              
              $
              61,887Real
                  Estate – Construction
              
              ****
              **220,069**
              
              
              
              193,952Real
                  Estate – Farmland
              
              ****
              **44,869**
              
              
              
              40,936Real
                  Estate – Other
              
              ****
              **546,212**
              
              
              
              549,601Installment
                  Loans to Individuals
              
              ****
              **74,358**
              
              
              
              76,930All
                  Other Loans
              
              ****
              **22,042**
              
              
              
              18,967**$**
              **968,292**
              
              
              $
              942,273
 
 Nonaccrual
        loans are loans for which principal and interest are doubtful of collection
        in
        accordance with original loan terms and for which accruals of interest have
        been
        discontinued due to payment delinquency.  Nonaccrual loans totaled
        $6,087 and $8,069 as of
 September
        30, 2007 and December 31, 2006, respectively and total recorded investment
        in
        loans past due 90 days or more and still
 accruing
        interest approximated $32 and $9, respectively.
  16
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 
 **(5)****Allowance
        for Loan Losses**
 
 Transactions
        in the allowance for loan losses are summarized below for nine months ended
        September 30, 2007 and
 September
        30, 2006 as follows:
 
 **September
                  30, 2007**
              
              
              September
                  30, 2006Balance,
                  Beginning
              
              **$**
              **11,989**
              
              
              $
              10,762Provision
                  Charged to Operating Expenses
              
              ****
              **2,678**
              
              
              
              2,990Loans
                  Charged Off
              
              ****
              **(1,971**
              **)**
              
              
              (2,021
              )Loan
                  Recoveries
              
              ****
              **1,125**
              
              
              
              577Balance,
                  Ending
              
              **$**
              **13,821**
              
              
              $
              12,308
 
 
 **(6)****Premises
        and Equipment**
 
 Premises
        and equipment are comprised of the following as of September 30, 2007 and
        December 31, 2006:
 
 **September
                  30, 2007**
              
              
              December
                  31, 2006Land
              
              **$**
              **7,799**
              
              
              $
              7,414Building
              
              ****
              **20,987**
              
              
              
              20,886Furniture,
                  Fixtures and Equipment
              
              ****
              **12,613**
              
              
              
              12,060Leasehold
                  Improvements
              
              ****
              **994**
              
              
              
              994Construction
                  in Progress
              
              ****
              **108**
              
              
              
              114****
              **42,501**
              
              
              
              41,468Accumulated
                  Depreciation
              
              ****
              **(14,960**
              **)**
              
              
              (14,015
              )**$**
              **27,541**
              
              
              $
              27,453
 
 
 Depreciation
        charged to operations totaled $1,391 and $1,441 for September 30, 2007 and
        September 30, 2006, respectively.
 
 Certain
        Company facilities and equipment are leased under various operating
        leases.  Rental expense approximated $273 and $243 for nine months
        ended September 30, 2007 and September 30, 2006, respectively.
 
 **(7)****Goodwill
        and Intangible Assets**
 
 The
        following is an analysis of the goodwill and core deposit intangible asset
        activity for the nine months ended September 30, 2007 and September 30,
        2006:
 
 **Nine
                  Months Ended**
                **September
                  30, 2007**
              
              
              Nine
                  Months Ended
                September
                  30, 2006**Goodwill**Balance,
                  Beginning
              
              **$**
              **2,412**
              
              
              $
              2,412Goodwill
                  Acquired
              
              ****
              **--**
              
              
              
              --Balance,
                  Ending
              
              **$**
              **2,412**
              
              
              $
              2,412**Net
                  Core Deposit, Intangible**Balance,
                  Beginning
              
              **$**
              **439**
              
              
              $
              520Amortization
                  Expense
              
              ****
              **(28**
              **)**
              
              
              (72
              )Balance,
                  Ending
              
              **$**
              **411**
              
              
              $
              448
  17
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 
 **(7)****Goodwill
        and Intangible Assets (Continued)**
 
 The
        following table reflects the expected amortization for the core deposit
        intangible at September 30, 2007:
 
 2007
              
              $
              92008
              
              
              362009
              
              
              362010
              
              
              362011
                  and thereafter
              
              
              294$
              411
 
 **(8)****Income
        Taxes**
 
 The
        Company records income taxes under SFAS No. 109, Accounting for Income Taxes,
        which requires an asset and liability approach to financial accounting and
        reporting for income taxes.  Deferred income tax assets and
        liabilities are computed annually for differences between the financial
        statement and tax bases of assets and liabilities that will result in taxable
        or
        deductible amounts in the future based on enacted tax laws and rates applicable
        to the periods in which the differences are expected to affect taxable
        income.  Valuation allowances are established when necessary to reduce
        deferred tax assets to the amount expected to be realized.  Income tax
        expense is the tax payable or refundable for the period plus or minus the
        change
        during the period in deferred tax assets and liabilities.
 
 **(9)****Deposits**
 
 The
        aggregate amount of overdrawn deposit accounts reclassified as loan balances
        totaled $1,370 and $839 as of September 30, 2007 and December 31,
        2006.
 
 Components
        of interest-bearing deposits as of  September 30, 2007 and December
        31, 2006 are as follows:
 
 **September
                  30, 2007**
              
              
              December
                  31, 2006Interest-Bearing
                  Demand
              
              **$**
              **177,688**
              
              
              $
              185,769Savings
              
              ****
              **33,335**
              
              
              
              33,305Time,
                  $100,000 and Over
              
              ****
              **360,549**
              
              
              
              366,041Other
                  Time
              
              ****
              **373,025**
              
              
              
              379,995**$**
              **944,597**
              
              
              $
              965,110
 
 At
        September 30, 2007 and December 31, 2006, the Company had brokered deposits
        of
        $66,171 and $72,682 respectively.  The aggregate amount of short-term
        jumbo certificates of deposit, each with a minimum denomination of $100,000
        was
        approximately $328,031 and $328,788 as of  September 30, 2007 and
        December 31, 2006, respectively.
 
 As
        of  September 30, 2007 and December 31, 2006,  the scheduled
        maturities of certificates of deposits are as follows:
 
 Maturity
              
              **September
                  30, 2007**
              
              
              December
                  31, 2006One
                  Year and Under
              
              **$**
              **664,101**
              
              
              $
              663,217One
                  to Three Years
              
              ****
              **49,096**
              
              
              
              54,524Three
                  Years and Over
              
              ****
              **20,377**
              
              
              
              28,295**$**
              **733,574**
              
              
              $
              746,036
 
 **(10)****Other
        Borrowed Money**
 
 Other
        borrowed money at September 30, 2007 and December 31, 2006 is summarized
        as
        follows:
 
 **September
                  30, 2007**
              
              
              December
                  31, 2006Federal
                  Home Loan Bank Advances
              
              **$**
              **73,500**
              
              
              $
              61,500The
                  Banker’s Bank Note Payable
              
              ****
              **100**
              
              
              
              --**$**
              **73,600**
              
              
              $
              61,500
  18
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 
 **(10)****Other
        Borrowed Money (Continued)**
 
 Advances
        from the Federal Home Loan Bank (FHLB) have maturities ranging from 2008
        to 2019
        and interest rates ranging from 2.74 percent to 5.93 percent.  Under
        the Blanket Agreement for Advances and Security Agreement with the FHLB,
        residential first mortgage loans and cash balances held by the FHLB are pledged
        as collateral for the FHLB advances outstanding.  At September 30,
        2007, the Company had available line of credit commitments totaling $88,231,
        of
        which $14,731 was available.
 
 The
        Banker’s Bank Note Payable originated on February 15, 2007 as a line of credit
        with funds available of $1,000 at a rate of The
        Wall
        Street Prime minus 0.75 percent.  Interest payments are due monthly
        with the entire balance due February 14, 2008. The
        debt
        is secured by all furniture, fixtures, equipment and software of Colony
        Management Services.  Colony Bankcorp, Inc. guarantees
        the debt.  As of September 30, 2007, $900 was available on the line of
        credit.
 
 The
        aggregate stated maturities of  other borrowed money at September 30,
        2007 are as follows:
 
 Year
              
              Amount2007
              
              $
              02008
              
              
              9,6002009
              
              
              02010
              
              
              1,0002011
                  and Thereafter
              
              
              63,000$
              73,600
 
 The
        Company also has available federal funds lines of credit with various financial
        institutions totaling $47,300, of which $476 was outstanding at September
        30,
        2007.
 
 
 **(11)****Subordinated
        Debentures (Trust Preferred Securities)**
 
 During
        the fourth quarter of 2002, the Company formed a second subsidiary whose
        sole
        purpose was to issue $5,000 in Trust Preferred Securities through a pool
        sponsored by FTN Financial Capital Markets.  The Trust Preferred
        Securities have a maturity of 30
 years
        and
        are redeemable after five years with certain exceptions.  At September
        30, 2007 the floating-rate securities had a 8.45 percent interest rate, which
        will reset quarterly at the three-month LIBOR rate plus 3.25
        percent.
 
 During
        the second quarter of 2004, the Company formed a third subsidiary whose sole
        purpose was to issue $4,500 in Trust Preferred Securities through a pool
        sponsored by FTN Financial Capital Markets.  The Trust Preferred
        Securities have a maturity of 30 years and are redeemable after five years
        with
        certain exceptions.  At September 30, 2007, the floating rate
        securities had a 8.37 percent interest rate, which will reset quarterly at
        the
        three-month LIBOR rate plus 2.68 percent.
 
 During
        the second quarter of 2006, the Company formed a fourth subsidiary whose
        sole
        purpose was to issue $5,000 in Trust Preferred Securities through a pool
        sponsored by SunTrust Capital Markets.  The Trust Preferred Securities
        have a maturity of 30 years and are redeemable after five years with certain
        exceptions.  At September 30, 2007 the floating-rate securities had a
        6.73 percent interest rate, which will reset quarterly at the three-month
        LIBOR
        rate plus 1.50 percent.
 
 During
        the first quarter of 2007, the Company formed a fifth subsidiary whose sole
        purpose was to issue $9,000 in Trust Preferred
 Securities
        through a pool sponsored by Trapeza Capital Management, LLC.  The
        Trust Preferred Securities have a maturity of 30
 years
        and
        are redeemable after five years with certain exceptions.  At September
        30, 2007, the floating-rate securities had a 6.88 percent interest rate,
        which
        will reset quarterly at the three-month LIBOR rate plus 1.65
        percent.  Proceeds from this issuance were used to payoff the trust
        preferred securities with the first subsidiary formed in March 2002 as the
        Company exercised its option to call.
 
 During
        the third quarter of 2007, the Company formed a sixth subsidiary whose sole
        purpose was to issue $5,000 in Trust Preferred Securities through a pool
        sponsored by Trapeza Capital Management, LLC.  The Trust Preferred
        Securities have a maturity of 30 years and are redeemable after five years
        with
        certain exceptions.  At September 30, 2007, the floating-rate
        securities had a 7.10 percent interest rate, which will reset quarterly at
        the
        three-month LIBOR rate plus 1.40 percent.  Proceeds from this issuance
        will be used to payoff the trust preferred securities with the second subsidiary
        formed in December 2002 as the Company exercises its option to call in December
        2007.
  19
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 
 **(11)****Subordinated
        Debentures (Trust Preferred Securities) (Continued)**
 
 The
        Trust
        Preferred Securities are recorded as subordinated debentures on the consolidated
        balance sheets, but subject to certain limitations, qualify as Tier 1 Capital
        for regulatory capital purposes.  The proceeds from the offerings were
        used to fund the cash portion of the Quitman acquisition, payoff holding
        company
        debt, and inject capital into bank subsidiaries.
 
 **(12)****Restricted
        Stock – Unearned Compensation**
 
 In
        1999,
        the board of directors of Colony Bankcorp, Inc. adopted a restricted stock
        grant
        plan which awards certain executive officers common shares of the
        Company.  The maximum number of shares (split-adjusted) which may be
        subject to restricted stock awards is 64,701.  During 2000 – 2007,
        75,803 split-adjusted shares were issued under this plan and since the plan’s
        inception, 11,539 shares have been forfeited; thus, remaining shares which
        may
        be subject to restricted stock awards are 437 at September 30,
        2007.  The shares are recorded at fair market value (on the date
        granted) as a separate component of stockholders’ equity.  The cost of
        these shares is being amortized against earnings using the straight-line
        method
        over three years (the restriction period.)
 
 In
        April
        2004, the stockholders of Colony Bankcorp, Inc. adopted a restricted stock
        grant
        plan which awards certain executive officers common shares of the
        Company.  The maximum number of shares which may be subject to
        restricted stock awards (split-adjusted) is 143,500.  During 2006 -
        2007, 20,155 shares were issued under this plan and since the plan’s inception
        2,198 shares have been forfeited, thus remaining shares which may be subject
        to
        restricted stock awards are 125,543 at September 30, 2007.  The shares
        are recorded at fair market value (on the date granted) as a separate component
        of stockholders’ equity.  The cost of these shares is being amortized
        against earnings using the straight-line method over three years (the
        restriction period).
 
 **(13)****Profit
        Sharing Plan**
 
 The
        Company has a profit sharing plan that covers substantially all employees
        who
        meet certain age and service requirements.  It is the Company’s policy
        to make contributions to the plan as approved annually by the board of
        directors.  The total provision for contributions to the plan was $663
        for 2006, $558 for 2005 and $479 for 2004.
 
 **(14)****Commitments
        and Contingencies**
 
 *Credit-Related
        Financial Instruments.*The Company is a party to credit related
        financial instruments with off-balance sheet risk in the normal course of
        business to meet the financing needs of its customers.  These
        financial instruments include commitments to extend credit, standby letters
        of
        credit and commercial letters of credit.  Such commitments involve, to
        varying degrees, elements of credit and interest rate risk in excess of the
        amount recognized in the consolidated balance sheets.
 
 The
        Company’s exposure to credit loss is represented by the contractual amount of
        these commitments.  The Company follows the same credit policies in
        making commitments as it does for on-balance sheet instruments.
 
 At
        September 30, 2007 and December 31, 2006 the following financial instruments
        were outstanding whose contract amounts represent credit risk:
 
 **Contract
                  Amount****September
                  30, 2007**
              
              
              December
                  31, 2006Loan
                  Commitments
              
              **$**
              **102,185**
              
              
              $
              105,165Standby
                  Letters of Credit
              
              ****
              **3,679**
              
              
              
              3,279
 
 Commitments
        to extend credit are agreements to lend to a customer as long as there is
        no
        violation of any condition established in the contract.  Commitments
        generally have fixed expiration dates or other termination clauses and may
        require payment of a fee.  The commitments for equity lines of credit
        may expire without being drawn upon.  Therefore, the total commitment
        amounts do not necessarily represent future cash requirements.  The
        amount of collateral obtained, if it is deemed necessary by the Company,
        is
        based on management’s credit evaluation of the customer.
 
 Unfunded
        commitments under commercial lines of credit, revolving credit lines and
        overdraft protection agreements are commitments for possible future extensions
        of credit to existing customers.  These lines of credit are
        uncollateralized and usually do not contain a specified maturity date and
        may
        not be drawn upon to the total extent to which the Company is
        committed.
  20
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
  **(14)****Commitments
        and Contingencies (Continued)**
 
 Standby
        and performance letters of credit are conditional lending commitments issued
        by
        the Company to guarantee the performance of a customer to a third
        party.  Those letters of credit are primarily issued to support public
        and private borrowing arrangements.  Essentially all letters of credit
        issued have expiration dates within one year.  The credit risk
        involved in issuing letters of credit is essentially the same as that involved
        in extending loan facilities to customers.
 
 *Purchase
        Commitments.*As of September 30, 2007, the Company had an
        outstanding commitment of approximately $1,967 to construct and furnish an
        office in Savannah.  No draws have been advanced as of September 30,
        2007.
 
 *Legal
        Contingencies*.  In the ordinary course of business, there are
        various legal proceedings pending against Colony and its
        subsidiaries.  The aggregate liabilities, if any, arising from such
        proceedings would not, in the opinion of management, have a material adverse
        effect on Colony’s consolidated financial position.
 
 **(15)****Deferred
        Compensation Plan**
 
 Two
        of
        the Bank subsidiaries have deferred compensation plans covering directors
        choosing to participate through individual deferred compensation
        contracts.  In accordance with terms of the contracts, the Banks are
        committed to pay the directors deferred compensation over a specified number
        of
        years, beginning at age 65.  In the event of a director’s death before
        age 65, payments are
 made
        to
        the director’s named beneficiary over a specified number of years, beginning on
        the first day of the month following the death of the director.
 
 Liabilities
        accrued under the plans totaled $1,172 and $1,108 as of September 30, 2007
        and
        December 31, 2006, respectively.  Benefit payments under the contracts
        were $140 and $127 for the nine month period ended September 30, 2007 and
        September 30, 2006, respectively.   Provisions charged to
        operations totaled $205 and $109 for the nine month period ended September
        30,
        2007 and
 September
        30, 2006, respectively.
 
 Fee
        income recognized with deferred compensation plans totaled $104 and $106
        for
        nine month period ended September 30, 2007 and
 September
        30, 2006, respectively.
 
 **(16)****Regulatory
        Capital Matters**
 
 The
        Company is subject to various regulatory capital requirements administered
        by
        federal banking agencies.  Failure to meet minimum capital
        requirements can initiate certain mandatory and, possibly, additional
        discretionary actions by regulators that, if undertaken, could have a direct
        material effect on the Company’s consolidated financial
        statements.  Under capital adequacy guidelines and the regulatory
        framework for prompt corrective action, the Company must meet specific capital
        guidelines that involve
 quantitative
        measures of the Company’s assets, liabilities and certain off-balance sheet
        items as calculated under regulatory accounting practices.  The
        Company’s capital amounts and classifications are also subject to qualitative
        judgments by the regulators about components, risk weightings and other
        factors.
 
 Quantitative
        measures established by regulation to ensure capital adequacy require the
        Company to maintain minimum amounts and ratios of total and Tier 1 capital
        to
        risk-weighted assets, and of Tier 1 capital to average assets.  The
        amounts and ratios as defined in
 regulations
        are presented hereafter.  Management believes, as of September 30,
        2007, the Company meets all capital adequacy requirements to which it is
        subject
        under the regulatory framework for prompt corrective action.  In the
        opinion of management, there are no conditions or events since prior
        notification of capital adequacy from the regulators that have changed the
        institution’s category.
  21
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 
 **(16)****Regulatory
        Capital Matters (Continued)**
 
 The
        following table summarizes regulatory capital information as of September
        30,
        2007 and December 31, 2006 on a consolidated basis and for each significant
        subsidiary, as defined.
 
 **Actual**
              
              
              **For
                  Capital**
                **Adequacy
                  Purposes**
              
              
              **To
                  Be Well Capitalized**
                **Under
                  Prompt Corrective**
                **Action
                  Provisions****Amount**
              
              
              **Ratio**
              
              
              **Amount**
              
              
              **Ratio**
              
              
              **Amount**
              
              
              **Ratio****As
                  of September 30, 2007**Total
                  Capital to Risk-Weighted AssetsConsolidated
              
              **$**
              **121,355**
              
              
              ****
              **12.36**
              **%**
              
              **$**
              **78,584**
              
              
              ****
              **8.00**
              **%**
              
              **$**
              **98,230**
              
              
              ****
              **10.00**
              **%**Fitzgerald
              
              ****
              **19,675**
              
              
              ****
              **12.60**
              
              
              ****
              **12,491**
              
              
              ****
              **8.00**
              
              
              ****
              **15,614**
              
              
              ****
              **10.00**Ashburn
              
              ****
              **29,859**
              
              
              ****
              **11.05**
              
              
              ****
              **21,612**
              
              
              ****
              **8.00**
              
              
              ****
              **27,014**
              
              
              ****
              **10.00**Worth
              
              ****
              **15,463**
              
              
              ****
              **10.82**
              
              
              ****
              **11,434**
              
              
              ****
              **8.00**
              
              
              ****
              **14,299**
              
              
              ****
              **10.00**Southeast
              
              ****
              **21,530**
              
              
              ****
              **11.12**
              
              
              ****
              **15,555**
              
              
              ****
              **8.00**
              
              
              ****
              **19,444**
              
              
              ****
              **10.00**Quitman
              
              ****
              **12,750**
              
              
              ****
              **11.90**
              
              
              ****
              **8,572**
              
              
              ****
              **8.00**
              
              
              ****
              **10,715**
              
              
              ****
              **10.00**Tier
                  1 Capital to Risk-Weighted AssetsConsolidated
              
              **$**
              **108,356**
              
              
              ****
              **11.03**
              **%**
              
              **$**
              **39,292**
              
              
              ****
              **4.00**
              **%**
              
              **$**
              **58,938**
              
              
              ****
              **6.00**
              **%**Fitzgerald
              
              ****
              **17,720**
              
              
              ****
              **11.35**
              
              
              ****
              **6,246**
              
              
              ****
              **4.00**
              
              
              ****
              **9,369**
              
              
              ****
              **6.00**Ashburn
              
              ****
              **26,473**
              
              
              ****
              **9.80**
              
              
              ****
              **10,806**
              
              
              ****
              **4.00**
              
              
              ****
              **16,209**
              
              
              ****
              **6.00**Worth
              
              ****
              **13,669**
              
              
              ****
              **9.56**
              
              
              ****
              **5,720**
              
              
              ****
              **4.00**
              
              
              ****
              **8,579**
              
              
              ****
              **6.00**Southeast
              
              ****
              **19,223**
              
              
              ****
              **9.93**
              
              
              ****
              **7,777**
              
              
              ****
              **4.00**
              
              
              ****
              **11,666**
              
              
              ****
              **6.00**Quitman
              
              ****
              **11,409**
              
              
              ****
              **10.65**
              
              
              ****
              **4,286**
              
              
              ****
              **4.00**
              
              
              ****
              **6,429**
              
              
              ****
              **6.00**Tier
                  1 Capital to Average AssetsConsolidated
              
              **$**
              **108,356**
              
              
              ****
              **9.02**
              **%**
              
              **$**
              **48,070**
              
              
              ****
              **4.00**
              **%**
              
              **$**
              **60,087**
              
              
              ****
              **5.00**
              **%**Fitzgerald
              
              ****
              **17,720**
              
              
              ****
              **8.97**
              
              
              ****
              **7,902**
              
              
              ****
              **4.00**
              
              
              ****
              **9,878**
              
              
              ****
              **5.00**Ashburn
              
              ****
              **26,473**
              
              
              ****
              **7.93**
              
              
              ****
              **13,353**
              
              
              ****
              **4.00**
              
              
              ****
              **16,692**
              
              
              ****
              **5.00**Worth
              
              ****
              **13,669**
              
              
              ****
              **7.71**
              
              
              ****
              **7,088**
              
              
              ****
              **4.00**
              
              
              ****
              **8,860**
              
              
              ****
              **5.00**Southeast
              
              ****
              **19,223**
              
              
              ****
              **9.40**
              
              
              ****
              **8,179**
              
              
              ****
              **4.00**
              
              
              ****
              **10,223**
              
              
              ****
              **5.00**Quitman
              
              ****
              **11,409**
              
              
              ****
              **7.89**
              
              
              ****
              **5,782**
              
              
              ****
              **4.00**
              
              
              ****
              **7,228**
              
              
              ****
              **5.00**
  22
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 
 (**16)****Regulatory
        Capital Matters (Continued)**
 
 **Actual**
              
              
              **For
                  Capital**
                **Adequacy
                  Purposes**
              
              
              **To
                  Be Well Capitalized**
                **Under
                  Prompt Corrective**
                **Action
                  Provisions****Amount**
              
              
              **Ratio**
              
              
              **Amount**
              
              
              **Ratio**
              
              
              **Amount**
              
              
              **Ratio****As
                  of December 31, 2006**Total
                  Capital to Risk-Weighted AssetsConsolidated
              
              $
              110,304
              
              
              
              11.50
              %
              
              $
              76,710
              
              
              
              8.00
              %
              
              $
              95,887
              
              
              
              10.00
              %Fitzgerald
              
              
              18,697
              
              
              
              11.33
              
              
              
              13,206
              
              
              
              8.00
              
              
              
              16,508
              
              
              
              10.00Ashburn
              
              
              28,908
              
              
              
              10.77
              
              
              
              21,464
              
              
              
              8.00
              
              
              
              26,830
              
              
              
              10.00Worth
              
              
              14,618
              
              
              
              11.02
              
              
              
              10,610
              
              
              
              8.00
              
              
              
              13,262
              
              
              
              10.00Southeast
              
              
              20,091
              
              
              
              10.76
              
              
              
              14,934
              
              
              
              8.00
              
              
              
              18,667
              
              
              
              10.00Quitman
              
              
              12,183
              
              
              
              11.65
              
              
              
              8,367
              
              
              
              8.00
              
              
              
              10,458
              
              
              
              10.00Tier
                  1 Capital to Risk-Weighted AssetsConsolidated
              
              $
              98,235
              
              
              
              10.24
              %
              
              $
              38,355
              
              
              
              4.00
              %
              
              $
              57,532
              
              
              
              6.00
              %Fitzgerald
              
              
              16,567
              
              
              
              10.04
              
              
              
              6,603
              
              
              
              4.00
              
              
              
              9,905
              
              
              
              6.00Ashburn
              
              
              25,551
              
              
              
              9.52
              
              
              
              10,732
              
              
              
              4.00
              
              
              
              16,098
              
              
              
              6.00Worth
              
              
              12,958
              
              
              
              9.77
              
              
              
              5,305
              
              
              
              4.00
              
              
              
              7,957
              
              
              
              6.00Southeast
              
              
              17,981
              
              
              
              9.63
              
              
              
              7,467
              
              
              
              4.00
              
              
              
              11,200
              
              
              
              6.00Quitman
              
              
              10,985
              
              
              
              10.50
              
              
              
              4,183
              
              
              
              4.00
              
              
              
              6,275
              
              
              
              6.00Tier
                  1 Capital to Average AssetsConsolidated
              
              $
              98,235
              
              
              
              8.17
              %
              
              $
              48,087
              
              
              
              4.00
              %
              
              $
              60,109
              
              
              
              5.00
              %Fitzgerald
              
              
              16,567
              
              
              
              8.07
              
              
              
              8,207
              
              
              
              4.00
              
              
              
              10,259
              
              
              
              5.00Ashburn
              
              
              25,551
              
              
              
              7.68
              
              
              
              13,306
              
              
              
              4.00
              
              
              
              16,632
              
              
              
              5.00Worth
              
              
              12,958
              
              
              
              7.44
              
              
              
              6,969
              
              
              
              4.00
              
              
              
              8,711
              
              
              
              5.00Southeast
              
              
              17,981
              
              
              
              8.52
              
              
              
              8,445
              
              
              
              4.00
              
              
              
              10,556
              
              
              
              5.00Quitman
              
              
              10,985
              
              
              
              7.78
              
              
              
              5,647
              
              
              
              4.00
              
              
              
              7,059
              
              
              
              5.00
  23
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 
 **(17)****Financial
        Information of Colony Bankcorp, Inc. (Parent Only)**
 
 The
        parent company’s balance sheets as of September 30, 2007 and December 31, 2006
        and the related statements of income and comprehensive income and cash flows
        are
        as follows:
 
 
 **COLONY
        BANKCORP, INC. (PARENT ONLY)**
 **BALANCE
        SHEETS**
 **SEPTEMBER
        30, 2007 AND DECEMBER 31, 2006**
 
 
 **ASSETS**
              
              **September
                  30, 2007**
              
              
              December
                  31, 2006**(Unaudited)**
              
              
              (Audited)Cash
              
              **$**
              **7,884**
              
              
              $
              2,224Premises
                  and Equipment, Net
              
              ****
              **1,256**
              
              
              
              1,273Investment
                  in Subsidiaries, at Equity
              
              ****
              **102,929**
              
              
              
              97,270Other
              
              ****
              **1,187**
              
              
              
              999**Totals
                  Assets**
              
              **$**
              **113,256**
              
              
              $
              101,766**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY**LiabilitiesDividends
                  Payable
              
              **$**
              **666**
              
              
              $
              611Other
              
              ****
              **285**
              
              
              
              315****
              **951**
              
              
              
              926Subordinated
                  Debt
              
              ****
              **29,384**
              
              
              
              24,229**Stockholders’
                  Equity**Common
                  Stock, Par Value $1 a Share; Authorized 20,000,000Shares, Issued
                  7,204,775
                  and 7,189,937 Shares as of September 30, 2007 and December 31,
                  2006,
                  Respectively
              
              ****
              **7,205**
              
              
              
              7,190Paid-In
                  Capital
              
              ****
              **24,503**
              
              
              
              24,257Retained
                  Earnings
              
              ****
              **52,019**
              
              
              
              46,417Restricted
                  Stock - Unearned Compensation
              
              ****
              **(343**
              **)**
              
              
              (278
              )Accumulated
                  Other Comprehensive Loss, Net of Tax
              
              ****
              **(463**
              **)**
              
              
              (975
              )****
              **82,921**
              
              
              
              76,611**Total
                  Liabilities and Stockholders' Equity**
              
              **$**
              **113,256**
              
              
              $
              101,766
  24
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 
 **(17)****Financial
        Information of Colony Bankcorp, Inc. (Parent Only)
        (Continued)**
 
 **COLONY
        BANKCORP, INC. (PARENT ONLY)**
 **STATEMENT
        OF INCOME AND COMPREHENSIVE INCOME**
 **FOR
        THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND SEPTEMBER 30,
        2006**
 **(UNAUDITED)**
 
 
 **SEPTEMBER
                  30, 2007**
              
              
              SEPTEMBER
                  30, 2006**Income**Dividends
                  from Subsidiaries
              
              **$**
              **4,544**
              
              
              $
              5,108Other
              
              ****
              **130**
              
              
              
              79****
              **4,674**
              
              
              
              5,187**Expenses**Interest
              
              ****
              **1,468**
              
              
              
              1,415Salaries
                  and Employee Benefits
              
              ****
              **793**
              
              
              
              806Other
              
              ****
              **731**
              
              
              
              589****
              **2,992**
              
              
              
              2,810**Income
                  Before Taxes and Equity in Undistributed Earnings of
                  Subsidiaries**
              
              ****
              **1,682**
              
              
              
              2,377Income
                  Tax (Benefits)
              
              ****
              **(875**
              **)**
              
              
              (788
              )**Income
                  Before Taxes and Equity in Undistributed Earnings of
                  Subsidiaries**
              
              ****
              **2,557**
              
              
              
              3,165Equity
                  in Undistributed Earnings of Subsidiaries
              
              ****
              **5,238**
              
              
              
              4,376**Net
                  Income**
              
              ****
              **7,795**
              
              
              
              7,541**Other
                  Comprehensive Income, Net of Tax**Gains
                  (Losses) on Securities Arising During Year
              
              ****
              **633**
              
              
              
              242Reclassification
                  Adjustment
              
              ****
              **(121**
              **)**
              
              
              0Unrealized
                  Gains (Losses) in Securities
              
              ****
              **512**
              
              
              
              242**Comprehensive
                  Income**
              
              **$**
              **8,307**
              
              
              $
              7,783
  25
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 
 **(17)****Financial
        Information of Colony Bankcorp, Inc. (Parent Only)
        (Continued)**
 
 **COLONY
        BANKCORP, INC. (PARENT ONLY)**
 **STATEMENT
        OF CASH FLOWS**
 **FOR
        THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND SEPTEMBER 30,
        2006**
 **(UNAUDITED)**
 
 
 **2007**
              
              
              2006**Cash
                  Flows from Operating Activities**Net
                  Income
              
              **$**
              **7,795**
              
              
              $
              7,541Adjustments
                  to Reconcile Net Income to Net Cash Provided from Operating
                  ActivitiesDepreciation
                  and Amortization
              
              ****
              **252**
              
              
              
              229Equity
                  in Undistributed Earnings of Subsidiary
              
              ****
              **(5,238**
              **)**
              
              
              (4,376
              )Other
              
              ****
              **(214**
              **)**
              
              
              (178
              )****
              **2,595**
              
              
              
              3,216**Cash
                  Flows from Investing Activities**Capital
                  Infusion in Subsidiary
              
              ****
              **--**
              
              
              
              (2,500
              )Purchases
                  of Premises and Equipment
              
              ****
              **(45**
              **)**
              
              
              (50
              )Investment
                  in Capital Trust
              
              ****
              **(434**
              **)**
              
              
              (155
              )Liquidation
                  of Statutory Trust
              
              ****
              **279**
              
              
              
              ---****
              **(200**
              **)**
              
              
              (2,705
              )**Cash
                  Flows from Financing Activities**Dividends
                  Paid
              
              ****
              **(1,890**
              **)**
              
              
              (1,671
              )Principal
                  Payments on Other Borrowed Money
              
              ****
              **--**
              
              
              
              (2,500
              )Proceeds
                  from Issuance of Subordinated Debentures
              
              ****
              **14,434**
              
              
              
              5,155Principal
                  Payment on Subordinated Debentures
              
              ****
              **(9,279**
              **)**
              
              
              ---****
              **3,265**
              
              
              
              984**Net
                  Increase in Cash**
              
              ****
              **5,660**
              
              
              
              1,495**Cash,
                  Beginning**
              
              ****
              **2,224**
              
              
              
              229**Cash,
                  Ending**
              
              **$**
              **7,884**
              
              
              $
              1,724
  26
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        1
        (Continued)
 
 
 **(18)****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 three months and nine months ended September 30, 2007 and 2006,
        respectively, under the requirements of Statement 128:
  **Three
                    Months Ended**
                
                
                **Three
                    Months Ended****September
                    30, 2007**
                
                
                **September
                    30, 2006****Income
                    Numerator**
                
                
                **Common
                    Shares Denominator**
                
                
                **EPS**
                
                
                **Income
                    Numerator**
                
                
                **Common
                    Shares Denominator**
                
                
                **EPS****Basic
                    EPS**Income
                    Available to Common Stockholders
                
                $
                2,619
                
                
                
                7,194
                
                
                $
                0.36
                
                
                $
                2,622
                
                
                
                7,182
                
                
                $
                0.36**Dilutive
                    Effect of Potential Common Stock**Restricted
                    Stock
                
                
                
                
                
                
                8
                
                
                
                
                
                
                
                
                
                
                
                0**Diluted
                    EPS**Income
                    Available to Common Stockholders After Assumed Conversions of
                    Dilutive
                    Securities
                
                $
                2,619
                
                
                
                7,202
                
                
                $
                0.36
                
                
                $
                2,622
                
                
                
                7,182
                
                
                $
                0.36
 
 **Nine
                    Months Ended**
                
                
                **Nine
                    Months Ended****September
                    30, 2007**
                
                
                **September
                    30, 2006****Income**
                  **Numerator**
                
                
                **Common**
                  **Shares**
                  **Denominator**
                
                
                **EPS**
                
                
                **Income**
                  **Numerator**
                
                
                **Common**
                  **Shares**
                  **Denominator**
                
                
                **EPS****Basic
                    EPS**Income
                    Available to Common Stockholders
                
                $
                7,795
                
                
                
                7,188
                
                
                $
                1.08
                
                
                $
                7,541
                
                
                
                7,176
                
                
                $
                1.05**Dilutive
                    Effect of Potential Common Stock**Restricted
                    Stock
                
                
                
                
                
                
                10
                
                
                
                
                
                
                
                
                
                
                
                1**Diluted
                    EPS**Income
                    Available to Common Stockholders After Assumed Conversions of
                    Dilutive
                    Securities
                
                $
                7,795
                
                
                
                7,198
                
                
                $
                1.08
                
                
                $
                7,541
                
                
                
                7,177
                
                
                $
                1.05
  27
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        2
 
 
 **MANAGEMENT’S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS**
 
 **Forward-Looking
        Statements and Factors that Could Affect Future Results**
 
 Certain
        statements contained in this Quarterly Report  that are not statements
        of historical fact constitute forward-looking statements within the meaning
        of
        the Private Securities Litigation Reform Act of 1995 (the Act), not withstanding
        that such statements are not specifically identified. In addition, certain
        statements may be contained in the Company’s future filings with the SEC, in
        press releases, and in oral and written statements made by or with the approval
        of the Company that are not statements of historical fact and constitute
        forward-looking statements within the meaning of the Act. Examples of
        forward-looking statements include, but are not limited to: (i) projections
        of revenues, income or loss, earnings or loss per share, the payment or
        nonpayment of dividends, capital structure and other financial items;
        (ii) statements of plans and objectives of Colony Bankcorp, Inc. or its
        management or Board of Directors, including those relating to products or
        services; (iii) statements of future economic performance; and
        (iv) statements of assumptions underlying such statements. Words such as
“believes,” “anticipates,” “expects,” “intends,” “targeted,” and similar
        expressions are intended to identify forward-looking statements but are not
        the
        exclusive means of identifying such statements.
 
 Forward-looking
        statements involve risks and uncertainties that may cause actual results
        to
        differ materially from those in such statements. Factors that could cause
        actual
        results to differ from those discussed in the forward-looking statements
        include, but are not limited to:
 
 ·
              Local
                  and regional economic conditions and the impact they may have on
                  the
                  Company and its customers and the Company’s assessment of that
                  impact.
 
 ·
              Changes
                  in estimates of future reserve requirements based upon the periodic
                  review
                  thereof under relevant regulatory and accounting
                  requirements.
 
 ·
              The
                  effects of and changes in trade, monetary and fiscal policies and
                  laws,
                  including interest rate policies of the Federal Reserve
                  Board.
 
 ·
              Inflation,
                  interest rate, market and monetary
                  fluctuations.
 
 ·
              Political
                  instability.
 
 ·
              Acts
                  of war or terrorism.
 
 ·
              The
                  timely development and acceptance of new products and services
                  and
                  perceived overall value of these products and services by
                  users.
 
 ·
              Changes
                  in consumer spending, borrowings and savings
                  habits.
 
 ·
              Technological
                  changes.
 
 ·
              Acquisitions
                  and integration of acquired
                  businesses.
 
 ·
              The
                  ability to increase market share and control
                  expenses.
 
 ·
              The
                  effect of changes in laws and regulations (including laws and regulations
                  concerning taxes, banking, securities and insurance) with which
                  the
                  Company and its subsidiaries must
                  comply.
 
 ·
              The
                  effect of changes in accounting policies and practices, as may
                  be adopted
                  by the regulatory agencies, as well as the Financial Accounting
                  Standards
                  Board and other accounting standard
                  setters.
 
 ·
              Changes
                  in the Company’s organization, compensation and benefit
                  plans.
 
 ·
              The
                  costs and effects of litigation and of unexpected or adverse outcomes
                  in
                  such litigation.
  28
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        2
        (Continued)
 
 
 ·
              Greater
                  than expected costs or difficulties related to the integration
                  of new
                  lines of business.
 
 ·
              The
                  Company’s success at managing the risks involved in the foregoing
                  items.
 
 Forward-looking
        statements speak only as of the date on which such statements are made. The
        Company undertakes no obligation to update any forward-looking statement
        to
        reflect events or circumstances after the date on which such statement is
        made,
        or to reflect the occurrence of unanticipated events.
 
 **The
        Company**
 
 Colony
        Bankcorp, Inc. (Colony) is a bank holding company headquartered in Fitzgerald,
        Georgia that provides, through its wholly owned subsidiaries (collectively
        referred to as the Company), a broad array of products and services throughout
        18 Georgia markets. The Company offers commercial, consumer and mortgage
        banking
        services.
 
 **Application
        of Critical Accounting Policies and Accounting Estimates**
 
 The
        accounting and reporting policies of the Company are in accordance with
        accounting principles generally accepted in the United States of America
        and
        conform to general practices within the banking industry.  The
        Company’s financial position and results of operations are affected by
        management’s application of accounting policies, including judgments made to
        arrive at the carrying value of assets and liabilities and amounts reported
        for
        revenues, expenses and related disclosures.  Different assumptions in
        the application of these policies could result in material changes in the
        Company’s financial position and/or results of operations.  Critical
        accounting policies are those policies that management believes are the most
        important to the portrayal of the Company’s financial condition and results of
        operations, and they require management to make estimates that are difficult,
        subjective or complete.
 
 **Allowance
        for Loan Losses**– The allowance for loan losses provides coverage for
        probable losses inherent in the Company’s loan portfolio.  Management
        evaluates the adequacy of the allowance for loan losses quarterly based on
        changes, if any, in underwriting activities, the loan portfolio composition
        (including product mix and geographic, industry or customer-specific
        concentrations), trends in loan performance, regulatory guidance and economic
        factors.  This evaluation is inherently subjective, as it requires the
        use of significant management estimates.  Many factors can affect
        management’s estimates of specific and expected losses, including volatility of
        default probabilities, collateral values, rating migrations, loss severity
        and
        economic and political conditions.   The allowance is increased
        through provisions charged to operating earnings and reduced by net
        charge-offs.
 
 The
        Company determines the amount of the allowance based on relative risk
        characteristics of the loan portfolio.  The allowance recorded for
        loans is based on reviews of individual credit relationships and historical
        loss
        experience.  The allowance for losses relating to impaired loans is
        based on the loan’s observable market price, the discounted cash flows using the
        loan’s effective interest rate, or the value of collateral for collateral
        dependent loans.
 
 Regardless
        of the extent of the Company’s analysis of customer performance, portfolio
        trends or risk management processes, certain inherent but undetected losses
        are
        probable within the loan portfolio.  This is due to several factors,
        including inherent delays in obtaining information regarding a customer’s
        financial condition or changes in their unique business conditions, the
        judgmental nature of individual loan evaluations, collateral assessments
        and the
        interpretation of economic trends.  Volatility of economic or
        customer-specific conditions affecting the identification and estimation
        of
        losses for larger nonhomogeneous credits and the sensitivity of assumptions
        utilized to establish allowances for homogeneous groups of loans are among
        other
        factors.  The Company estimates a range of inherent losses related to
        the existence of these exposures.  The estimates are based upon the
        Company’s evaluation of risk associated with the commercial and consumer levels
        and the estimated impact of the current economic environment.
 
 **Goodwill
        and Other Intangibles**– The Company records all assets and liabilities
        acquired in purchase acquisitions, including goodwill and other intangibles,
        at
        fair value as required by SFAS 141.  Goodwill is subject, at a
        minimum, to annual tests for impairment.    Other intangible
        assets are amortized over their estimated useful lives using straight-line
        and
        accelerated methods, and are subject to impairment if events or circumstances
        indicate a possible inability to realize the carrying amount.  The
        initial goodwill and other intangibles recorded and subsequent impairment
        analysis require management to make subjective judgments concerning estimates
        of
        how the acquired asset will perform in the future.  Events and factors
        that may significantly affect the estimates include, among others, customer
        attrition, changes in revenue growth trends, specific industry conditions
        and
        changes in competition.
 
 **Overview**
 
 The
        following discussion and analysis presents the more significant factors
        affecting the Company’s financial condition as of
  29
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        2
        (Continued)
 
 Steptember
        30, 2007 and December 31, 2006, and results of operations for each of three
        months and nine months in the periods ended September 30, 2007 and
        2006.  This discussion and analysis should be read in conjunction with
        the Company’s consolidated financial statements, notes thereto and other
        financial information appearing elsewhere in this report.
 
 Taxable-equivalent
        adjustments are the result of increasing income from tax-free loans and
        investments by an amount equal to the taxes that would be paid if the income
        were fully taxable based on a 34 percent federal tax rate, thus making
        tax-exempt yields comparable to taxable asset yields.
 
 Dollar
        amounts in tables are stated in thousands, except for per share
        amounts.
 
 **Results
        of Operations**
 
 The
        Company’s results of operations are determined by its ability to effectively
        manage interest income and expense, to minimize loan and investment losses,
        to
        generate noninterest income and to control noninterest expense.  Since
        market forces and economic conditions beyond the control of the Company
        determine interest rates, the ability to generate net interest income is
        dependent upon the Company’s ability to obtain an adequate spread between the
        rate earned on interest earning assets and the rate paid on interest-bearing
        liabilities.  Thus, the key performance for net interest income is the
        net interest margin or net yield, which is taxable-equivalent net interest
        income divided by average earning assets.  Net income totaled
        $2.62 million, or $0.36 diluted per common share, in three months ended
        September 30, 2007 compared to $2.62 million, or $0.36 diluted per common
        share, in three months ended
 September
        30, 2006 and net income totaled $7.80 million or $1.08 diluted per common
        share
        in nine months ended
 September
        30, 2007 compared to $7.54 million, or $1.05 diluted per common share in
        nine
        months ended September 30, 2006.
 
 Selected
        income statement data, returns on average assets and average equity and
        dividends per share for the comparable periods were as follows:
 
 **Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30**
              
              
              **September
                  30****2007**
              
              
              2006
              
              
              **2007**
              
              
              2006Taxable-equivalent
                  net interest income
              
              **$**
              **10,885**
              
              
              $
              10,866
              
              
              **$**
              **32,331**
              
              
              $
              31,592Taxable-equivalent
                  adjustment
              
              ****
              **92**
              
              
              
              72
              
              
              ****
              **262**
              
              
              
              185Net
                  interest income
              
              ****
              **10,793**
              
              
              
              10,794
              
              
              ****
              **32,069**
              
              
              
              31,407Provision
                  for possible loan losses
              
              ****
              **850**
              
              
              
              1,021
              
              
              ****
              **2,678**
              
              
              
              2,990Noninterest
                  income
              
              ****
              **1,846**
              
              
              
              1,898
              
              
              ****
              **6,012**
              
              
              
              5,524Noninterest
                  expense
              
              ****
              **7,756**
              
              
              
              7,680
              
              
              ****
              **23,630**
              
              
              
              22,366Income
                  before income taxes
              
              ****
              **4,033**
              
              
              
              3,991
              
              
              ****
              **11,773**
              
              
              
              11,575Income
                  Taxes
              
              ****
              **1,414**
              
              
              
              1,369
              
              
              ****
              **3,978**
              
              
              
              4,034Net
                  income
              
              **$**
              **2,619**
              
              
              $
              2,622
              
              
              **$**
              **7,795**
              
              
              $
              7,541Basic
                  per common share:Net
                  income
              
              **$**
              **0.36**
              
              
              $
              0.36
              
              
              **$**
              **1.08**
              
              
              $
              1.05Diluted
                  per common share:Net
                  income
              
              **$**
              **0.36**
              
              
              $
              0.36
              
              
              **$**
              **1.08**
              
              
              $
              1.05Return
                  on average assets:Net
                  income
              
              ****
              **0.87**
              **%**
              
              
              0.90
              %
              
              ****
              **0.87**
              **%**
              
              
              0.88
              %Return
                  on average equity:Net
                  income
              
              ****
              **12.87**
              **%**
              
              
              14.45
              %
              
              ****
              **13.07**
              **%**
              
              
              14.22
              %
 
 
 Net
        income for three months ended September 30, 2007 decreased $.003 million,
        or .11
        percent compared to the same period in 2006.  The decrease was
        primarily the result of a decrease of $0.052 million in non-interest income,
        an
        increase of $0.076 million in non-interest expense and an increase of $0.045
        million in income taxes.  This was offset by a decrease of $0.171
        million in provision for possible loan losses.
  30
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        2
        (Continued)
 
 Net
        income for nine months ended September 30, 2007 increased $0.254 million,
        or
        3.37 percent, compared to the same period in 2006.  The increase was
        primarily the result of an increase of $0.662 million in net interest income,
        an
        increase of $0.488 in noninterest income, a decrease of $0.312 million in
        provision for possible loan losses and a decrease of $0.056 million in income
        taxes.  This was offset by an increase of $1.264 million in
        noninterest expense.
 
 Details
        of the changes in the various components of net income are further discussed
        below.
 
 **Net
        Interest Income**
 
 Net
        interest income is the difference between interest income on earning assets,
        such as loans and securities, and interest expense on liabilities, such as
        deposits and borrowings, which are used to fund those assets. Net interest
        income is the Company’s largest source of revenue, representing 84.21 percent of
        total revenue for nine months ended September 30, 2007 and 85.04 percent
        for the
        same period a year ago.
 
 Net
        interest margin is the taxable-equivalent net interest income as a percentage
        of
        average earning assets for the period. The level of interest rates and the
        volume and mix of earning assets and interest-bearing liabilities impact
        net
        interest income and net interest margin.
 
 The
        Federal Reserve Board influences the general market rates of interest, including
        the deposit and loan rates offered by many financial institutions. The Company’s
        loan portfolio is significantly affected by changes in the prime interest
        rate.
        The prime interest rate, which is the rate offered on loans to borrowers
        with
        strong credit, began 2001 at 9.50 percent and decreased 475 basis points
        during
        2001 to end the year at 4.75 percent.  During 2002, the prime rate
        decreased 50 basis points to end the year at 4.25 percent.  During
        2003, the prime rate decreased 25 basis points to end the year at 4.00
        percent.  During 2004, the prime rate increased 125 basis points to
        end the year at 5.25 percent and during 2005, the prime rate increased 200
        basis
        points to end the year at 7.25 percent.  During 2006, the prime rate
        increased 100 basis points to end the year at 8.25 percent.   The
        federal funds rate moved similar to prime rate with interest rates of 1.75
        percent, 1.25 percent , 1.00 percent, 2.25 percent and 4.25 percent,
        respectively, as of year-end 2001, 2002, 2003, 2004 and 2005.  During
        2006, the federal funds rate increased 100 basis points to end the year at
        5.25
        percent.  During the third quarter 2007, the federal funds rate
        decreased 50 basis points to the current level of 4.75 percent.  It is
        anticipated the Federal Reserve will pause with another possible decrease
        at
        year-end.
 
 The
        following table presents the changes in taxable-equivalent net interest income
        and identifies the changes due to differences in the average volume of earning
        assets and interest-bearing liabilities and the changes due to changes in
        the
        average interest rate on those assets and liabilities. The changes in net
        interest income due to changes in both average volume and average interest
        rate
        have been allocated to the average volume change or the average interest
        rate
        change in proportion to the absolute amounts of the change in each. The
        Company’s consolidated average balance sheets along with an analysis of
        taxable-equivalent net interest earnings are presented in the Quantitative
        and
        Qualitative Disclosures About Market Risk included elsewhere in this
        report.
  31
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        2
        (Continued)
 
 **Rate/Volume
        Analysis**
 
 The
        rate/volume analysis presented hereafter illustrates the change from September
        30, 2006 to September 30, 2007 for each component of the taxable equivalent
        net
        interest income separated into the amount generated through volume changes
        and
        the amount generated by changes in the yields/rates.
 
 **Changes
                  from September 30, 2006 to September 30, 2007 (1)**($
                  in thousands)
              
              **Volume**
              
              
              **Rate**
              
              
              **Total**Interest
                  IncomeLoans,
                  Net-taxable
              
              **$**
              **2,490**
              
              
              **$**
              **3,368**
              
              
              **$**
              **5,858**Investment
                  SecuritiesTaxable
              
              ****
              **594**
              
              
              ****
              **524**
              
              
              ****
              **1,118**Tax-exempt
              
              ****
              **211**
              
              
              ****
              **(2**
              **)**
              
              ****
              **209**Total
                  Investment Securities
              
              ****
              **805**
              
              
              ****
              **522**
              
              
              ****
              **1,327**Interest-Bearing
                  Deposits in other Banks
              
              ****
              **12**
              
              
              ****
              **7**
              
              
              ****
              **19**Federal
                  Funds Sold
              
              ****
              **(349**
              **)**
              
              ****
              **95**
              
              
              ****
              **(254**
              **)**Other
                  Interest - Earning Assets
              
              ****
              **1**
              
              
              ****
              **21**
              
              
              ****
              **22**Total
                  Interest Income
              
              ****
              **2,959**
              
              
              ****
              **4,013**
              
              
              ****
              **6,972**Interest
                  ExpenseInterest-Bearing
                  Demand and Savings Deposits
              
              ****
              **32**
              
              
              ****
              **391**
              
              
              ****
              **423**Time
                  Deposits
              
              ****
              **1,353**
              
              
              ****
              **4,419**
              
              
              ****
              **5,772**Federal
                  Funds Purchased
              
              ****
              **21**
              
              
              ****
              **1**
              
              
              ****
              **22**Subordinated
                  Debentures
              
              ****
              **171**
              
              
              ****
              **(71**
              **)**
              
              ****
              **100**Other
                  Borrowed Money
              
              ****
              **(111**
              **)**
              
              ****
              **27**
              
              
              ****
              **(84**
              **)**Total
                  Interest Expense
              
              ****
              **1,466**
              
              
              ****
              **4,767**
              
              
              ****
              **6,233**Net
                  Interest Income
              
              **$**
              **1,493**
              
              
              **$**
              **(754**
              **)**
              
              **$**
              **739**
 
 
 (1)
              Changes
                  in net interest income for the periods, based on either changes
                  in average
                  balances or changes in average rates for interest-earning assets
                  and
                  interest-bearing liabilities, are shown on this table. During each
                  year,
                  there are numerous and simultaneous balance and rate changes; therefore,
                  it is not possible to precisely allocate the changes between balances
                  and
                  rates. For the purpose of this table, changes that are not exclusively
                  due
                  to balance changes or rate changes have been attributed to
                  rates.
 
 Our
        financial performance is impacted by, among other factors, interest rate
        risk
        and credit risk. We do not utilize derivatives to mitigate our interest rate
        or
        credit risk, relying instead on an extensive loan review process and our
        allowance for loan losses.
 
 Interest
        rate risk is the change in value due to changes in interest rates. The Company
        is exposed only to U.S. dollar interest rate changes and accordingly, the
        Company manages exposure by considering the possible changes in the net interest
        margin. The Company does not have any trading instruments nor does it classify
        any portion of its investment portfolio as held for trading. The Company
        does
        not engage in any hedging activity or utilize any derivatives. The Company
        has
        no exposure to foreign currency exchange rate risk, commodity price risk
        and
        other market risks. This risk is addressed by our Asset & Liability
        Management Committee (“ALCO”) which includes senior management representatives.
        The ALCO monitors interest rate risk by analyzing the potential impact of
        alternative strategies or changes in balance sheet structure.
  32
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        2
        (Continued)
 
 Interest
        rates play a major part in the net interest income of financial institutions.
        The repricing of interest earning assets and interest-bearing liabilities
        can
        influence the changes in net interest income. The timing of repriced assets
        and
        liabilities is Gap management and our Company has established its policy
        to
        maintain a Gap ratio in the one-year time horizon of 0.80 to 1.20.
 
 Our
        exposure to interest rate risk is reviewed on at least a semiannual basis
        by our
        Board of Directors and the ALCO. Interest rate risk exposure is measured
        using
        interest rate sensitivity analysis to determine our change in net portfolio
        value in the event of assumed changes in interest rates, in order to reduce
        the
        exposure to interest rate fluctuations, we have implemented strategies to
        more
        closely match our balance sheet composition. We are generally focusing our
        investment activities on securities with terms or average lives in the
        2-7**year range.
 
 The
        Company maintains about 38.5 percent of its loan portfolio in adjustable
        rate
        loans that reprice with prime rate changes, while the bulk of its other loans
        mature within 3 years. The liabilities to fund assets are primarily in short
        term certificate of deposits that mature within one year. This balance sheet
        composition has allowed the Company to be relatively constant with its net
        interest margin the past several years, though the unprecedented
        475**basis point decrease by U.S. Federal Reserve in 2001, 50 basis
        point decrease in 2002 and 25 basis point decrease in 2003 resulted in
        significant net interest margin pressure. During 2004 and 2005, interest
        rates
        increased 125 basis points and 200 basis points respectively, while another
        100
        basis point increase occurred during 2006, resulting in stable net interest
        margins during second quarter 2007.  The Federal Reserve decreased
        rates 50 basis points during third quarter resulting in pressure on net interest
        margins again.  Net interest margin decreased to 3.79 percent for nine
        months ended September  30, 2007 compared to 3.89 percent for the same
        period a year ago. We anticipate continued margin compression for 2007 given
        the
        Federal Reserve’s present interest rate forecast of neutral to easing for the
        balance of 2007.
 
 Taxable-equivalent
        net interest income for nine months ended September 30, 2007 increased $0.74
        million, or 2.34 percent compared to the same period a year ago. The fluctuation
        between the comparable periods resulted from the positive impact of growth
        in
        the average volume of earning assets that was partially offset by the negative
        impact of increasing average interest rates. The average volume of earning
        assets during nine months ended September 30, 2007 increased almost $55.4
        million compared to the same period a year ago while over the same period
        the
        net interest margin decreased by 10 basis points from 3.89 percent to 3.79
        percent.  Growth in average earning assets during 2007 and 2006 was
        primarily in loans.  The decrease in the net interest margin in 2007
        was primarily the result of the general increase in market interest rates
        and
        the inverted yield curve.
 
 The
        average volume of loans increased $40.7 million in nine months ended September
        30, 2007 compared to the same period a year ago.  The average yield on
        loans increased 47 basis points in nine months ended September 30, 2007 compared
        to the same period a year ago. Funding for this growth was primarily provided
        by
        deposit growth. The average volume of deposits increased $45.9 million in
        nine
        months ended September 30, 2007 compared to the same period a year ago.
        Interest-bearing deposits made up 94 percent of the growth in average deposits
        in nine months ended September 30, 2007. Accordingly, the ratio of average
        interest-bearing deposits to total average deposits was 92.6 percent in nine
        months ended September 30, 2007 compared to 92.5 percent in the same period
        a
        year ago.  This deposit mix, combined with a general increase in
        market rates, had the effect of (i) increasing the average cost of total
        deposits by 65 basis points in nine months ended September 30, 2007 compared
        to
        the same period a year ago and, (ii) mitigating a portion of the impact of
        increasing yields on earning assets.
 
 The
        Company’s net interest spread, which represents the difference between the
        average rate earned on earning assets and the average rate paid on
        interest-bearing liabilities, was 3.38 percent in nine months ended September
        30, 2007 compared to 3.57 percent in the same period a year ago. The net
        interest spread, as well as the net interest margin, will be impacted by
        future
        changes in short-term and long-term interest rate levels, as well as the
        impact
        from the competitive environment. A discussion of the effects of changing
        interest rates on net interest income is set forth in Quantitative and
        Qualitative Disclosures About Market Risk included elsewhere in this
        report.
 
 **Provision
        for Loan Losses**
 
 The
        provision for loan losses is determined by management as the amount to be
        added
        to the allowance for loan losses after net charge-offs have been deducted
        to
        bring the allowance to a level which, in management’s best estimate, is
        necessary to absorb probable losses within the existing loan portfolio. The
        provision for loan losses totaled $2.68 million in nine months
        ended
 September
        30, 2007 compared to $2.99 million in the same period a year
        ago.   See the section captioned “Allowance for Loan Losses”
elsewhere in this discussion for further analysis of the provision for loan
        losses.
  33
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        2
        (Continued)
 
 **NonInterest
        Income**
 The
        components of noninterest income were as follows:
 
 **Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30**
              
              
              **September
                  30****2007**
              
              
              2006
              
              
              **2007**
              
              
              2006Service
                  Charges on Deposit Accounts
              
              **$**
              **1,224**
              
              
              $
              1,193
              
              
              **$**
              **3,556**
              
              
              $
              3,380Other
                  Charges, Commissions and Fees
              
              ****
              **218**
              
              
              
              207
              
              
              ****
              **703**
              
              
              
              625Other
              
              ****
              **181**
              
              
              
              318
              
              
              ****
              **806**
              
              
              
              1,003Mortgage
                  Fee Income
              
              ****
              **225**
              
              
              
              180
              
              
              ****
              **763**
              
              
              
              516Securities
                  Gains (Losses)
              
              ****
              **(2**
              **)**
              
              
              --
              
              
              ****
              **184**
              
              
              
              --Total
              
              **$**
              **1,846**
              
              
              $
              1,898
              
              
              **$**
              **6,012**
              
              
              $
              5,524
 
 
 Total
        noninterest income for three months ended September 30, 2007 decreased $52
        thousand, or 2.74 percent compared to the same period a year ago. Total
        noninterest income for nine months ended September 30, 2007 increased $488
        thousand, or 8.83 percent, compared to the same year ago
        period.  Growth in both periods was primarily in service charges on
        deposit accounts, mortgage fee income and securities gains.  Changes
        in these items and the other components of noninterest income are discussed
        in
        more detail below.
 
 *Service
        Charges on Deposit Accounts*.  Service charges on deposit accounts
        for three months ended September 30, 2007 increased $31  thousand, or
        2.60 percent, compared to the same period a year ago.   Service
        charges on deposit accounts for the nine months ended September 30, 2007
        increased $176 thousand, or 5.21 percent, compared to the same year ago
        period.  The increase was primarily due to an increase in overdraft
        fees, which was mostly related to consumer and commercial checking
        accounts.
 
 *Mortgage
        Fee Income*.  Mortgage fee income for three months ended September
        30, 2007 increased $45 thousand, or 25.0 percent, compared to the same period
        year ago.   Mortgage fee income for nine months ended September
        30, 2007 increased $247 thousand, or 47.87 percent, compared to the same
        year
        ago period.  The company anticipates fee income to continue to show
        an  increase over the previous year due to the Company’s focus on
        generating mortgage fee income.
 
 *All
        Other Noninterest Income.*  Other charges, commissions and fees
        and other income for three months ended September 30, 2007 decreased $126
        thousand, or 24.00 percent, compared to the same period a year
        ago.  The significant decrease was premiums on the sale of SBA loans
        which decreased to $17 thousand for three months ended September 30, 2007
        from
        $170 thousand for the same period a year ago.  Other charges,
        commissions and fees and other income for nine months ended September 30,
        2007
        decreased $119  thousand, or 7.3 percent, compared to the same year
        ago period.  Significant changes included a decrease in premiums on
        the sale of SBA loans which decreased to $138 thousand from $430 thousand
        in
        nine months ended September 30, 2007 offset by an increase in the gain realized
        from unwinding FHLB advances of $59 thousand from no gain in nine months
        ended
        September 30, 2006 and proceeds realized from life insurance death benefit
        claim
        of $101 thousand compared to no benefit in nine months ended September 30,
        2006.
 
 *Securities
        Gains*.  The Company realized losses from the sale of securities
        of $2 thousand in third quarter 2007 and gains of $186 thousand in first
        and
        second quarter 2007.  The Company was able to reposition it’s balance
        sheet to realize higher yields on the investment securities that were
        sold.
 
 **Noninterest
        Expense**
 
 The
        components of noninterest expense were as follows:
 
 **Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30**
              
              
              **September
                  30****2007**
              
              
              2006
              
              
              **2007**
              
              
              2006Salaries
                  and Employee Benefits
              
              **$**
              **4,464**
              
              
              $
              4,350
              
              
              **$**
              **13,693**
              
              
              $
              12,676Occupancy
                  and Equipment
              
              ****
              **1,025**
              
              
              
              1,047
              
              
              ****
              **3,036**
              
              
              
              3,035Other
              
              ****
              **2,267**
              
              
              
              2,283
              
              
              ****
              **6,901**
              
              
              
              6,655Total
              
              **$**
              **7,756**
              
              
              $
              7,680
              
              
              **$**
              **23,630**
              
              
              $
              22,366
  34
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        2
        (Continued)
 
 Total
        noninterest expense for three months ended September 30, 2007 increased $76
        thousand, or 0.99 percent, compared to the same period a year ago. Total
        noninterest expense for nine months ended September 30, 2007 increased $1.264
        million, or 5.65 percent, compared to the same period a year
        ago.  These items and the changes in the various components of
        noninterest expense are discussed in more detail below.
 
 *Salaries
        and Employee Benefits*.  Salaries and employee benefits expense
        for three months ended September 30, 2007 increased $114 thousand, or 2.62
        percent, compared to the same period a year ago.  Salaries and
        employee benefits expense for the nine  months ended September 30,
        2007 increased $1.017 million, or 8.02 percent, compared to the same year
        ago
        period.  The  increase is primarily related to increases in
        headcount as a result of new offices with the Company’s denovo branch
        expansions.  Merit increases, increased insurance premiums and
        additional staffing  for back office support also added to the
        increased personnel expense.
 
 *Occupancy
        and Equipment*.  Occupancy and equipment expense has remained
        relatively flat in both periods with a decrease of $22 thousand for three
        months
        ended September 30, 2007 compared to the same year ago period and an increase
        of
        $1 thousand for nine months ended September 30, 2007 compared to the same
        year
        ago period.
 
 *All
        Other Non-Interest Expense*.  All other noninterest expense for
        three months ended September 30, 2007 decreased $16 thousand, or 0.70 percent
        compared to the same year ago period.  All other noninterest expense
        for nine months ended September 30, 2007 increased $246 thousand, or 3.70
        percent compared to the same year ago period.  This increase is
        primarily attributable to amortization of trust preferred securities placement
        fees increasing to $193 thousand for nine months ended September 30, 2007
        compared to $23 thousand in the same period a year ago and
        one-time reserve of $100 thousand for deferred compensation benefits due
        beneficiaries upon the death of an emeritus director.
  **Sources
        and Uses of Funds**
 
 The
        following table illustrates, during the years presented, the mix of the
        Company’s funding sources and the assets in which those funds are invested as a
        percentage of the Company’s average total assets for the period indicated.
        Average assets totaled $1.201 billion in nine months ended September 30,
        2007
        compared to $1.146 billion in nine months ended September 30,
        2006.
 
 **Nine
                  Months Ended****September
                  30,**Source
                  of Funds:
              
              **2007**
              
              
              2006Deposits:Noninterest–Bearing
              
              **$**
              **75,553**
              
              
              ****
              **6.29**
              **%**
              
              $
              72,811
              
              
              
              6.36
              %Interest-Bearing
              
              ****
              **946,877**
              
              
              ****
              **78.86**
              
              
              
              903,759
              
              
              
              78.87Federal
                  Funds Purchased
              
              ****
              **1,258**
              
              
              ****
              **0.11**
              
              
              
              717
              
              
              
              0.06Long-term
                  Debt and Other Borrowings
              
              ****
              **88,693**
              
              
              ****
              **7.39**
              
              
              
              89,310
              
              
              
              7.79Other
                  Noninterest-Bearing Liabilities
              
              ****
              **8,818**
              
              
              ****
              **0.73**
              
              
              
              8,551
              
              
              
              0.75Equity
                  Capital
              
              ****
              **79,518**
              
              
              ****
              **6.62**
              
              
              
              70,705
              
              
              
              6.17Total
              
              **$**
              **1,200,717**
              
              
              ****
              **100.00**
              **%**
              
              $
              1,145,853
              
              
              
              100.00
              %Uses
                  of Funds:Loans
              
              **$**
              **930,538**
              
              
              ****
              **77.50**
              **%**
              
              $
              891,046
              
              
              
              77.76
              %Securities
              
              ****
              **155,658**
              
              
              ****
              **12.96**
              
              
              
              131,674
              
              
              
              11.49Federal
                  Funds Sold
              
              ****
              **30,762**
              
              
              ****
              **2.56**
              
              
              
              40,444
              
              
              
              3.53Interest-Bearing
                  Deposits in Other Banks
              
              ****
              **2,943**
              
              
              ****
              **0.25**
              
              
              
              2,612
              
              
              
              0.23Other
                  Interest-Earning Assets
              
              ****
              **5,233**
              
              
              ****
              **0.44**
              
              
              
              5,219
              
              
              
              0.46Other
                  Noninterest-Earning Assets
              
              ****
              **75,583**
              
              
              ****
              **6.29**
              
              
              
              74,858
              
              
              
              6.53Total
              
              **$**
              **1,200,717**
              
              
              ****
              **100.00**
              **%**
              
              $
              1,145,853
              
              
              
              100.00
              %
  35
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        2
        (Continued)
 
 Deposits
        continue to be the Company’s primary source of funding.  Over the
        comparable periods, the relative mix of deposits continues to be high in
        interest-bearing deposits.  Interest-bearing deposits totaled 92.61
        percent of total average deposits in nine  months ended September 30,
        2007 compared to 92.54 percent in the same period a year ago.
 
 The
        Company primarily invests funds in loans and securities.  Loans
        continue to be the largest component of the Company’s mix of invested
        assets.  Total loans were $968 million at September 30, 2007, up 2.76
        percent, compared to loans of $942 million at December 31, 2006.  See
        additional discussion regarding the Company’s loan portfolio in the section
        captioned “Loans” included elsewhere in this discussion.  The majority
        of funds provided by deposit growth have been invested in loans.
 
 **Loans**
 
 The
        following table presents the composition of the Company’s loan portfolio as of
        September 30, 2007 and December 31, 2006:
 
 **September
                  30, 2007**
              
              
              December
                  31, 2006Commercial,
                  Financial and Agricultural
              
              **$**
              **60,742**
              
              
              $
              61,887Real
                  EstateConstruction
              
              ****
              **220,069**
              
              
              
              193,952Mortgage,
                  Farmland
              
              ****
              **44,869**
              
              
              
              40,936Mortgage,
                  Other
              
              ****
              **546,212**
              
              
              
              549,601Consumer
              
              ****
              **74,358**
              
              
              
              76,930Other
              
              ****
              **22,042**
              
              
              
              18,967****
              **968,292**
              
              
              
              942,273Unearned
                  Interest and Fees
              
              ****
              **(405**
              **)**
              
              
              (501
              )Allowance
                  for Loan Losses
              
              ****
              **(13,821**
              **)**
              
              
              (11,989
              )Loans
              
              **$**
              **954,066**
              
              
              $
              929,783
 
 The
        following table presents total loans as of September 30, 2007 according to
        maturity distribution and/or repricing opportunity on adjustable rate
        loans:
 
 Maturity
                  and Repricing Opportunity
              
              ($
                  in Thousands)One
                  Year or Less
              
              $
              654,734After
                  One Year through Three Years
              
              
              250,943After
                  Three Years through Five Years
              
              
              51,981Over
                  Five Years
              
              
              10,634$
              968,292
 
 *Overview*.
        Loans totaled $968 million at September 30, 2007, up 2.76 percent from December
        31, 2006 loans of $942 million.  The majority of the Company’s loan
        portfolio is comprised of the real estate loans-other, real estate construction
        and installment loans to individuals.  Real estate-other, which is
        primarily 1-4 family residential properties and nonfarm nonresidential
        properties, made up 56.41 percent and 58.33 percent of total loans, real
        estate
        construction made up 22.73 percent and 20.58 percent, while installment loans
        to
        individuals made up 7.68 percent and 8.16 percent of total loans at September
        30, 2007 and December 31, 2006, respectively.  Real estate loans-other
        include both commercial and consumer balances.
 
 *Loan
        Origination/Risk Management.*In accordance with the
        Company’s decentralized banking model, loan decisions are made at the local bank
        level.  The Company utilizes a Central Credit Committee to assist
        lenders with the decision making and underwriting process of larger loan
        requests.  Due to the diverse economic markets served by the Company,
        evaluation and underwriting criterion may vary slightly by
        bank.  Overall, loans are extended after a review of the borrower’s
        repayment ability, collateral adequacy, and overall credit
        worthiness.
 
 Commercial
        purpose, commercial real estate, and industrial loans are underwritten similar
        to other loans throughout the company.  The properties securing the
        Company’s commercial real estate portfolio are diverse in terms of type and
        geographic location.  This diversity helps reduce the Company’s
        exposure to adverse economic events that affect any single market or
        industry.  Management monitors and evaluates commercial real estate
        loans based on collateral, geography, and risk grade criteria.  The
        Company also utilizes information provided by third-party agencies to provide
        additional insight and guidance about economic conditions and trends affecting
        the markets it serves.
  36
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        2
        (Continued)
 
 The
        Company extends loans to builders and developers that are secured by non-owner
        occupied properties.  In such cases, the Company reviews the overall
        economic conditions and trends for each market to determine the desirability
        of
        loans to be extended for residential construction and
        development.  Sources of repayment for these types of loans may be
        pre-committed permanent loans from approved long-term lenders, sales of
        developed property or an interim mini-perm loan commitment from the Company
        until permanent financing is obtained.  In some cases, loans are
        extended for residential loan construction for speculative purposes and are
        based on the perceived present and future demand for housing in a particular
        market served by the Company.  These loans are monitored by on-site
        inspections and are considered to have higher risks than other real estate
        loans
        due to their ultimate repayment being sensitive to interest rate changes,
        general economic conditions and trends, the demand for the properties, and
        the
        availability of long-term financing.
 
 The
        Company originates consumer loans at the bank level.  Due to the
        diverse economic markets served by the Company, underwriting criterion may
        vary
        slightly by bank.  The Company is committed to serving the borrowing
        needs of all markets served and, in some cases, adjusts certain evaluation
        methods to meet the overall credit demographics of each
        market.  Consumer loans represent relatively small loan amounts that
        are spread across many individual borrower’s that helps minimize
        risk.  Additionally, consumer trends and outlook reports are reviewed
        by management on a regular basis.
 
 The
        Company maintains an independent loan review department that reviews and
        validates the credit risk program on a periodic basis. Results of these reviews
        are presented to management. The loan review process complements and reinforces
        the risk identification and assessment decisions made by lenders and credit
        personnel, as well as the Company’s policies and procedures.
 
 *Commercial,
        Financial and Agricultural.*Commercial, financial and
        agricultural loans at September 30, 2007 decreased 1.85 percent from
        December 31, 2006 to $61 million. The Company’s commercial and
        industrial loans are a diverse group of loans to small, medium and large
        businesses. The purpose of these loans varies from supporting seasonal working
        capital needs to term financing of equipment. While some short-term loans
        may be
        made on an unsecured basis, most are secured by the assets being financed
        with
        collateral margins that are consistent with the Company’s loan policy
        guidelines.
 
 *Collateral
        Concentrations*.  Lending is concentrated in commercial and real
        estate loans primarily to local borrowers.  The Company has a high
        concentration of real estate loans; however, these loans are well collateralized
        and, in management’s opinion, do not pose an adverse credit risk.  In
        addition, the balance of the loan portfolio is sufficiently diversified to
        avoid
        significant concentration of credit risk.  Although the Company has a
        diversified loan portfolio, a substantial portion of borrower’s ability to honor
        their contracts is dependent upon the viability of the real estate economic
        sector.
 
 *Large
        Credit Relationships*.   Colony is currently in eighteen counties
        in middle and south Georgia and include metropolitan markets in Doughtery,
        Lowndes, Houston, Chatham and Muscogee counties.  As a result, the
        Company originates and maintains large credit relationships with several
        commercial customers in the ordinary course of business.  The Company
        considers large credit relationships to be those with commitments equal to
        or in
        excess of $5.0 million prior to any portion being sold.  Large
        relationships also include loan participations purchased if the credit
        relationship with the agent is equal to or in excess of $5.0
        million.  In addition to the Company’s normal policies and procedures
        related to the origination of large credits, the Company’s Central Credit
        Committee must approve all new and renewed credit facilities which are part
        of
        large credit relationships.  The following table provides additional
        information on the Company’s large credit relationships outstanding at period
        end.
 
 **September
                    30, 2007**
              
              
              December
                    31, 2006**Period
                  End Balances**
              
              
              
              
              
              Period
                  End Balances**Number
                  of Relationships**
              
              
              **Committed**
              
              
              **Outstanding**
              
              
              Number
                  of Relationships
              
              
              Committed
              
              
              OutstandingLarge
                  Credit Relationships:$10
                  million and greater
              
              ****
              **3**
              
              
              **$**
              **38,188**
              
              
              **$**
              **22,744**
              
              
              
              2
              
              
              $
              25,692
              
              
              $
              18,365$5
                  million to $9.9 million
              
              ****
              **16**
              
              
              **$**
              **100,158**
              
              
              **$**
              **95,249**
              
              
              
              12
              
              
              $
              69,485
              
              
              $
              62,914
 
 *Maturities
        and Sensitivities of Loans to Changes in Interest Rates*.  The
        following table presents the maturity distribution of the Company’s loans at
        September 30, 2007. The table also presents the portion of loans that have
        fixed
        interest rates or variable interest rates that fluctuate over the life of
        the
        loans in accordance with changes in an interest rate index such as the prime
        rate.
  37
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        2
        (Continued)
 
 
 Due
                  in One
                Year or
                  Less
              
              
              After
                  One,
                but
                  Within
                Three
                  Years
              
              
              After
                  Three,
                but
                  Within
                Five
                  Years
              
              
              After
                Five
                Years
              
              
              TotalLoans
                  with fixed interest rates
              
              $
              282,451
              
              
              $
              250,777
              
              
              $
              51,970
              
              
              $
              10,287
              
              
              $
              595,485Loans
                  with floating interest rates
              
              
              372,283
              
              
              
              166
              
              
              
              11
              
              
              
              347
              
              
              
              372,807Total
              
              $
              654,734
              
              
              $
              250,943
              
              
              $
              51,981
              
              
              $
              10,634
              
              
              $
              968,292
 
 The
        Company may renew loans at maturity when requested by a customer whose financial
        strength appears to support such renewal or when such renewal appears to
        be in
        the Company’s best interest. In such instances, the Company generally requires
        payment of accrued interest and may adjust the rate of interest, require
        a
        principal reduction or modify other terms of the loan at the time of
        renewal.
 
 **Non-Performing
        Assets and Potential Problem Loans**
 
 Non-performing
        assets and accruing past due loans as of September 30, 2007 and December
        31,
        2006 were as follows:
 
 **September
                    30, 2007**
              
              
              December
                    31, 2006Loans
                  accounted for on nonaccrual
              
              **$**
              **6,087**
              
              
              $
              8,069Loans
                  past due 90 days or more
              
              ****
              **32**
              
              
              
              9Other
                  real estate foreclosed
              
              ****
              **1,240**
              
              
              
              970Total
                  non-performing assets
              
              **$**
              **7,359**
              
              
              $
              9,048Non-performing
                  assets as a percentage of:Total
                  loans and foreclosed assets
              
              ****
              **0.76**
              **%**
              
              
              0.96
              %Total
                  assets
              
              ****
              **0.61**
              **%**
              
              
              0.75
              %Accruing
                  past due loans:30-89
                  days past due
              
              **$**
              **12,108**
              
              
              $
              10,59390
                  or more days past due
              
              ****
              **32**
              
              
              
              9Total
                  accruing past due loans
              
              **$**
              **12,140**
              
              
              $
              10,602Restructured
                  loans
              
              ****
              **5,690**
              
              
              
              0
 
 Non-performing
        assets include non-accrual loans, loans past due 90 days or more, restructured
        loans and foreclosed real estate.  Non-performing assets at September
        30, 2007 decreased 18.67 percent from December 31, 2006.
 
 Generally,
        loans are placed on non-accrual status if principal or interest payments
        become
        90 days past due and/or management deems the collectibility of the
        principal and/or interest to be in question, as well as when required by
        regulatory requirements. Loans to a customer whose financial condition has
        deteriorated are considered for non-accrual status whether or not the loan
        is
        90 days or more past due. For consumer loans, collectibility and loss are
        generally determined before the loan reaches 90 days past due. Accordingly,
        losses on consumer loans are recorded at the time they are determined. Consumer
        loans that are 90 days or more past due are generally either in
        liquidation/payment status or bankruptcy awaiting confirmation of a plan.
        Once
        interest accruals are discontinued, accrued but uncollected interest is charged
        to current year operations. Subsequent receipts on non-accrual loans are
        recorded as a reduction of principal, and interest income is recorded only
        after
        principal recovery is reasonably assured. Classification of a loan as
        non-accrual does not preclude the ultimate collection of loan principal or
        interest.
 
 Restructured
        loans are loans on which, due to deterioration in the borrower’s financial
        condition, the original terms have been modified in favor of the borrower
        or
        either principal or interest has been forgiven.  A $5.69 million
        commercial real estate relationship was restructured during the quarter with
        a
        reduction in the market rate of interest.  Interest payments were
        current at quarter end.    Management continues to monitor
        and assess the relationship for any potential loss exposure in the
        loan.
 
 Foreclosed
        assets represent property acquired as the result of borrower defaults on
        loans.
        Foreclosed assets are recorded at the lower of cost or estimated fair value,
        less estimated selling costs, at the time of foreclosure. Write-downs occurring
        at foreclosure are charged against the allowance for possible loan losses.
        On an
        ongoing basis, properties are appraised as required by market indications
        and
        applicable regulations. Write-downs are provided for subsequent declines
        in
        value and are included in other non-interest expense along with other expenses
        related to maintaining the properties.
  38
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        2
        (Continued)
 
 **Allowance
        for Loan Losses**
 
 The
        allowance for loan losses is a reserve established through a provision for
        loan
        losses charged to expense, which represents management’s best estimate of
        probable losses that have been incurred within the existing portfolio of
        loans.
        The allowance, in the judgment of management, is necessary to reserve for
        estimated loan losses and risks inherent in the loan portfolio.
 
 The
        allowance for loan losses includes allowance allocations calculated in
        accordance with SFAS No. 114, *Accounting by Creditors for Impairment of
        a Loan*, as amended by SFAS 118, and allowance allocations determined in
        accordance with SFAS No. 5, *Accounting for Contingencies*. The
        level of the allowance reflects management’s continuing evaluation of industry
        concentrations, specific credit risks, loan loss experience, current loan
        portfolio quality, present economic, political and regulatory conditions
        and
        unidentified losses inherent in the current loan portfolio. Portions of the
        allowance may be allocated for specific credits; however, the entire allowance
        is available for any credit that, in management’s judgment, should be charged
        off. While management utilizes its best judgment and information available,
        the
        ultimate adequacy of the allowance is dependent upon a variety of factors
        beyond
        the Company’s control, including the performance of the Company’s loan
        portfolio, the economy, changes in interest rates and the view of the regulatory
        authorities toward loan classifications. The company’s allowance for loan losses
        consists of specific valuation allowances established for probable losses
        on
        specific loans and historical valuation allowances for other loans with similar
        risk characteristics.
 
 The
        allowances established for probable losses on specific loans are based on
        a
        regular analysis and evaluation of classified loans.  Loans are
        classified based on an internal credit risk grading process that evaluates,
        among other things: (i) the obligor’s ability to repay; (ii) the underlying
        collateral, if any; and (iii) the economic environment and industry in which
        the
        borrower operates.  This analysis is performed at the subsidiary bank
        level and is reviewed at the parent company level.  Once a loan is
        classified, it is reviewed to determine whether the loan is impaired and,
        if
        impaired, a portion of the allowance for possible loan losses is specifically
        allocated to the loan.  Specific valuation allowances are determined
        after considering the borrower’s financial condition, collateral deficiencies,
        and economic conditions affecting the borrower’s industry, among other
        things.
 
 Historical
        valuation allowances are calculated from loss factors applied to loans with
        similar risk characteristics.  The loss factors are based on loss
        ratios for groups of loans with similar risk characteristics.  The
        loss ratios are derived from the proportional relationship between actual
        loan
        losses and the total population of loans in the risk category.  The
        historical loss ratios are periodically updated based on actual charge-off
        experience.  The Company’s groups of similar loans include similarly
        risk-graded groups of loans not reviewed for individual impairment.
 
 Management
        evaluates the adequacy of the allowance for each of these components on a
        quarterly basis.  Peer comparisons, industry comparisons, and
        regulatory guidelines are also used in the determination of the general
        valuation allowance.
 
 Loans
        identified as losses by management, internal loan review, and/or bank examiners
        are charged-off.
 
 An
        allocation for loan losses has been made according to the respective amounts
        deemed necessary to provide for the possibility of incurred losses within
        the
        various loan categories.  The allocation is based primarily on
        previous charge-off experience adjusted for changes in experience among each
        category.  Additional amounts are allocated by evaluating the loss
        potential of individual loans that management has considered
        impaired.  The reserve for loan loss allocation is subjective since it
        is based on judgment and estimates, and therefore is not necessarily indicative
        of the specific amounts or loan categories in which the charge-offs may
        ultimately occur.  The following table shows a comparison of the
        allocation of the reserve for loan losses for the periods
        indicated.
 
 **September
                    30, 2007**
              
              
              December
                    31, 2006**Reserve**
              
              
              ****
              **%**
              *****
              
              Reserve
              
              
              
              %
              *Commercial,
                  Financial  and Agricultural
              
              **$**
              **4,147**
              
              
              ****
              **6**
              **%**
              
              $
              3,597
              
              
              
              7
              %Real
                  Estate – Construction
              
              ****
              **829**
              
              
              ****
              **23**
              **%**
              
              
              719
              
              
              
              21
              %Real
                  Estate – Farmland
              
              ****
              **691**
              
              
              ****
              **5**
              **%**
              
              
              599
              
              
              
              4
              %Real
                  Estate – Other
              
              ****
              **4,492**
              
              
              ****
              **56**
              **%**
              
              
              3,896
              
              
              
              58
              %Loans
                  to Individuals
              
              ****
              **2,764**
              
              
              ****
              **8**
              **%**
              
              
              2,398
              
              
              
              8
              %All
                  other Loans
              
              ****
              **898**
              
              
              ****
              **2**
              **%**
              
              
              780
              
              
              
              2
              %Total
              
              **$**
              **13,821**
              
              
              ****
              **100**
              **%**
              
              $
              11,989
              
              
              
              100
              %
 
 
 *****
              Loan
                  balance in each category expressed as a percentage of total end
                  of period
                  loans.
  39
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        2
        (Continued)
 
 Activity
        in the allowance for loan losses is presented in the following table. There
        were
        no charge-offs or recoveries related to foreign loans during any of the periods
        presented.
 
 The
        following table presents an analysis of the Company’s loan loss experience for
        the periods indicated.
 
 **Three
                  Months Ended**
              
              
              Three
                  Months Ended**($
                  in thousands)**
              
              **September
                  30, 2007**
              
              
              September
                  30, 2006Allowance
                  for Loan Losses at Beginning of Quarter
              
              **$**
              **12,647**
              
              
              $
              11,658Charge-OffCommercial,
                  Financial and Agricultural
              
              ****
              **139**
              
              
              
              242Real
                  Estate
              
              ****
              **188**
              
              
              
              44Consumer
              
              ****
              **118**
              
              
              
              130All
                  Other
              
              ****
              **41**
              
              
              
              62****
              **486**
              
              
              
              478RecoveriesCommercial,
                  Financial and Agricultural
              
              ****
              **74**
              
              
              
              33Real
                  Estate
              
              ****
              **710**
              
              
              
              1Consumer
              
              ****
              **18**
              
              
              
              56All
                  Other
              
              ****
              **8**
              
              
              
              17****
              **810**
              
              
              
              107Net
                  Charge-Offs (recoveries)
              
              ****
              **(324**
              **)**
              
              
              371Provision
                  for Loan Losses
              
              ****
              **850**
              
              
              
              1,021Allowance
                  for Loan Losses at End of Quarter
              
              **$**
              **13,821**
              
              
              $
              12,308Ratio
                  of Net Charge-Offs (recoveries) to Average Loans
              
              ****
              **(0.03**
              **)%**
              
              
              0.04
              %
 
 The
        allowance for loan losses is maintained at a level considered appropriate
        by
        management, based on estimated probable losses within the existing loan
        portfolio. The allowance, in the judgment of management, is necessary to
        reserve
        for estimated loan losses and risks inherent in the loan portfolio. The
        provision for loan losses reflects loan quality trends, including the level
        of
        net charge-offs or recoveries, among other factors. The provision for loan
        losses decreased $171 thousand from $1,021 thousand in three months ended
        September 30, 2006 to $850 thousand in three months ended September 30,
        2007.
 
 Net
        charge-offs in three months ended September 30, 2007 decreased $695 thousand
        compared to the same period a year ago resulting in net recoveries for the
        quarter.  The decrease was related to three substantial recoveries on
        commercial charge-offs.  A $491 thousand and a $73 thousand recovery
        were received on prior year charge-offs and a $180 thousand recovery was
        received on a current and prior year charge-off.  These three
        recoveries accounted for 91.85% of total recoveries for the
        quarter.
 
 Management
        believes the level of the allowance for loan losses was appropriate as of
        September 30, 2007. Should any of the factors considered by management in
        evaluating the adequacy of the allowance for loan losses change, the Company’s
        estimate of probable loan losses could also change, which could affect the
        level
        of future provisions for loan losses.
  40
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        2
        (Continued)
 
 The
        following table presents an analysis of the Company’s loan loss experience for
        the periods indicated.
 
 **Nine
                  Months Ended**
              
              
              Nine
                  Months Ended**($
                  in thousands)**
              
              **September
                  30, 2007**
              
              
              September
                  30, 2006Allowance
                  for Loan Losses at Beginning of Year
              
              **$**
              **11,989**
              
              
              $
              10,762Charge-OffCommercial,
                  Financial and Agricultural
              
              ****
              **664**
              
              
              
              1,074Real
                  Estate
              
              ****
              **846**
              
              
              
              365Consumer
              
              ****
              **314**
              
              
              
              357All
                  Other
              
              ****
              **147**
              
              
              
              225****
              **1,971**
              
              
              
              2,021RecoveriesCommercial,
                  Financial and Agricultural
              
              ****
              **96**
              
              
              
              413Real
                  Estate
              
              ****
              **915**
              
              
              
              17Consumer
              
              ****
              **89**
              
              
              
              124All
                  Other
              
              ****
              **25**
              
              
              
              23****
              **1,125**
              
              
              
              577Net
                  Charge-Offs
              
              ****
              **846**
              
              
              
              1,444Provision
                  for Loan Losses
              
              ****
              **2,678**
              
              
              
              2,990Allowance
                  for Loan Losses at End of Quarter
              
              **$**
              **13,821**
              
              
              $
              12,308Ratio
                  of Net Charge-Offs to Average Loans
              
              ****
              **0.09**
              **%**
              
              
              0.14
              %
 
 The
        allowance for loan losses is maintained at a level considered appropriate
        by
        management, based on estimated probable losses within the existing loan
        portfolio. The allowance, in the judgment of management, is necessary to
        reserve
        for estimated loan losses and risks inherent in the loan portfolio. The
        provision for loan losses reflects loan quality trends, including the level
        of
        net charge-offs or recoveries, among other factors. The provision for loan
        losses decreased $312 thousand from $2,990 thousand in nine months ended
        September 30, 2006 to $2,678 thousand in nine months ended September 30,
        2007.  Provisions decreased during first nine months of 2007 primarily
        due to the sluggish loan volume.
 
 Net
        charge-offs in nine months ended September 30, 2007 decreased $598 thousand
        compared to the same period a year ago.  Net charge-offs of 0.09
        percent for first three quarters of 2007 that annualizes to 0.12 percent
        is
        below our net charge-off ratio for the past several years.
 
 Management
        believes the level of the allowance for loan losses was appropriate as of
        September 30, 2007. Should any of the factors considered by management in
        evaluating the adequacy of the allowance for loan losses change, the Company’s
        estimate of probable loan losses could also change, which could affect the
        level
        of future provisions for loan losses.
  41
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        2
        (Continued)
 
 **Investment
        Portfolio**
 
 The
        following table presents carrying values of investment securities held by
        the
        Company as of September 30, 2007 and December 31, 2006.
 
 **($
                  in thousands)**
              
              **September
                  30, 2007**
              
              
              December 31,
                  2006U.S.
                  Government Agencies
              
              **$**
              **41,276**
              
              
              $
              54,366State,
                  County and Municipal
              
              ****
              **14,388**
              
              
              
              11,811Corporate
                  Obligations
              
              ****
              **3,754**
              
              
              
              3,745Marketable
                  Equity Securities
              
              ****
              **2**
              
              
              
              349Asset-Backed
                  Securities
              
              ****
              **1,000**
              
              
              
              ---Investment
                  Securities
              
              ****
              **60,420**
              
              
              
              70,271Mortgage
                  Backed Securities
              
              ****
              **95,254**
              
              
              
              79,036Total
                  Investment Securities and Mortgage Backed Securities
              
              **$**
              **155,674**
              
              
              $
              149,307
 
 The
        following table represents maturities and weighted-average yields of investment
        securities held by the Company as of
 September
        30, 2007.  (Mortgage backed securities are based on the average life
        at the projected speed, while Agencies and State and Political subdivisions
        reflect anticipated calls being exercised.)
 
 
 **After
                  1 Year But**
              
              
              **After
                  5 Years But**
              
              
              **After
                  10 Years****Within
                  1 Year**
              
              
              **Within
                  5 Years**
              
              
              **Within
                  10 Years****Amount**
              
              
              **Yield**
              
              
              **Amount**
              
              
              **Yield**
              
              
              **Amount**
              
              
              **Yield**
              
              
              **Amount**
              
              
              **Yield**U.
                  S. Government Agencies
              
              $
              12,413
              
              
              
              3.59
              %
              
              $
              27,375
              
              
              
              4.77
              %
              
              $
              1,488
              
              
              
              5.76
              %
              
              $
              --
              
              
              
              --
              %Mortgage
                  Backed Securities
              
              
              9,851
              
              
              
              3.95
              
              
              
              63,428
              
              
              
              4.87
              
              
              
              18,492
              
              
              
              5.49
              
              
              
              3,483
              
              
              
              5.63State,
                  County and Municipal
              
              
              4,566
              
              
              
              4.56
              
              
              
              7,250
              
              
              
              5.02
              
              
              
              2,572
              
              
              
              6.16
              
              
              
              --
              
              
              
              --Corporate
                  Obligations
              
              
              1,999
              
              
              
              6.29
              
              
              
              --
              
              
              
              --
              
              
              
              984
              
              
              
              5.67
              
              
              
              771
              
              
              
              9.07Marketable
                  Securities
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              2
              
              
              
              --Asset-Backed
                  Securities
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              1,000
              
              
              
              6.32Total
                  Investment Portfolio
              
              $
              28,829
              
              
              
              4.05
              %
              
              $
              98,053
              
              
              
              4.85
              %
              
              $
              23,536
              
              
              
              5.59
              %
              
              $
              5,256
              
              
              
              6.27
              %
 
 
 Securities
        are classified as held to maturity and carried at amortized cost when management
        has the positive intent and ability to hold them to maturity. Securities
        are
        classified as available for sale when they might be sold before maturity.
        Securities available for sale are carried at fair value, with unrealized
        holding
        gains and losses reported in other comprehensive income. The Company has
        99.9
        percent of its portfolio classified as available for sale.
 
 At
        September 30, 2007, there were no holdings of any one issuer, other than
        the
        U.S. government and its agencies, in an amount greater than 10 percent of
        the
        Company’s shareholders’ equity.
 
 The
        average yield of the securities portfolio was 4.74 percent in nine months
        ended
        September 30, 2007 compared to 4.26 percent in the same period a year ago.
        The
        increase in the average yield over the comparable periods primarily resulted
        from the higher interest rate environment.
  42
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        2
        (Continued)
 
 **Deposits**
 
 The
        following table presents the average amount outstanding and the average rate
        paid on deposits by the Company for the nine  month periods ended
        September 30, 2007 and September 30, 2006.
  
 **September
                  30, 2007**
              
              
              September
                  30, 2006**Average**
              
              
              **Average**
              
              
              Average
              
              
              Average**($
                  in thousands)**
              
              **Amount**
              
              
              **Rate**
              
              
              Amount
              
              
              RateNoninterest-Bearing
                  Demand Deposits
              
              **$**
              **75,553**
              
              
              
              
              
              $
              72,811Interest-Bearing
                  Demand and Savings Deposits
              
              ****
              **213,562**
              
              
              ****
              **2.15**
              **%**
              
              
              211,344
              
              
              
              1.91
              %Time
                  Deposits
              
              ****
              **733,315**
              
              
              ****
              **5.22**
              **%**
              
              
              692,415
              
              
              
              4.41
              %Total
                  Deposits
              
              **$**
              **1,022,430**
              
              
              ****
              **4.19**
              **%**
              
              $
              976,570
              
              
              
              3.54
              %
 
 The
        following table presents the maturities of the Company's time deposits as
        of
        September 30, 2007.
 
 **($
                  in thousands)**
              
              **Time**
                **Deposits**
                **$100,000**
                **or
                    Greater**
              
              
              **Time**
                **Deposits**
                **Less
                  Than**
                **$100,000**
              
              
              **Total**Months
                  to Maturity3
                  or Less
              
              $
              88,844
              
              
              $
              90,109
              
              
              $
              178,953Over
                  3 through 12 Months
              
              
              239,188
              
              
              
              245,960
              
              
              
              485,148Over
                  12 Months through 36 Months
              
              
              22,794
              
              
              
              26,302
              
              
              
              49,096Over
                  36 Months
              
              
              9,723
              
              
              
              10,654
              
              
              
              20,377$
              360,549
              
              
              $
              373,025
              
              
              $
              733,574
 
 Average
        deposits increased $46 million to $1,022 million at September 30, 2007 from
        $976.6 million at September 30, 2006.  The increase included $2.7
        million, or 3.77 percent, related to noninterest-bearing
        deposits.  Accordingly the ratio of average noninterest-bearing
        deposits to total average deposits was 7.39 percent for nine months ended
        September 30, 2007 compared to 7.46 percent for nine months ended September
        30,
        2006.  The general increase in market rates, had the effect of (i)
        increasing the average cost of total deposits by 65 basis points in nine
        months
        ended September 30, 2007 compared to the same period a year ago; and (ii)
        mitigating a portion of the impact of increasing yields on earning
        assets.
 
 Total
        average interest-bearing deposits increased $43 million, or 4.77 percent
        in nine
        months ended September 30, 2007 compared to the same period a year
        ago.  The growth in average deposits at September 30, 2007 compared to
        September 30, 2006 was primarily in time deposits.  With the current
        interest rate environment, it appears that many customers are more inclined
        to
        invest their funds for extended periods and are choosing to maintain such
        funds
        in time accounts.
 
 **Off-Balance-Sheet
        Arrangements, Commitments, Guarantees, and Contractual
        Obligations**
 
 The
        following table summarizes the Company’s contractual obligations and other
        commitments to make future payments as of September 30, 2007. Payments for
        borrowings do not include interest. Payments related to leases are based
        on
        actual payments specified in the underlying contracts. Loan commitments and
        standby letters of credit are presented at contractual amounts; however,
        since
        many of these commitments are expected to expire unused or only partially
        used,
        the total amounts of these commitments do not necessarily reflect future
        cash
        requirements.
  43
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        2
        (Continued)
 
 Payments
                  Due by Period1
                    Year or Less
              
              
              More
                    than 1
                  Year
                    but less
                  Than
                    3 Years
              
              
              3
                    Years or
                  More
                    but less
                  Than
                    5 Years
              
              
              5
                    Years or
                  More
              
              
              TotalContractual
                  obligations:Subordinated
                  debentures
              
              $
              ----
              
              
              $
              ----
              
              
              $
              ----
              
              
              $
              29,384
              
              
              $
              29,384Other
                  borrowed money
              
              
              100
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              100Federal
                  Home Loan Bank advances
              
              
              9,500
              
              
              
              1,000
              
              
              
              41,000
              
              
              
              22,000
              
              
              
              73,500Operating
                  leases
              
              
              130
              
              
              
              201
              
              
              
              190
              
              
              
              78
              
              
              
              599Deposits
                  with stated maturity dates
              
              
              664,101
              
              
              
              49,096
              
              
              
              20,352
              
              
              
              25
              
              
              
              733,574673,831
              
              
              
              50,297
              
              
              
              61,542
              
              
              
              51,487
              
              
              
              837,157Other
                  commitments:Loan
                  commitments
              
              
              102,185
              
              
              
              ----
              
              
              
              ----
              
              
              
              ----
              
              
              
              102,185Standby
                  letters of credit
              
              
              3,679
              
              
              
              ----
              
              
              
              ----
              
              
              
              ----
              
              
              
              3,679Construction
                  contracts
              
              
              1,967
              
              
              
              ----
              
              
              
              ----
              
              
              
              ----
              
              
              
              1,967107,831
              
              
              
              ----
              
              
              
              ----
              
              
              
              ----
              
              
              
              107,831Total
                  contractual obligations and Other commitments
              
              $
              781,662
              
              
              $
              50,297
              
              
              $
              61,542
              
              
              $
              51,487
              
              
              $
              944,988
 
 In
        the
        ordinary course of business, the Company enters into off-balance sheet financial
        instruments which are not reflected in the consolidated financial
        statements.  These instruments include commitments to extend credit,
        standby letters of credit, performance letters of credit, guarantees and
        liability for assets held in trust.  Such financial instruments are
        recorded in the financial statements when funds are disbursed or the instruments
        become payable.  The Company uses the same credit policies for these
        off-balance sheet financial instruments as they do for instruments that are
        recorded in the consolidated financial statements.
 
 *Loan
        Commitments*. The Company enters into contractual commitments to extend
        credit, normally with fixed expiration dates or termination clauses, at
        specified rates and for specific purposes. Substantially all of the Company’s
        commitments to extend credit are contingent upon customers maintaining specific
        credit standards at the time of loan funding. The Company minimizes its exposure
        to loss under these commitments by subjecting them to credit approval and
        monitoring procedures. Management assesses the credit risk associated with
        certain commitments to extend credit in determining the level of the allowance
        for possible loan losses. Loan commitments outstanding at September 30, 2007
        are
        included in the table above.
 
 *Standby
        Letters of Credit*.  Letters of credit are written conditional
        commitments issued by the Company to guarantee the performance of a customer
        to
        a third party. In the event the customer does not perform in accordance with
        the
        terms of the agreement with the third party, the Company would be required
        to
        fund the commitment. The maximum potential amount of future payments the
        Company
        could be required to make is represented by the contractual amount of the
        commitment. If the commitment is funded, the Company would be entitled to
        seek
        recovery from the customer. The Company’s policies generally require that
        standby letters of credit arrangements contain security and debt covenants
        similar to those contained in loan agreements. Standby letters of credit
        outstanding at September 30, 2007 are included in the table above.
 
 **Capital
        and Liquidity**
 
 At
        September 30, 2007, stockholders’ equity totaled $82.92 million compared to
        $76.61 million at December 31, 2006. In addition to net income of
        $7.80 million, other significant changes in stockholders’ equity during nine
        months ended September 30, 2007 included $1.945 million of dividends paid,
        reduction of retained earnings of  $0.25 million for change in
        accounting principle – Fin 48 and an increase of $0.190 million resulting from
        the amortization of the stock grant plan. The accumulated other comprehensive
        income (loss) component of stockholders’ equity totaled $(463) thousand at
        September 30, 2007 compared to $(975) thousand at December 31, 2006. This
        fluctuation was mostly related to the after-tax effect of changes in the
        fair
        value of securities available for sale. Under regulatory requirements, the
        unrealized gain or loss on securities available for sale does not increase
        or
        reduce regulatory capital and is not included in the calculation of risk-based
        capital and leverage ratios. Regulatory agencies for banks and bank holding
        companies utilize capital guidelines designed to measure Tier 1 and total
        capital and take into consideration the risk inherent in both on-balance
        sheet
        and off-balance sheet items. Tier 1 capital consists of common stock and
        qualifying preferred stockholders’ equity less goodwill.  Tier 2
        capital consists of certain convertible, subordinated and other qualifying
        debt
        and the allowance for loan losses up to 1.25 percent of risk-weighted
        assets.  The Company has no Tier 2 capital other than the allowance
        for loan losses and gain on marketable equity securities.
  44
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        2
        (Continued)
 
 Using
        the
        capital requirements presently in effect, the Tier 1 ratio as of September
        30,
        2007 was 11.03 percent and total Tier 1 and 2 risk-based capital was 12.36
        percent.  Both of these measures compare favorably with the regulatory
        minimum of 4 percent for Tier 1 and 8 percent for total risk-based
        capital.  The Company’s Tier 1 leverage ratio as of September 30, 2007
        was 9.02 percent, which exceeds the required ratio standard of 4
        percent.
 
 For
        nine
        months ended September 30, 2007, average capital was $79.5 million, representing
        6.62 percent of average assets for the year.   This compares to
        6.17 percent for nine months ended September 30, 2006 and 6.20 percent for
        calendar year 2006.
 
 The
        Company paid cash dividends of $0.27 per common share during the first three
        quarters of 2007, and a cash dividend of $0.24 per common share during the
        first
        three quarters of 2006, respectively.  This equates to a dividend
        payout ratio of 24.90 percent for first three quarters of 2007 compared to
        22.86
        percent for the same period a year ago.
 
 The
        Company, primarily through the actions of its subsidiary banks, engages in
        liquidity management to ensure adequate cash flow for deposit withdrawals,
        credit commitments and repayments of borrowed funds.  Needs are met
        through loan repayments, net interest and fee income and the sale or maturity
        of
        existing assets.  In addition, liquidity is continuously provided
        through the acquisition of new deposits, the renewal of maturing deposits
        and
        external borrowings.
 
 Management
        monitors deposit flow and evaluates alternate pricing structures to retain
        and
        grow deposits.   To the extent needed to fund loan demand,
        traditional local deposit funding sources are supplemented by the use of
        FHLB
        borrowings, brokered deposits and other wholesale deposit sources outside
        the
        immediate market area.  Internal policies have been updated to monitor
        the use of various core and non-core funding sources, and to balance ready
        access with risk and cost.  Through various asset/liability management
        strategies, a balance is maintained among goals of liquidity, safety and
        earnings potential.  Internal policies that are consistent with
        regulatory liquidity guidelines are monitored and enforced by the
        banks.
 
 The
        investment portfolio provides a ready means to raise cash if liquidity needs
        arise.  As of September 30 2007, the Company held $156 million in
        bonds (excluding FHLB stock), at current market value in the available for
        sale
        portfolio.  At December 31, 2006, the available for sale bond
        portfolio totaled $149 million.  Only marketable investment grade
        bonds are purchased.  Although most of the banks’ bond portfolios are
        encumbered as pledges to secure various public funds deposits, repurchase
        agreements, and for other purposes, management can restructure and free up
        investment securities for a sale if required to meet liquidity
        needs.
 
 Management
        continually monitors the relationship of loans to deposits as it primarily
        determines the Company’s liquidity posture.  Colony had ratios of
        loans to deposits of 95.0 percent as of September 30, 2007 and 90.3 percent
        at
        December 31, 2006.  Management employs alternative funding sources
        when deposit balances will not meet loan demands.  The ratios of loans
        to all funding sources (excluding Subordinated Debentures) at September 30,
        2007
        and December 31, 2006 were 88.6 percent and 85.2 percent,
        respectively.  Management continues to emphasize programs to generate
        local core deposits as our Company’s primary funding sources.  The
        stability of the banks’ core deposit base is an important factor in Colony’s
        liquidity position.  A heavy percentage of the deposit base is
        comprised of accounts of individuals and small business with comprehensive
        banking relationships and limited volatility.  At September 30, 2007
        and December 31, 2006, the banks had $360.5 million and $366 million in
        certificates of deposit of $100,000 or more.  These larger deposits
        represented 35.39 percent and 35.11 percent of respective total
        deposits.  Management seeks to monitor and control the use of these
        larger certificates, which tend to be more volatile in nature, to ensure
        an
        adequate supply of funds as needed.  Relative interest costs to
        attract local core relationships are compared to market rates of interest
        on
        various external deposit sources to help minimize the Company’s overall cost of
        funds.
 
 Local
        market deposit sources proved insufficient to fund the strong loan growth
        trends
        at Colony over the past several years.  The Company supplemented
        deposit sources with brokered deposits.  As of September 30, 2007, the
        Company had $66.2 million, or 6.50  percent of total deposits, in
        brokered certificates of deposit attracted by external third
        parties.  Additionally, the banks use external wholesale or Internet
        services to obtain out-of-market certificates of deposit at competitive interest
        rates when funding is needed.
 
 To
        plan
        for contingent sources of funding not satisfied by both local and out-of-market
        deposit balances, Colony and its subsidiaries have established multiple
        borrowing sources to augment their funds management.  The Company has
        borrowing capacity through membership of the Federal Home Loan Bank
        program.  The banks have also established overnight borrowing for
        Federal Funds Purchased through various correspondent
        banks.  Management believes the various funding sources discussed
        above are adequate to meet the Company’s liquidity needs in the future without
        any material adverse impact on operating results.
 
 Liquidity
        measures the ability to meet current and future cash flow needs as they become
        due. The liquidity of a financial institution reflects its ability to meet
        loan
        requests, to accommodate possible outflows in deposits and to take advantage
        of
        interest rate market opportunities. The ability of a financial institution
        to
        meet its current financial obligations is a function of balance sheet structure,
        the ability to liquidate assets, and the availability of alternative sources
        of
        funds. The Company seeks to ensure its funding needs are met by maintaining
        a
        level of liquid funds through asset/liability management.
  45
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        2
        (Continued)
 
 Asset
        liquidity is provided by liquid assets which are readily marketable or
        pledgeable or which will mature in the near future. Liquid assets include
        cash,
        interest-bearing deposits in banks, securities available for sale, maturities
        and cash flow from securities held to maturity, and federal funds sold and
        securities purchased under resale agreements.
 
 Liability
        liquidity is provided by access to funding sources which include core
        deposits.  Should the need arise; the Company also maintains
        relationships with the Federal Home Loan Bank and several correspondent banks
        that can provide funds on short notice. Since Colony is a holding company
        and
        does not conduct operations, its primary sources of liquidity are dividends
        up
        streamed from subsidiary banks and borrowings from outside sources.
 
 The
        liquidity position of the Company is continuously monitored and adjustments
        are
        made to the balance between sources and uses of funds as deemed appropriate.
        Management is not aware of any events that are reasonably likely to have
        a
        material adverse effect on the Company’s liquidity, capital resources or
        operations. In addition, management is not aware of any regulatory
        recommendations regarding liquidity, which if implemented, would have a material
        adverse effect on the Company.
 
 **Impact
        of Inflation and Changing Prices**
 
 The
        Company’s financial statements included herein have been prepared in accordance
        with accounting principles generally accepted in the United States (“GAAP”).
        GAAP presently requires the Company to measure financial position and operating
        results primarily in terms of historic dollars. Changes in the relative value
        of
        money due to inflation or recession are generally not considered. The primary
        effect of inflation on the operations of the Company is reflected in increased
        operating costs. In management’s opinion, changes in interest rates affect the
        financial condition of a financial institution to a far greater degree than
        changes in the inflation rate. While interest rates are greatly influenced
        by
        changes in the inflation rate, they do not necessarily change at the same
        rate
        or in the same magnitude as the inflation rate. Interest rates are highly
        sensitive to many factors that are beyond the control of the Company, including
        changes in the expected rate of inflation, the influence of general and local
        economic conditions and the monetary and fiscal policies of the United States
        government, its agencies and various other governmental regulatory authorities,
        among other things, as further discussed in the next section.
 
 **Regulatory
        and Economic Policies**
 
 The
        Company’s business and earnings are affected by general and local economic
        conditions and by the monetary and fiscal policies of the United States
        government, its agencies and various other governmental regulatory authorities,
        among other things. The Federal Reserve Board regulates the supply of money
        in
        order to influence general economic conditions. Among the instruments of
        monetary policy available to the Federal Reserve Board are (i) conducting
        open
        market operations in United States government obligations, (ii) changing
        the discount rate on financial institution borrowings, (iii) imposing or
        changing reserve requirements against financial institution deposits, and
        (iv) restricting certain borrowings and imposing or changing reserve
        requirements against certain borrowing by financial institutions and their
        affiliates. These methods are used in varying degrees and combinations to
        affect
        directly the availability of bank loans and deposits, as well as the interest
        rates charged on loans and paid on deposits. For that reason alone, the policies
        of the Federal Reserve Board have a material effect on the earnings of the
        Company.
 
 Governmental
        policies have had a significant effect on the operating results of commercial
        banks in the past and are expected to continue to do so in the future; however,
        the Company cannot accurately predict the nature, timing or extent of any
        effect
        such policies may have on its future business and earnings.
 
 **Recently
        Issued Accounting Pronouncements**
 
 See
        Note
        1 – Summary of Significant Accounting Policies, under the section headed Changes
        in Accounting Principles and Effects of New Accounting Pronouncements included
        in the Notes to Consolidated Financial Statements.
  46
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        2
        (Continued)
 
 **Return
        on Assets and Stockholders’ Equity**
 The
        following table presents selected financial ratios for each of the periods
        indicated.
 
 **Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30**
              
              
              **September
                  30****2007**
              
              
              2006
              
              
              **2007**
              
              
              2006Return
                  on Assets
              
              ****
              **0.87**
              **%**
              
              
              0.90
              %
              
              ****
              **0.87**
              **%**
              
              
              0.88
              %Return
                  on Equity
              
              ****
              **12.87**
              **%**
              
              
              14.45
              %
              
              ****
              **13.07**
              **%**
              
              
              14.22
              %Dividend
                  Payout
              
              ****
              **25.45**
              **%**
              
              
              22.92
              %
              
              ****
              **24.90**
              **%**
              
              
              22.86
              %Avg.
                  Equity to Avg. Assets
              
              ****
              **6.76**
              **%**
              
              
              6.23
              %
              
              ****
              **6.62**
              **%**
              
              
              6.17
              %Dividends
                  Declared
              
              **$**
              **0.09**
              
              
              $
              0.08
              
              
              **$**
              **0.27**
              
              
              $
              0.24
 
 **Future
        Outlook**
 
 Colony
        is
        an emerging company in an industry filled with nonregulated competitors and
        a
        rapid pace of consolidation.  The year brings with it new
        opportunities for growth in our existing markets, as well as opportunities
        to
        expand into new markets through acquisitions and denovo
        branching.  Entry into the MSA markets – Savannah, Albany, Columbus,
        Warner Robins, and Valdosta – will require multi-branch offices and the Company
        is presently looking for available real estate to purchase in those
        markets.  Presently Colony has secured real estate in the Savannah
        market and will likely begin construction of its second Savannah office in
        fourth  quarter 2007.  Likewise, Colony has secured real
        estate in the Albany market for another office though no established date
        for
        construction has been set.
 
 **BUSINESS**
 General
 
 The
        Company was organized in 1983 as a bank holding company through the merger
        of
        Colony Bank of Fitzgerald with a subsidiary of the Company.  Since
        that time, Colony Bank of Fitzgerald, which was formed by principals of Colony
        Bankcorp, Inc. in 1976, has operated as a wholly-owned subsidiary of the
        Company.  In April 1984, Colony Bankcorp, Inc. acquired Colony Bank
        Wilcox, and in November 1984, Colony Bank Ashburn became a wholly-owned
        subsidiary of Colony Bankcorp, Inc.  Colony Bankcorp, Inc. continued
        its growth with the acquisition of Colony Bank of Dodge County in September
        1985.  In August 1991, Colony Bankcorp, Inc. acquired Colony Bank
        Worth.  In November 1996, Colony Bankcorp, Inc. acquired Colony Bank
        Southeast and in November 1996 formed a non-bank subsidiary Colony Management
        Services, Inc.  In March 2002, Colony Bankcorp, Inc. acquired Colony
        Bank Quitman, FSB and also formed Colony Bankcorp Statutory Trust
        I.  In December 2002, Colony formed its second trust, Colony Bankcorp
        Statutory Trust II.  In September 2004, Colony formed its third Trust,
        Colony Bankcorp Statutory Trust III.  In April 2006, Colony formed its
        fourth Trust, Colony Bankcorp Capital Trust I.  In March 2007, Colony
        formed its fifth Trust, Colony Bankcorp Capital Trust II, while it liquidated
        its first Trust, Colony Bankcorp Statutory Trust I by exercising its call
        option.  In September 2007, Colony formed its sixth Trust, Colony
        Bankcorp Capital Trust III and plans to liquidate its second Trust, Colony
        Bankcorp Statutory Trust II by exercising its call option in December
        2007.
 
 Through
        its seven subsidiary banks, Colony Bankcorp, Inc. operates a full-service
        banking business and offers a broad range of retail and commercial banking
        services including checking, savings, NOW accounts, money market and time
        deposits of various types; loans for business, agriculture, real estate,
        personal uses, home improvement and automobiles; credit card; letters of
        credit;
        investment and discount brokerage services; IRA’s; safe deposit box rentals,
        bank money orders; electronic funds transfer services, including wire transfers
        and automated teller machines and internet accounts.  Each of the
        Banks is a member of Federal Deposit Insurance Corporation  whose
        customer deposits are insured up to applicable limits by the Federal Deposit
        Insurance Corporation.
 
 On
        April
        2, 1998, the Company was listed on Nasdaq National Market.  The
        Company’s common stock trades on the Nasdaq Stock Market under the symbol
“CBAN”.  The Company presently has approximately 2,065 shareholders as
        of September 30, 2007  “The Nasdaq Stock Market” or “Nasdaq” is a
        highly-regulated electronic securities market comprised of competing Market
        Makers whose
 trading
        is supported by a communications network linking them to quotation
        dissemination, trade reporting and order execution systems.  This
        market also provides specialized automation services for screen-based
        negotiations of transactions, on-line comparison of transactions, and a range
        of
        informational services tailored to the needs of the securities industry,
        investors and issuers.  The Nasdaq Stock Market is operated by The
        Nasdaq Stock Market, Inc., a wholly-owned subsidiary of the National Association
        of Securities Dealers,  Inc.
  47
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        3
 
 **Item
        3 - Quantitative and Qualitative Disclosures About Market
        Risk**
 
 AVERAGE
                  BALANCE SHEETS
              
              **Nine
                  Months Ended**
              
              
              Nine
                  Months Ended**September
                  30, 2007**
              
              
              September
                  30, 2006**Average**
              
              
              **Income/**
              
              
              **Yields/**
              
              
              Average
              
              
              Income/
              
              
              Yields/($
                  in thousands)
              
              **Balances**
              
              
              **Expense**
              
              
              **Rates**
              
              
              Balances
              
              
              Expense
              
              
              RatesAssetsInterest-Earning
                  AssetsLoans,
                  Net of Unearned Interest and feesTaxable
                  (1)
              
              **$**
              **943,342**
              
              
              **$**
              **61,014**
              
              
              ****
              **8.62**
              **%**
              
              $
              902,599
              
              
              $
              55,156
              
              
              
              8.15
              %Investment
                  SecuritiesTaxable
              
              ****
              **143,514**
              
              
              ****
              **5,031**
              
              
              ****
              **4.67**
              **%**
              
              
              124,619
              
              
              
              3,913
              
              
              
              4.19
              %Tax-Exempt
                  (2)
              
              ****
              **12,144**
              
              
              ****
              **501**
              
              
              ****
              **5.50**
              **%**
              
              
              7,055
              
              
              
              292
              
              
              
              5.52
              %Total
                  Investment Securities
              
              ****
              **155,658**
              
              
              ****
              **5,532**
              
              
              ****
              **4.74**
              **%**
              
              
              131,674
              
              
              
              4,205
              
              
              
              4.26
              %Interest-Bearing
                  Deposits
              
              ****
              **2,943**
              
              
              ****
              **111**
              
              
              ****
              **5.03**
              **%**
              
              
              2,612
              
              
              
              92
              
              
              
              4.70
              %Federal
                  Funds Sold
              
              ****
              **30,762**
              
              
              ****
              **1,204**
              
              
              ****
              **5.22**
              **%**
              
              
              40,444
              
              
              
              1,458
              
              
              
              4.81
              %Interest-Bearing
                  Other Assets
              
              ****
              **5,233**
              
              
              ****
              **225**
              
              
              ****
              **5.73**
              **%**
              
              
              5,219
              
              
              
              203
              
              
              
              5.19
              %Total
                  Interest-Earning Assets
              
              **$**
              **1,137,938**
              
              
              **$**
              **68,086**
              
              
              ****
              **7.98**
              **%**
              
              
              1,082,548
              
              
              $
              61,114
              
              
              
              7.53
              %Non-interest-Earning
                  AssetsCash
                  and Cash Equivalents
              
              ****
              **21,474**
              
              
              
              
              
              
              
              
              
              
              
              22,629Allowance
                  for Loan Losses
              
              ****
              **(12,804**
              **)**
              
              
              
              
              
              
              
              
              
              
              (11,553
              )Other
                  Assets
              
              ****
              **54,109**
              
              
              
              
              
              
              
              
              
              
              
              52,229Total
                  Noninterest-Earning Assets
              
              ****
              **62,779**
              
              
              
              
              
              
              
              
              
              
              
              63,305Total
                  Assets
              
              **$**
              **1,200,717**
              
              
              
              
              
              
              
              
              
              
              $
              1,145,853Liabilities
                  and Stockholders' EquityInterest-Bearing
                  LiabilitiesInterest-Bearing
                  DepositsInterest-Bearing
                  Demand and Savings
              
              **$**
              **213,562**
              
              
              **$**
              **3,451**
              
              
              ****
              **2.15**
              **%**
              
              $
              211,344
              
              
              $
              3,028
              
              
              
              1.91
              %Other
                  Time
              
              ****
              **733,315**
              
              
              ****
              **28,682**
              
              
              ****
              **5.22**
              **%**
              
              
              692,415
              
              
              
              22,910
              
              
              
              4.41
              %Total
                  Interest-Bearing Deposits
              
              ****
              **946,877**
              
              
              ****
              **32,133**
              
              
              ****
              **4.52**
              **%**
              
              
              903,759
              
              
              
              25,938
              
              
              
              3.83
              %Other
                  Interest-Bearing LiabilitiesOther
                  Borrowed Money
              
              ****
              **63,705**
              
              
              ****
              **2,104**
              
              
              ****
              **4.40**
              **%**
              
              
              67,101
              
              
              
              2,188
              
              
              
              4.35
              %Subordinated
                  Debentures
              
              ****
              **24,988**
              
              
              ****
              **1,468**
              
              
              ****
              **7.83**
              **%**
              
              
              22,209
              
              
              
              1,368
              
              
              
              8.21
              %Federal
                  Funds Purchased
              
              ****
              **1,258**
              
              
              ****
              **50**
              
              
              ****
              **5.30**
              **%**
              
              
              717
              
              
              
              28
              
              
              
              5.21
              %Total
                  Other Interest-Bearing Liabilities
              
              ****
              **89,951**
              
              
              ****
              **3,622**
              
              
              ****
              **5.37**
              **%**
              
              
              90,027
              
              
              
              3,584
              
              
              
              5.31
              %Total
                  Interest-Bearing Liabilities
              
              ****
              **1,036,828**
              
              
              **$**
              **35,755**
              
              
              ****
              **4.60**
              **%**
              
              
              993,786
              
              
              $
              29,522
              
              
              
              3.96
              %Noninterest-Bearing
                  Liabilities andStockholders'
                  EquityDemand
                  Deposits
              
              ****
              **75,553**
              
              
              
              
              
              
              
              
              
              
              
              72,811Other
                  Liabilities
              
              ****
              **8,818**
              
              
              
              
              
              
              
              
              
              
              
              8,551Stockholders'
                  Equity
              
              ****
              **79,518**
              
              
              
              
              
              
              
              
              
              
              
              70,705Total
                  Noninterest-Bearing Liabilities and Stockholders' Equity
              
              ****
              **163,889**
              
              
              
              
              
              
              
              
              
              
              
              152,067Total
                  Liabilities and Stockholders' Equity
              
              **$**
              **1,200,717**
              
              
              
              
              
              
              
              
              
              
              $
              1,145,853Interest
                  Rate Spread
              
              
              
              
              
              
              
              
              
              ****
              **3.38**
              **%**
              
              
              
              
              
              
              
              
              
              
              3.57
              %Net
                  Interest Income
              
              
              
              
              
              **$**
              **32,331**
              
              
              
              
              
              
              
              
              
              
              $
              31,592Net
                  Interest Margin
              
              
              
              
              
              
              
              
              
              ****
              **3.79**
              **%**
              
              
              
              
              
              
              
              
              
              
              3.89
              %
 
 
 (1)
              The
                  average balance of loans includes the average balance of nonaccrual
                  loans.  Income on such loans is recognized and recorded on the
                  cash basis.  Taxable equivalent adjustments totaling $92 and $86
                  for nine month periods ended September 30, 2007 and 2006, respectively,
                  are included in tax-exempt interest on
                  loans.
  48
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        4
 
 (2)
              Taxable-equivalent
                  adjustments totaling $170 and $99 for nine month periods ended
                  September
                  30, 2007  and 2006, respectively, are included in tax-exempt
                  interest on investment securities.  The adjustments are based on
                  a federal tax rate of 34 percent with appropriate reductions for
                  the
                  effect of disallowed interest expense incurred in carrying tax-exempt
                  obligations.
 
 **Colony
        Bankcorp, Inc. and Subsidiary**
 **Interest
        Rate Sensitivity**
 
 The
        following table is an analysis of the Company’s interest rate-sensitivity
        position at September 30, 2007.  The interest-bearing rate-sensitivity
        gap, which is the difference between interest-earning assets and
        interest-bearing liabilities by repricing period, is based upon maturity
        or
        first repricing opportunity, along with a cumulative interest rate-sensitivity
        gap.  It is important to note that the table indicates a position at a
        specific point in time and may not be reflective of positions at other times
        during the year or in subsequent periods.  Major changes in the gap
        position can be, and are, made promptly as market outlooks change.
 
 **Assets
                  and Liabilities Repricing Within****3
                  Months or Less**
              
              
              **4
                  to 12 Months**
              
              
              **1
                  Year**
              
              
              **1
                  to 5Years**
              
              
              **Over
                  5 Years**
              
              
              **Total**($
                  in Thousands)EARNING
                  ASSETS:Interest-Bearing
                  Deposits
              
              $
              3,616
              
              
              $
              ---
              
              
              $
              3,616
              
              
              $
              ---
              
              
              $
              ---
              
              
              $
              3,616Federal
                  Funds Sold
              
              
              17,129
              
              
              
              ---
              
              
              
              17,129
              
              
              
              ---
              
              
              
              ---
              
              
              
              17,129Investment
                  Securities
              
              
              17,783
              
              
              
              14,031
              
              
              
              31,814
              
              
              
              99,768
              
              
              
              24,092
              
              
              
              155,674Loans
                  Held for Sale
              
              
              ---
              
              
              
              ---
              
              
              
              ---
              
              
              
              ---
              
              
              
              ---
              
              
              
              ---Loans,
                  Net of Unearned Income
              
              
              446,847
              
              
              
              207,684
              
              
              
              654,531
              
              
              
              302,722
              
              
              
              10,634
              
              
              
              967,887Other
                  Interest-Bearing Assets
              
              
              5,533
              
              
              
              ---
              
              
              
              5,533
              
              
              
              ---
              
              
              
              ---
              
              
              
              5,533Total
                  Interest-Earning Assets
              
              
              490,908
              
              
              
              221,715
              
              
              
              712,623
              
              
              
              402,490
              
              
              
              34,726
              
              
              
              1,149,839INTEREST-BEARING
                  LIABILITIES:Interest-Bearing
                  Demand Deposits (1)
              
              
              177,688
              
              
              
              ---
              
              
              
              177,688
              
              
              
              ---
              
              
              
              ---
              
              
              
              177,688Savings
                  (1)
              
              
              33,335
              
              
              
              ---
              
              
              
              33,335
              
              
              
              ---
              
              
              
              ---
              
              
              
              33,335Time
                  Deposits
              
              
              178,953
              
              
              
              485,148
              
              
              
              664,101
              
              
              
              69,448
              
              
              
              25
              
              
              
              733,574Other
                  Borrowings (2)
              
              
              3,100
              
              
              
              9,500
              
              
              
              12,600
              
              
              
              42,000
              
              
              
              19,000
              
              
              
              73,600Subordinated
                  Debentures
              
              
              29,384
              
              
              
              ---
              
              
              
              29,384
              
              
              
              ---
              
              
              
              ---
              
              
              
              29,384Federal
                  Funds Purchased
              
              
              476
              
              
              
              ---
              
              
              
              476
              
              
              
              ---
              
              
              
              ---
              
              
              
              476Total
                  Interest-Bearing Liabilities
              
              
              422,936
              
              
              
              494,648
              
              
              
              917,584
              
              
              
              111,448
              
              
              
              19,025
              
              
              
              1,048,057Interest
                  Rate-Sensitivity Gap
              
              
              67,972
              
              
              
              (272,933
              )
              
              
              (204,961
              )
              
              
              291,042
              
              
              
              15,701
              
              
              
              101,782Cumulative
                  Interest-Sensitivity Gap
              
              
              67,972
              
              
              
              (204,961
              )
              
              
              (204,961
              )
              
              
              86,081
              
              
              
              101,782Interest
                  Rate-Sensitivity Gap as a Percentage of Interest-Earning
                  Assets
              
              
              5.91
              %
              
              
              (23.74
              )%
              
              
              (17.83
              )%
              
              
              25.31
              %
              
              
              1.37
              %Cumulative
                  Interest Rate-Sensitivity as a Percentage of Interest-Earning
                  Assets
              
              
              5.91
              %
              
              
              (17.83
              )%
              
              
              (17.83
              )%
              
              
              7.49
              %
              
              
              8.85
              %
 
 
 (1)
              Interest-bearing
                  Demand and Savings Accounts for repricing purposes are considered
                  to
                  reprice within 3 months or less.
 (2)
              Short-term
                  borrowings for repricing purposes are considered to reprice within
                  3
                  months or less.
  49
 ***Table
            of Contents***
  **Part
        I (Continued)**
 Item
        3
 
 The
        foregoing table indicates that we had a one year negative gap of ($205) million,
        or (17.83) percent of total assets at September 30, 2007.  In theory,
        this would indicate that at September 30, 2007, $205 million more in liabilities
        than assets would reprice if there were a change in interest rates over the
        next
        365 days.  Thus, if interest rates were to increase, the gap would
        indicate a resulting decrease in net interest margin.  However,
        changes in the mix of earning assets or supporting liabilities can either
        increase or decrease the net interest margin without affecting interest rate
        sensitivity.  In addition, the interest rate spread between an asset
        and our supporting liability can vary significantly while the timing of
        repricing of both the assets and our supporting liability can remain the
        same,
        thus impacting net interest income.  This characteristic is referred
        to as a basis risk and, generally, relates to the repricing characteristics
        of
        short-term funding sources such as certificates of deposits.
 
 Gap
        analysis has certain limitations.  Measuring the volume of repricing
        or maturing assets and liabilities does not always measure the full impact
        on
        the portfolio value of equity or net interest income.  Gap analysis
        does not account for rate caps on products; dynamic changes such as increasing
        prepay speeds as interest rates decrease, basis risk, or the benefit of non-rate
        funding sources.  The majority of our loan portfolio reprices quickly
        and completely following changes in market rates, while non-term deposit
        rates
        in general move slowly and usually incorporate only a fraction of the change
        in
        rates.  Products categorized as non-rate sensitive, such as our
        noninterest-bearing demand deposits, in the gap analysis behave like long
        term
        fixed rate funding sources.  Both of these factors tend to make our
        actual behavior more asset sensitive than is indicated in the gap
        analysis.  In fact, we experience higher net interest income when
        rates rise, opposite what is indicated by the gap analysis.  In fact,
        during the recent period of declines in interest rates, our net interest
        margin
        has declined.  Therefore, management uses gap analysis, net interest
        margin analysis and market value of portfolio equity as our primary interest
        rate risk management tools.
 
 The
        Company is now utilizing SunTrust Asset/Liability Management Analysis for
        a more
        dynamic analysis of balance sheet structure.  The Company has
        established earnings at risk for net-interest income in a +/- 200 basis point
        rate shock to be no more than a fifteen percent decline.  The most
        recent analysis as of June 30, 2007 indicates that net interest income would
        deteriorate 5.92 percent with a 200 basis point decrease and would improve
        3.31
        percent with a 200 basis point increase.  The Company has established
        equity at risk in a +/- 200 basis points rate shock to be no more than a
        twenty
        percent decline.  The most recent analysis as of June 30,
        2007  indicates that net economic value of equity percentage change
        would decrease 1.05 percent with a 200 basis point increase and would decrease
        4.02 percent with a 200 basis point decrease.  The Company has
        established its one year gap to be 0.80 percent to 1.20 percent.  The
        most recent analysis as of June 30, 2007 indicates a one year gap of 0.87
        percent.  The analysis suggests net interest margin
        compression  in a declining interest rate
        environment.  Given that interest rates are at or near its peak, the
        Company is focusing on areas to minimize margin compression in the
        future.  These include locking in more loans at a fixed rate versus a
        variable rate, minimizing dollars in Federal funds, extending out on the
        yield
        curve with investments, securing brokered certificates of deposit for terms
        less
        than one year and focusing on reduction of nonperforming assets.
 
 
 **CONTROLS
        AND PROCEDURES**
 
 As
        of the
        end of the period covered by this report, the Company carried out an evaluation,
        under the supervision and with the participation of our Chief Executive Officer
        and the Principal Financial and Accounting Officer of the design and operation
        of our disclosure controls and procedures.   Based on this
        evaluation, our Chief Executive Officer and Principal Financial and Accounting
        Officer concluded that the disclosure controls and procedures are
        effective.
  50
 ***Table
            of Contents***
  **PART
        II – OTHER INFORMATION**
 
 ITEM
        1 – LEGAL PROCEEDINGS
 
 None
 
 ITEM
        1A – RISK FACTORS
 
 During
        the period covered by this report, there have been no material changes from
        risk
        factors as previously disclosed in the registrant’s Form 10-K filed on March 15,
        2007 in response to Item 1A to Part I of Form 10-K.
 
 ITEM
        2– UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
        PROCEEDS
 
 None
 
 ITEM
        3 – DEFAULTS UPON SENIOR SECURITIES
 
 None
 
 ITEM
4
–
SUBMISSIONOF
        MATTERS TO A VOTE OF SECURITY HOLDERS (ANNUAL
        MEETING)
 
 None
 
 ITEM5
–
OTHER
        INFORMATION
 
 None
  ITEM
        6 – EXHIBITS
  
 **3.1  Articles
        of Incorporation**
 
 -filed
        as
        Exhibit 3(a) to the Registrant’s Registration Statement on Form 10 (File No.
        0-18486), filed with the Commission on April 25, 1990 and incorporated herein
        by
        reference
 
 **3.2  Bylaws,
        as Amended**
 
 -filed
        as
        Exhibit 3(b) to the Registrant’s Registration Statement on Form 10 (File No.
        0-18486), filed with the Commission on April 25, 1990 and incorporated herein
        by
        reference
 
 
 **4.1  Instruments
        Defining the Rights of Security Holders**
 
 -incorporated
        herein by reference to page 1 of the Company’s Definitive Proxy Statement for
        Annual Meeting of Stockholders to be held on April 27, 2004, filed with the
        Securities and Exchange Commission on March 3, 2004 (File No.
        000-12436)
 
 **10.1  Deferred
        Compensation Plan and Sample Director Agreement**
 
 -filed
        as
        Exhibit 10(a) to the Registrant’s Registration Statement on Form 10 (File No.
        0-18486), filed with the Commission on April 25, 1990 and incorporated herein
        by
        reference
 
 **10.2  Profit-Sharing
        Plan Dated January 1, 1979**
 
 -filed
        as Exhibit 10(b) to the Registrant’s Registration Statement on Form 10 (File No.
        0-18486), filed with the Commission on April 25, 1990 and incorporated herein
        by
        reference
  51
 ***Table
            of Contents***
  **Part
        II (Continued)**
 Item
        6
        (Continued)
 
 **10.3  1999
        Restricted Stock Grant Plan and Restricted Stock Grant
        Agreement**
 
 -filed
        as
        Exhibit 10(c) the Registrant’s Annual Report  on Form 10-K (File No.
        000-12436), filed with the Commission on March 30, 2001 and incorporated
        herein
        by reference
 
 **10.4  2004
        Restricted Stock Grant Plan and Restricted Stock Grant
        Agreement**
 
 -
        filed
        as Exhibit C to the Registrant’s Definitive Proxy Statement for Annual Meeting
        of Shareholders held on April 27, 2004, filed with the Securities and Exchange
        Commission on March 3, 2004 (File No.  000-12436) and incorporated
        herein by reference
 
 **10.5
        Lease Agreement – Mobile Home Tracts, LLC c/o Stafford Properties, Inc. and
        Colony Bank Worth**
 
 -
        filed
        as Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10Q (File No.
        000-12436), filed with Securities and Exchange Commission on November 5,
        2004
        and incorporated herein by reference
 
 **11.1  Statement
        of Computation of Earnings Per
        Share**
 
 **31.1  Certificate
        of Chief Executive Officer
        Pursuant to Section 302 of Sarbanes-Oxley  Act of
        2002**
 
 **31.2  Certificate
        of Chief Financial Officer
        Pursuant to Section 302 of Sarbanes – Oxley  Act of
        2002**
 
 **32.1  Certification
        of Chief Executive Officer and
        Chief Financial Officer Pursuant to  Section 906of the Sarbanes-Oxley
        Act of 2002**
  52
 ***Table
            of Contents***
  **SIGNATURES**
 
 Pursuant
        to the requirements of the Securities and Exchange Act of 1934, the registrant
        has duly caused this report to be signed on its behalf by the undersigned
        thereunto duly authorized.
 
 
 /s/
                  Al D. RossDate:November
                  7,
                  2007
              
              Al
                  D. Ross,President
                  and Chief Executive Officer/s/
                  Terry L. HesterDate:November
                  7,
                  2007
              
              Terry
                  L. Hester, Executive Vice President and Chief Financial
                  Officer
   53