Colony Bankcorp (CBAN) 10-K 2007 FY Annual report

EXHIBIT NO. 13

McNair, McLemore, Middlebrooks & Co., LLP

CERTIFIED PUBLIC ACCOUNTANTS

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

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

www.mmmcpa.com

RALPH S. McLEMORE, SR., CPA (1902-1981)

SIDNEY B. McNAIR, CPA (1913-1992)

SIDNEY E. MIDDLEBROOKS, CPA, PC	RICHARD A. WHITTEN, JR., CPA
RAY C. PEARSON, CPA	ELIZABETH WARE HARDIN, CPA
J. RANDOLPH NICHOLS, CPA	CAROLINE E. GRIFFIN, CPA
WILLIAM H. EPPS, JR., CPA	RONNIE K. GILBERT, CPA
RAYMOND A. PIPPIN, JR., CPA	RON C. DOUTHIT, CPA
JERRY A. WOLFE, CPA	CHARLES A. FLETCHER, CPA
W. E. BARFIELD, JR., CPA	MARJORIE HUCKABEE CARTER, CPA
HOWARD S. HOLLEMAN, CPA	BRYAN A. ISGETT, CPA
F. GAY McMICHAEL, CPA	DAVID PASCHAL MUSE, JR., CPA

March 14, 2008

REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Colony Bankcorp, Inc.

We have audited the accompanying consolidated balance sheets of Colony Bankcorp, Inc. and Subsidiaries as of December 31, 2007 and 2006 and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2007.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Colony Bankcorp, Inc. and Subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Colony Bankcorp, Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 14, 2008 expressed an unqualified opinion on the effectiveness of Colony Bankcorp, Inc.’s internal control over financial reporting.

/s/ McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLP

McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLP

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McNair, McLemore, Middlebrooks & Co., LLP

CERTIFIED PUBLIC ACCOUNTANTS

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

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

www.mmmcpa.com

RALPH S. McLEMORE, SR., CPA (1902-1981)

SIDNEY B. McNAIR, CPA (1913-1992)

SIDNEY E. MIDDLEBROOKS, CPA, PC	RICHARD A. WHITTEN, JR., CPA
RAY C. PEARSON, CPA	ELIZABETH WARE HARDIN, CPA
J. RANDOLPH NICHOLS, CPA	CAROLINE E. GRIFFIN, CPA
WILLIAM H. EPPS, JR., CPA	RONNIE K. GILBERT, CPA
RAYMOND A. PIPPIN, JR., CPA	RON C. DOUTHIT, CPA
JERRY A. WOLFE, CPA	CHARLES A. FLETCHER, CPA
W. E. BARFIELD, JR., CPA	MARJORIE HUCKABEE CARTER, CPA
HOWARD S. HOLLEMAN, CPA	BRYAN A. ISGETT, CPA
F. GAY McMICHAEL, CPA	DAVID PASCHAL MUSE, JR., CPA

March 14, 2008

REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Colony Bankcorp, Inc.

We have audited Colony Bankcorp, Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Colony Bankcorp, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Colony Bankcorp, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Colony Bankcorp, Inc. and Subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2007 and our report dated March 14, 2008, expressed an unqualified opinion.

/s/ McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLP

McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLP

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COLONY BANKCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31

ASSETS

	2007			2006
Cash and Cash Equivalents
Cash and Due from Banks	$	28,369,037		$	27,231,017
Federal Funds Sold		21,737,143			45,149,434
		50,106,180			72,380,451
Interest-Bearing Deposits		1,466,690			3,075,481
Investment Securities
Available for Sale, at Fair Value		167,123,042			149,236,225
Held to Maturity, at Cost (Fair Value of $72,005 and $70,874 as of December 31, 2007 and 2006, Respectively)		68,170			70,874
		167,191,212			149,307,099
Federal Home Loan Bank Stock, at Cost		5,532,700			5,086,800
Loans		945,278,642			942,273,015
Allowance for Loan Losses		(15,512,940	)		(11,989,359	)
Unearned Interest and Fees		(300,577	)		(501,143	)
		929,465,125			929,782,513
Premises and Equipment		27,808,838			27,453,132
Other Real Estate		1,332,391			970,320
Goodwill		2,412,338			2,412,338
Other Intangible Assets		402,253			438,714
Other Assets		23,058,742			22,597,010
Total Assets	$	1,208,776,469		$	1,213,503,858

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

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COLONY BANKCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31

LIABILITIES AND STOCKHOLDERS' EQUITY

	2007			2006
Deposits
Noninterest-Bearing	$	86,111,783		$	77,335,680
Interest-Bearing		932,490,203			965,110,219
		1,018,601,986			1,042,445,899
Borrowed Money
Federal Funds Purchased		1,346,000			1,070,000
Subordinated Debentures		24,229,000			24,229,000
Other Borrowed Money		73,600,000			61,500,000
		99,175,000			86,799,000
Other Liabilities		7,256,365			7,647,798
Commitments and Contingencies
Stockholders' Equity
Common Stock, Par Value $1 a Share; Authorized 20,000,000 Shares, Issued 7,200,913 and 7,189,937 Shares as of December 31, 2007 and 2006, Respectively		7,200,913			7,189,937
Paid-In Capital		24,420,497			24,257,392
Retained Earnings		52,086,834			46,416,571
Restricted Stock – Unearned Compensation		(237,002	)		(277,918	)
Accumulated Other Comprehensive Income (Loss), Net of Tax		271,876			(974,821	)
		83,743,118			76,611,161
Total Liabilities and Stockholders' Equity	$	1,208,776,469		$	1,213,503,858

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

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COLONY BANKCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31

	2007		2006		2005
Interest Income
Loans, Including Fees	$	80,973,666	$	75,086,845	$	58,308,810
Federal Funds Sold		1,477,985		2,034,823		1,266,120
Deposits with Other Banks		142,785		133,321		86,121
Investment Securities
U. S. Government Agencies		6,437,743		5,198,384		3,412,711
State, County and Municipal		549,031		381,085		240,864
Corporate Obligations		269,283		162,377		138,559
Other Investments		-		3,808		3,223
Dividends on Other Investments		308,840		278,974		177,335
		90,159,333		83,279,617		63,633,743
Interest Expense
Deposits		42,730,760		36,610,386		22,590,018
Federal Funds Purchased		59,145		28,853		16,259
Borrowed Money		4,910,945		4,752,642		3,873,730
		47,700,850		41,391,881		26,480,007
Net Interest Income		42,458,483		41,887,736		37,153,736
Provision for Loan Losses		5,930,756		3,987,000		3,443,750
Net Interest Income After Provision for Loan Losses		36,527,727		37,900,736		33,709,986
Noninterest Income
Service Charges on Deposits		4,771,239		4,580,181		4,127,889
Other Service Charges, Commissions and Fees		921,502		831,472		708,276
Mortgage Fee Income		966,897		767,803		493,458
Securities Gains		183,656		-		-
Other		973,687		1,170,725		822,337
		7,816,981		7,350,181		6,151,960
Noninterest Expenses
Salaries and Employee Benefits		17,866,304		16,870,488		14,127,949
Occupancy and Equipment		4,039,327		4,034,909		3,777,759
Directors' Fees		632,547		638,721		616,534
Legal and Professional Fees		1,144,229		1,070,605		764,896
Other Real Estate and Repossession Expense		100,959		162,384		126,630
Loss on Sale of Other Real Estate		48,384		20,263		185,379
Other		7,747,539		7,084,189		6,476,263
		31,579,289		29,881,559		26,075,410
Income Before Income Taxes		12,765,419		15,369,358		13,786,536
Income Taxes		4,218,463		5,217,363		4,809,320
Net Income	$	8,546,956	$	10,151,995	$	8,977,216
Net Income Per Share of Common Stock
Basic	$	1.19	$	1.41	$	1.25
Diluted	$	1.19	$	1.41	$	1.25
Cash Dividends Declared Per Share of Common Stock	$	0.365	$	0.325	$	0.285
Weighted Average Shares Outstanding		7,188,696		7,176,894		7,168,406

The accompanying notes are an integral part of these statements.

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COLONY BANKCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31

	2007			2006		2005
Net Income	$	8,546,956		$	10,151,995	$	8,977,216
Other Comprehensive Income, Net of Tax
Gains (Losses) on Securities Arising During the Year		1,367,910			377,840		(755,824	)
Reclassification Adjustment		(121,213	)		-		-
Change in Net Unrealized Gains (Losses) on Securities Available for Sale, Net of Reclassification Adjustment and Tax Effects		1,246,697			377,840		(755,824	)
Comprehensive Income	$	9,793,653		$	10,529,835	$	8,221,392

The accompanying notes are an integral part of these statements.

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COLONY BANKCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

	Shares Issued			Common Stock			Paid-In Capital			Retained Earnings			Restricted Stock - Unearned Compensation			Accumulated Other Comprehensive Income (Loss)			Total
Balance, December 31, 2004		5,738,343		$	5,738,343		$	23,713,200		$	33,119,090		$	(210,833	)	$	(596,837	)	$	61,762,963
5 for 4 Stock Split Effected as a Stock Dividend		1,436,579			1,436,579						(1,436,579	)								-
Issuance of Restricted Stock		11,200			11,200			369,600						(380,800	)					-
Forfeiture of Restricted Stock		(4,802	)		(4,802	)		(83,025	)					87,827						-
Amortization of Unearned Compensation														201,923						201,923
Change in Net Unrealized Gains (Losses) on Securities Available for Sale, Net of Reclassification Adjustment and Tax Effects																	(755,824	)		(755,824	)
Dividends Declared											(2,058,286	)								(2,058,286	)
Net Income											8,977,216									8,977,216
Balance, December 31, 2005		7,181,320			7,181,320			23,999,775			38,601,441			(301,883	)		(1,352,661	)		68,127,992
Issuance of Restricted Stock		12,790			12,790			303,123						(315,913	)					-
Forfeiture of Restricted Stock		(4,173	)		(4,173	)		(106,663	)					110,836						-
Tax Benefit of Restricted Stock								61,157												61,157
Amortization of Unearned Compensation														229,042						229,042
Change in Net Unrealized Gains (Losses) on Securities Available for Sale, Net of Reclassification Adjustment and Tax Effects																	377,840			377,840
Dividends Declared											(2,336,865	)								(2,336,865	)
Net Income											10,151,995									10,151,995
Balance, December 31, 2006		7,189,937			7,189,937			24,257,392			46,416,571			(277,918	)		(974,821	)		76,611,161
Cumulative Effect of Change in Accounting for Uncertainty in Income Taxes											(247,312	)								(247,312	)
Issuance of Restricted Stock		16,175			16,175			270,122						(286,297	)					-
Forfeiture of Restricted Stock		(5,199	)		(5,199	)		(110,514	)					115,713						-
Tax Benefit of Restricted Stock								3,497												3,497
Amortization of Unearned Compensation														211,500						211,500
Change in Net Unrealized Gains (Losses) on Securities Available for Sale, Net of Reclassification Adjustment and Tax Effects																	1,246,697			1,246,697
Dividends Declared											(2,629,381	)								(2,629,381	)
Net Income											8,546,956									8,546,956
Balance, December 31, 2007		7,200,913		$	7,200,913		$	24,420,497		$	52,086,834		$	(237,002	)	$	271,876		$	83,743,118

  The accompanying notes are an integral part of these statements.

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COLONY BANKCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31

	2007			2006			2005
Cash Flows from Operating Activities
Net Income	$	8,546,956		$	10,151,995		$	8,977,216
Adjustments to Reconcile Net Income to Net Cash Provided from Operating Activities
Depreciation		1,875,779			1,933,290			1,903,242
Amortization and Accretion		529,805			720,446			1,307,710
Provision for Loan Losses		5,930,756			3,987,000			3,443,750
Deferred Income Taxes		(1,233,259	)		112,518			(546,891	)
Securities Gains		(183,656	)		-			-
(Gain) Loss on Sale of Equipment		(5,813	)		7,507			(1,886	)
(Gain) Loss on Sale of Other Real Estate and Repossessions		53,851			(14,239	)		34,339
Unrealized Loss on Other Real Estate		-			32,773			150,000
Increase in Cash Surrender Value of Life Insurance		(15,427	)		(185,850	)		(203,367	)
Change In
Loans Held for Sale		-			-			1,190,937
Interest Receivable		362,311			(2,913,483	)		(1,566,643	)
Prepaid Expenses		144,931			87,542			(122,165	)
Interest Payable		291,225			1,040,748			932,717
Accrued Expenses and Accounts Payable		(109,441	)		344,075			470,293
Other		(1,018,977	)		(301,677	)		(94,880	)
		15,169,041			15,002,645			15,874,372
Cash Flows from Investing Activities
Interest-Bearing Deposits in Other Banks		1,608,791			(1,440,066	)		1,593,274
Purchase of Investment Securities Available for Sale		(60,521,076	)		(48,498,815	)		(49,527,780	)
Proceeds from Sale of Investment Securities Available for Sale		16,984,665			-			-
Proceeds from Maturities, Calls and Paydowns of Investment Securities
Available for Sale		27,603,088			23,868,423			35,864,083
Held to Maturity		12,054			18,035			11,417
Proceeds from Sale of Premises and Equipment		267,120			4,691			11,750
Net Loans to Customers		(8,333,042	)		(88,764,174	)		(85,879,622	)
Purchase of Premises and Equipment		(2,492,797	)		(3,722,786	)		(5,765,092	)
Other Real Estate and Repossessions		2,318,696			4,136,207			1,633,964
Federal Home Loan Bank Stock		(445,900	)		(52,600	)		(555,100	)
Investment in Capital Trusts		(434,000	)		(155,000	)		-
Liquidation of Statutory Trusts		434,000			-			-
Other Investments		(420,560	)		(400,000	)		-
		(23,418,961	)		(115,006,085	)		(102,613,106	)
Cash Flows from Financing Activities
Interest-Bearing Customer Deposits		(32,620,017	)		99,529,936			83,461,129
Noninterest-Bearing Customer Deposits		8,776,104			(1,442,462	)		10,609,094
Proceeds from Other Borrowed Money		41,100,000			41,500,000			19,500,000
Principal Payments on Other Borrowed Money		(29,000,000	)		(50,226,206	)		(10,723,429	)
Dividends Paid		(2,556,438	)		(2,264,319	)		(1,993,100	)
Proceeds from Issuance of Subordinated Debentures		14,434,000			5,155,000			-
Principal Payments of Subordinated Debentures		(14,434,000	)		-			-
Federal Funds Purchased		276,000			1,070,000			-
		(14,024,351	)		93,321,949			100,853,694
								��
Net Increase (Decrease) in Cash and Cash Equivalents		(22,274,271	)		(6,681,491	)		14,114,960
Cash and Cash Equivalents, Beginning		72,380,451			79,061,942			64,946,982
Cash and Cash Equivalents, Ending	$	50,106,180		$	72,380,451		$	79,061,942

The accompanying notes are an integral part of these statements.

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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.

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 south and central 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 and note disclosures 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.

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(1)  Summary of Significant Accounting Policies (Continued)

Concentrations of Credit Risk (Continued)

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.

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

Investment Securities

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

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

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.

- 10 - -

(1)  Summary of Significant Accounting Policies (Continued)

Loans

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

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

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

Allowance for Loan Losses

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

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

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

- 11 - -

(1)  Summary of Significant Accounting Policies (Continued)

Allowance for Loan Losses (Continued)

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

Premises and Equipment

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

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

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

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

Goodwill and Intangible Assets

Goodwill represents the excess of the cost over the fair value of the net assets purchased in a business combination.  Impairment testing of goodwill is performed annually or more frequently if events or circumstances indicate possible impairment.  No impairment was identified as a result of the testing performed during 2007 or 2006.

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

- 12 - -

(1)  Summary of Significant Accounting Policies (Continued)

Transfers of Financial Assets

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

Statement of Cash Flows

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

Advertising Costs

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

Income Taxes

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

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

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

- 13 - -

(1)  Summary of Significant Accounting Policies (Continued)

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.

Changes in Accounting Principles and Effects of New Accounting Pronouncements

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

- 14 - -

(1)  Summary of Significant Accounting Policies (Continued)

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

In February 2006, the Financial Accounting Standards 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 adoption of SFAS No. 155 on January 1, 2007 did not impact the Company’s consolidated financial statements.

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 adoption of SFAS No. 156 on January 1, 2007 did not have a significant impact on the Company’s consolidated financial statements.

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

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

- 15 - -

(1)  Summary of Significant Accounting Policies (Continued)

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

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 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 a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets.  Under SFAS No. 157, fair value measurements are disclosed by level within that hierarchy.  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 statements 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 its financial position, results of operations or disclosures.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Post Retirement 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 financial position, results of operations or disclosures.

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

- 16 - -

(1)  Summary of Significant Accounting Policies (Continued)

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

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

Emerging Issues Task Force (EITF) Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split Dollar Life Insurance Arrangements.  EITF No. 06-4 requires the recognition of a liability and related compensation expense for endorsement split-dollar life insurance policies that provide a benefit to an employee that extends to post-retirement periods.  Under EITF No. 06-4, life insurance policies purchased for the purpose of providing such benefits do not effectively settle an entity’s obligation to the employee.  Accordingly, the entity must recognize a liability and related compensation expense during the employee’s active service period based on the future cost of insurance to be incurred during the employee’s retirement.  If the entity has agreed to provide the employee with a death benefit, then the liability for the future death benefit should be recognized by following the guidance in SFAS No. 106, Employer’s Accounting for Postretirement Benefits Other Than Pensions.  The Company expects to adopt EITF No. 06-4 effective as of January 1, 2008 as a change in accounting principle through a cumulative-effect adjustment to retained earnings.  The amount of the adjustment is not expected to be significant.

SAB No. 109, Written Loan Commitments Recorded at Fair Value Through Earnings.  SAB No. 109 supersedes SAB No. 105, Application of Accounting Principles to Loan Commitments, and indicates that the expected net future cash flows related to the associated servicing of the loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. The guidance in SAB No. 109 is applied on a prospective basis to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. SAB No. 109 is not expected to have a material impact on the Company’s consolidated financial statements.

(2)  Cash and Balances Due from Banks

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

	2007		2006
Cash on Hand and Cash Items	$	8,527,336	$	8,307,648
Noninterest-Bearing Deposits with Other Banks		19,841,701		18,923,369
	$	28,369,037	$	27,231,017

As of December 31, 2007, the Banks had required deposits of approximately $4,068,000 with the Federal Reserve.

- 17 - -

(3)  Investment Securities

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

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

The amortized cost and fair value of investment securities as of December 31, 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.

	Securities
	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in One Year or Less	$	15,558,431	$	15,517,260
Due After One Year Through Five Years		26,378,407		26,531,598
Due After Five Years Through Ten Years		11,820,453		11,856,841	$	68,170	$	72,005
Due After Ten Years		3,928,097		3,892,820		-		-
		57,685,388		57,798,519		68,170		72,005
Marketable Equity Securities		2,010		1,750		-		-
Mortgage Backed Securities		109,023,711		109,322,773		-		-
	$	166,711,109	$	167,123,042	$	68,170	$	72,005

- 18 - -

(3)  Investment Securities (Continued)

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities Available for Sale
U.S. Government Agencies
Mortgage Backed	$	80,053,405	$	106,426	$	(1,124,365	)	$	79,035,466
Other		54,870,102		65,487		(569,214	)		54,366,375
State, County and Municipal		11,839,893		36,337		(135,965	)		11,740,265
Corporate Obligations		3,786,691		-		(41,556	)		3,745,135
Marketable Equity Securities		163,135		192,442		(6,593	)		348,984
	$	150,713,226	$	400,692	$	(1,877,693	)	$	149,236,225
Securities Held to Maturity
State, County and Municipal	$	70,874	$	-	$	-		$	70,874

Proceeds from sales of investments available for sale were $16,984,665 in 2007 and $0 in 2006 and 2005.  Gross realized gains totaled $211,676 in 2007 and $0 in 2006 and 2005.  Gross realized losses totaled $28,020 in 2007 and $0 in 2006 and 2005.

Investment securities having a carrying value approximating $89,145,000 and $86,141,000 as of December 31, 2007 and 2006, respectively, were pledged to secure public deposits and for other purposes.

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

	Less Than 12 Months					12 Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
December 31, 2007
U.S. Government Agencies
Mortgage Backed	$	13,721,144	$	(56,190	)	$	30,761,318	$	(402,853	)	$	44,482,462	$	(459,043	)
Other		-		-			14,100,741		(36,536	)		14,100,741		(36,536	)
State, County and Municipal		6,917,719		(255,263	)		3,114,838		(40,606	)		10,032,557		(295,869	)
Corporate Obligations		-		-			995,090		(6,748	)		995,090		(6,748	)
Marketable Equity Securities		1,750		(260	)		-		-			1,750		(260	)
	$	20,640,613	$	(311,713	)	$	48,971,987	$	(486,743	)	$	69,612,600	$	(798,456	)
December 31, 2006
U.S. Government Agencies
Mortgage Backed	$	11,989,365	$	(54,716	)	$	52,139,791	$	(1,069,649	)	$	64,129,156	$	(1,124,365	)
Other		5,461,550		(24,616	)		31,033,305		(544,598	)		36,494,855		(569,214	)
State, County and Municipal		2,708,622		(69,220	)		5,396,659		(66,745	)		8,105,281		(135,965	)
Corporate Obligations		1,750,000		(24,379	)		995,135		(17,177	)		2,745,135		(41,556	)
Marketable Equity Securities		-		-			53,454		(6,593	)		53,454		(6,593	)
	$	21,909,537	$	(172,931	)	$	89,618,344	$	(1,704,762	)	$	111,527,881	$	(1,877,693	)

- 19 - -

(3)  Investment Securities (Continued)

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

At December 31, 2007, the debt securities with unrealized losses have depreciated 1.12 percent from the Company’s amortized cost basis. These securities are guaranteed by either the U.S. Government or other governments. These unrealized losses relate principally to current interest rates for similar types 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 December 31 are:

	2007		2006
Commercial, Financial and Agricultural	$	52,322,654	$	61,887,534
Real Estate-Construction		211,483,898		193,951,793
Real Estate-Farmland		42,438,731		40,936,126
Real Estate-Other		544,654,646		549,600,833
Installment Loans to Individuals		72,350,201		76,929,633
All Other Loans		22,028,512		18,967,096
	$	945,278,642	$	942,273,015

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 $14,955,945 and $8,068,685 as of December 31, 2007 and 2006, respectively, and total recorded investment in loans past due 90 days or more and still accruing interest approximated $60,057 and $9,346, respectively.  Foregone interest on nonaccrual loans approximated $576,000 in 2007, $533,000 in 2006 and $426,000 in 2005.

- 20 - -

(4)  Loans (Continued)

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

	2007			2006
Total Investment in Impaired Loans	$	14,955,945		$	8,068,685
Less Allowance for Impaired Loan Losses		(1,323,108	)		(210,283	)
Net Investment, December 31	$	13,632,837		$	7,858,402
Average Investment during the Year	$	8,086,620		$	7,607,659
Income Recognized during the Year	$	812,378		$	393,215
Income Collected during the Year	$	910,725		$	391,242

(5)  Allowance for Loan Losses

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

	2007			2006			2005
Balance, Beginning	$	11,989,359		$	10,761,915		$	10,012,179
Provision Charged to Operating Expenses		5,930,756			3,987,000			3,443,750
Loans Charged Off		(3,908,011	)		(3,373,273	)		(3,046,192	)
Loan Recoveries		1,500,836			613,717			352,178
Balance, Ending	$	15,512,940		$	11,989,359		$	10,761,915

(6)  Premises and Equipment

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

	2007			2006
Land	$	7,799,149		$	7,413,927
Building		20,900,517			20,885,790
Furniture, Fixtures and Equipment		12,641,372			12,059,702
Leasehold Improvements		994,283			994,282
Construction in Progress		448,087			114,429
		42,783,408			41,468,130
Accumulated Depreciation		(14,974,570	)		(14,014,998	)
	$	27,808,838		$	27,453,132

- 21 - -

(6)  Premises and Equipment (Continued)

Depreciation charged to operations totaled $1,875,779 in 2007, $1,933,290 in 2006 and $1,903,242 in 2005.

Certain Company facilities and equipment are leased under various operating leases.  Rental expense approximated $360,000 for 2007, $329,000 for 2006 and $334,000 for 2005.

Future minimum rental payments as of December 31, 2007 are as follows:

Year Ending December 31	Amount
2008	$	122,620
2009		93,700
2010		89,700
2011		89,700
2012 and Thereafter		143,405
	$	539,125

(7)  Goodwill and Intangible Assets

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

	2007		2006
Goodwill
Balance, Beginning	$	2,412,338	$	2,412,338
Goodwill Acquired		-		-
Balance, Ending	$	2,412,338	$	2,412,338

	Core Deposit Intangible		Accumulated Amortization			Net Core Deposit Intangible
Core Deposit Intangible
Balance, December 31, 2006	$	1,056,693	$	(617,979	)	$	438,714
Amortization Expense		-		(36,461	)		(36,461	)
Balance, December 31, 2007	$	1,056,693	$	(654,440	)	$	402,253

Amortization expense related to the core deposit intangible was $36,461, $81,201 and $114,645 for the years ended December 31, 2007, 2006 and 2005, respectively.

- 22 - -

(7)  Goodwill and Intangible Assets (Continued)

The following table reflects the expected amortization schedule for the core deposit intangible at December 31, 2007:

2008	$	35,749
2009		35,749
2010		35,749
2011		35,749
2012 and Thereafter		259,257
	$	402,253

(8)  Income Taxes

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

	2007			2006		2005
Current Federal Expense	$	5,339,925		$	4,994,008	$	5,041,180
Deferred Federal (Benefit) Expense		(1,233,259	)		112,518		(546,891	)
Federal Income Tax Expense		4,106,666			5,106,526		4,494,289
Current State Income Tax Expense		111,797			110,837		315,031
	$	4,218,463		$	5,217,363	$	4,809,320

The federal income tax expense of $4,106,666 in 2007, $5,106,526 in 2006 and $4,494,289 in 2005 is less than the income taxes computed by applying the federal statutory rates to income before income taxes.  The reasons for the differences are as follows:

	2007			2006			2005
Statutory Federal Income Taxes	$	4,340,243		$	5,290,356		$	4,725,288
Tax-Exempt Interest		(234,863	)		(188,408	)		(163,184	)
Interest Expense Disallowance		46,847			28,211			17,136
Premiums on Officers' Life Insurance		(47,369	)		(50,419	)		(56,374	)
Meal and Entertainment Disallowance		14,488			16,644			10,756
State Income Taxes		(2,281	)		(46,441	)		(94,719	)
Other		(10,399	)		56,583			55,386
Actual Federal Income Taxes	$	4,106,666		$	5,106,526		$	4,494,289

- 23 - -

(8)  Income Taxes (Continued)

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

	2007			2006
Deferred Tax Assets
Allowance for Loan Losses	$	5,274,506		$	4,076,487
Deferred Compensation		393,617			376,297
Other Real Estate		-			45,143
Restricted Stock		347,169			275,259
Other		263,618			223,312
		6,278,910			4,996,498
Deferred Tax Liabilities
Premises and Equipment		(1,013,824	)		(1,020,752	)
Restricted Stock		(190,117	)		(125,545	)
Other		(191,188	)		(199,679	)
		(1,395,129	)		(1,345,976	)
Deferred Tax Assets (Liabilities) on Unrealized Securities Losses		(140,058	)		502,180
Net Deferred Tax Assets	$	4,743,723		$	4,152,702

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

Balance, Beginning	$	247,312
Positions Taken During the Current Year		62,427
Reductions Resulting from Lapse of Statutes of Limitation		-
Balance, Ending	$	309,739

- 24 - -

(9)  Deposits

The aggregate amount of overdrawn deposit accounts reclassified as loan balances totaled $573,939 and $838,935 as of December 31, 2007 and 2006, respectively.

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

	2007		2006
Interest-Bearing Demand	$	190,303,611	$	185,768,785
Savings		31,588,035		33,305,542
Time, $100,000 and Over		347,219,102		366,041,185
Other Time		363,379,455		379,994,707
	$	932,490,203	$	965,110,219

At December 31, 2007 and 2006, the Company had brokered deposits of $54,737,011 and $72,682,000, respectively. The aggregate amount of short-term jumbo certificates of deposit, each with a minimum denomination of $100,000, was approximately $310,971,000 and $328,788,000 as of December 31, 2007 and 2006, respectively.

As of December 31, 2007, the scheduled maturities of certificates of deposit are as follows:

Year	Amount
2008	$	632,936,434
2009		42,977,383
2010		20,928,911
2011		9,574,289
2012 and Thereafter		4,181,540
	$	710,598,557

(10) Other Borrowed Money

Other borrowed money at December 31 is summarized as follows:

	2007		2006
Federal Home Loan Bank Advances	$	73,500,000	$	61,500,000
Silverton Bank Note Payable		100,000		-
	$	73,600,000	$	61,500,000

- 25 - -

(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, commercial loans and cash balances held by the FHLB are pledged as collateral for the FHLB advances outstanding.  At December 31, 2007, the Company had available line of credit commitments totaling $99,131,763, of which $25,631,763 was available.

Silverton Bank note payable originated on February 15, 2007 as a line of credit with funds available of $1,000,000 at a rate of The Wall Street prime minus 0.75 percent.  Interest payments are due monthly with the entire balance due 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 December 31, 2007, $900,000 was available to be drawn on the line of credit.

The aggregate stated maturities of other borrowed money at December 31, 2007 are as follows:

Year	Amount
2008	$	9,600,000
2009		-
2010		1,000,000
2011		-
2012 and Thereafter		63,000,000
	$	73,600,000

The Company also has available federal funds lines of credit with various financial institutions totaling $47,300,000, of which there was $1,346,000 outstanding at December 31, 2007.

(11) Subordinated Debentures (Trust Preferred Securities)

During the second quarter of 2004, the Company formed a third subsidiary whose sole purpose was to issue $4,500,000 in Trust Preferred Securities through a pool sponsored by FTN Financial Capital Markets.  The Trust Preferred Securities have a maturity of 30 years and are redeemable after 5 years with certain exceptions.  At December 31, 2007, the floating rate securities had a 7.67 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 2.68 percent.

During the second quarter of 2006, the Company formed a fourth subsidiary whose sole purpose was to issue $5,000,000 in Trust Preferred Securities in a private placement by SunTrust Bank Capital Markets.  The Trust Preferred Securities have a maturity of 30 years and are redeemable after 5 years with certain exceptions.  At December 31, 2007, the floating rate securities had a 6.33 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 1.50 percent.

During the first quarter of 2007, the Company formed a fifth subsidiary whose sole purpose was to issue $9,000,000 in Trust Preferred Securities through a pool sponsored by Trapeza Capital Management, LLC.  The Trust Preferred Securities have a maturity of 30 years and are redeemable after five years with certain exceptions.  At December 31, 2007, the floating rate securities had a 6.48 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 1.50 percent.  Proceeds from this issuance were used to pay off the Trust Preferred Securities with the first subsidiary formed in March 2002 as the Company exercised its option to call.

- 26 - -

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

During the third quarter of 2007, the Company formed a sixth subsidiary whose sole purpose was to issue $5,000,000 in Trust Preferred Securities through a pool sponsored by Trapeza Capital Management, LLC.  The Trust Preferred Securities have a maturity of 30 years and are redeemable after five years with certain exceptions.  At December 31, 2007, the floating rate securities had a 6.38 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 1.40 percent.  Proceeds from this issuance were used to pay off the Trust Preferred Securities with the second subsidiary formed in December 2002 as the Company exercised its option to call.

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

The total aggregate principal amount of trust preferred certificates outstanding at December 31, 2007 was $23,500,000.  The total aggregate principal amount of subordinated debentures outstanding at December 31, 2007 was $24,229,000.

(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.  To date, 75,803 shares have been issued under this plan and 12,351 shares have been forfeited; thus, remaining shares which may be issued are 1,249 at December 31, 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 second restricted stock grant plan which awards certain executive officers common shares of the Company.  The maximum number of shares which may be subject to restricted stock awards (split-adjusted) is 143,500.  To date, 20,155 shares have been issued under this plan and 5,248 shares have been forfeited; thus, remaining shares which may be issued are 128,593 at December 31, 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 $583,690 for 2007, $662,730 for 2006 and $558,138 for 2005.

- 27 - -

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

	Contract Amount
	2007		2006
Commitments to Extend Credit	$	93,105,000	$	105,165,000
Standby Letters of Credit		3,814,000		3,279,000

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

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

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

Purchase Commitments.  As of December 31, 2007, the Company had an outstanding commitment of approximately $1,967,000 to construct its second office in Savannah, Georgia.  As of December 31, 2007, the Company has paid $305,119 toward construction in progress.  

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.

- 28 - -

(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 $1,158,597 and $1,107,653 as of December 31, 2007 and 2006, respectively.  Benefit payments under the contracts were $187,059 in 2007 and $171,029 in 2006.  Provisions charged to operations totaled $238,003 in 2007, $164,997 in 2006 and $359,787 in 2005.

Fee income recognized with deferred compensation plans totaled $139,322 in 2007, $148,290 in 2006 and $328,942 in 2005.

(16) Interest Income and Expense

Interest income of $506,896, $311,828 and $257,639 from state, county and municipal bonds was exempt from regular income taxes in 2007, 2006 and 2005, respectively.

Interest on deposits includes interest expense on time certificates of $100,000 or more totaling $18,700,653, $16,189,086 and $8,180,847 for the years ended December 31, 2007, 2006 and 2005, respectively.

(17) Supplemental Cash Flow Information

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

	2007		2006		2005
Interest Expense	$	47,409,731	$	40,351,134	$	25,547,290
Income Taxes	$	6,380,000	$	5,371,395	$	5,353,702

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

	2007			2006			2005
Acquisitions of Real Estate
Through Loan Foreclosures	$	2,576,332		$	2,815,716		$	2,793,978
Unrealized (Gain) Loss on Investment Securities	$	(1,888,934	)	$	(572,485	)	$	1,145,190

- 29 - -

(18) Related Party Transactions

The aggregate balance of direct and indirect loans to directors, executive officers or principal holders of equity securities of the Company was $16,544,057 as of December 31, 2007 and $18,142,109 as of December 31, 2006.  All such loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than a normal risk of collectibility.  A summary of activity of related party loans is shown below:

	2007			2006
Balance, Beginning	$	18,142,109		$	15,103,982
New Loans		10,009,867			18,540,907
Repayments		(10,981,245	)		(15,528,723	)
Transactions Due to Changes in Directors		(626,674	)		25,943
Balance, Ending	$	16,544,057		$	18,142,109

(19) Fair Value of Financial Instruments

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

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

Investment Securities - Fair values for investment securities are based on quoted market prices.

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

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

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

- 30 - -

(19) Fair Value of Financial Instruments (Continued)

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

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

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

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

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

	2007				2006
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
	(in Thousands)
Assets
Cash and Short-Term Investments	$	51,573	$	51,573	$	75,456	$	75,456
Investment Securities Available for Sale		167,123		167,123		149,236		149,236
Investment Securities Held to Maturity		68		72		71		71
Federal Home Loan Bank Stock		5,533		5,533		5,087		5,087
Loans		945,278		943,970		942,273		930,716
Liabilities
Deposits		1,018,602		1,020,855		1,042,446		1,040,991
Federal Funds Purchased		1,346		1,346		1,070		1,070
Subordinated Debentures		24,229		24,229		24,229		24,229
Other Borrowed Money		73,600		72,301		61,500		58,345

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

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

- 31 - -

(20) Regulatory Capital Matters

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

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

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets.  The amounts and ratios as defined in regulations are presented hereafter.  Management believes, as of December 31, 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.

- 32 - -

(20) Regulatory Capital Matters (Continued)

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

						For Capital					To Be Well Capitalized Under Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2007						(In Thousands)
Total Capital to Risk-Weighted Assets
Consolidated	$	116,222		12.08	%	$	76,944		8.00	%		N/A		N/A
Fitzgerald		19,771		12.65			12,508		8.00		$	15,635		10.00	%
Ashburn		29,873		11.38			21,000		8.00			26,251		10.00
Worth		15,808		11.23			11,264		8.00			14,079		10.00
Southeast		22,702		12.19			14,895		8.00			18,619		10.00
Quitman		12,979		11.70			8,872		8.00			11,091		10.00
Tier I Capital to Risk-Weighted Assets
Consolidated		104,157		10.83			38,472		4.00			N/A		N/A
Fitzgerald		17,809		11.39			6,254		4.00			9,381		6.00
Ashburn		26,571		10.12			10,500		4.00			15,750		6.00
Worth		14,043		9.97			5,632		4.00			8,448		6.00
Southeast		20,364		10.94			7,447		4.00			11,171		6.00
Quitman		11,592		10.45			4,436		4.00			6,654		6.00
Tier I Capital to Average Assets
Consolidated		104,157		8.60			48,467		4.00			N/A		N/A
Fitzgerald		17,809		9.13			7,800		4.00			9,750		5.00
Ashburn		26,571		7.92			13,426		4.00			16,783		5.00
Worth		14,043		7.87			7,139		4.00			8,924		5.00
Southeast		20,364		9.72			8,377		4.00			10,471		5.00
Quitman		11,592		7.86			5,899		4.00			7,374		5.00

- 33 - -

(20) 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						(In Thousands)
Total Capital to Risk-Weighted Assets
Consolidated	$	110,304		11.50	%	$	76,710		8.00	%		N/A		N/A
Fitzgerald		18,697		11.33			13,206		8.00		$	16,508		10.00	%
Ashburn		28,908		10.77			21,464		8.00			26,830		10.00
Worth		14,618		11.02			10,610		8.00			13,262		10.00
Southeast		20,091		10.76			14,934		8.00			18,667		10.00
Quitman		12,183		11.65			8,367		8.00			10,458		10.00
Tier I Capital to Risk-Weighted Assets
Consolidated		98,235		10.24			38,355		4.00			N/A		N/A
Fitzgerald		16,567		10.04			6,603		4.00			9,905		6.00
Ashburn		25,551		9.52			10,732		4.00			16,098		6.00
Worth		12,958		9.77			5,305		4.00			7,957		6.00
Southeast		17,981		9.63			7,467		4.00			11,200		6.00
Quitman		10,985		10.50			4,183		4.00			6,275		6.00
Tier I Capital to Average Assets
Consolidated		98,235		8.17			48,087		4.00			N/A		N/A
Fitzgerald		16,567		8.07			8,207		4.00			10,259		5.00
Ashburn		25,551		7.68			13,306		4.00			16,632		5.00
Worth		12,958		7.44			6,969		4.00			8,711		5.00
Southeast		17,981		8.52			8,445		4.00			10,556		5.00
Quitman		10,985		7.78			5,647		4.00			7,059		5.00

- 34 - -

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

The parent company's balance sheets as of December 31, 2007 and 2006 and the related statements of income and comprehensive income and cash flows for each of the years in the three-year period then ended are as follows:

COLONY BANKCORP, INC. (PARENT ONLY)

BALANCE SHEETS

DECEMBER 31

ASSETS

	2007		2006
Cash	$	972,960	$	2,223,581
Premises and Equipment, Net		1,235,508		1,273,215
Investment in Subsidiaries, at Equity		105,323,496		97,270,695
Other		1,490,676		998,759
Total Assets	$	109,022,640	$	101,766,250

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
Dividends Payable	$	684,087		$	641,314
Other		366,435			284,775
		1,050,522			926,089
Subordinated Debt		24,229,000			24,229,000
Stockholders' Equity
Common Stock, Par Value $1 a Share; Authorized 20,000,000 Shares, Issued 7,200,913 and 7,189,937 Shares as of December 31, 2007 and 2006, Respectively		7,200,913			7,189,937
Paid-In Capital		24,420,497			24,257,392
Retained Earnings		52,086,834			46,416,571
Restricted Stock – Unearned Compensation		(237,002	)		(277,918	)
Accumulated Other Comprehensive Income (Loss), Net of Tax		271,876			(974,821	)
		83,743,118			76,611,161
Total Liabilities and Stockholders' Equity	$	109,022,640		$	101,766,250

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

COLONY BANKCORP, INC. (PARENT ONLY)

STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31

	2007			2006		2005
Income
Dividends from Subsidiaries	$	5,662,500		$	6,800,000	$	4,350,000
Other		281,885			168,763		109,119
		5,944,385			6,968,763		4,459,119
Expenses
Interest		2,005,971			1,926,647		1,323,247
Amortization		295,093			30,317		30,317
Salaries and Employee Benefits		974,524			1,013,523		1,053,636
Other		889,093			735,821		716,954
		4,164,681			3,706,308		3,124,154
Income Before Taxes and Equity in Undistributed Earnings of Subsidiaries		1,779,704			3,262,455		1,334,965
Income Tax Benefits		1,213,835			1,027,921		1,000,501
Income Before Equity in Undistributed Earnings of Subsidiaries		2,993,539			4,290,376		2,335,466
Equity in Undistributed Earnings of Subsidiaries		5,553,417			5,861,619		6,641,750
Net Income		8,546,956			10,151,995		8,977,216
Other Comprehensive Income, Net of Tax
Gains (Losses) on Securities Arising During the Year		1,367,910			377,840		(755,824	)
Reclassification Adjustment		(121,213	)		-		-
Change in Net Unrealized Gains (Losses) on Securities Available for Sale, Net of Reclassification Adjustment and Tax Effects		1,246,697			377,840		(755,824	)
Comprehensive Income	$	9,793,653		$	10,529,835	$	8,221,392

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

COLONY BANKCORP, INC. (PARENT ONLY)

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31

	2007			2006			2005
Cash Flows from Operating Activities
Net Income	$	8,546,956		$	10,151,995		$	8,977,216
Adjustments to Reconcile Net Income to Net Cash Provided from Operating Activities
Depreciation and Amortization		294,121			309,388			294,155
Equity in Undistributed Earnings of Subsidiaries		(5,553,417	)		(5,861,619	)		(6,641,750	)
Other		(436,928	)		(267,646	)		123,856
		2,850,732			4,332,118			2,753,477
Cash Flows from Investing Activities
Capital Infusion in Subsidiary		(1,500,000	)		(2,500,000	)		(2,950,000	)
Purchases of Premises and Equipment		(44,915	)		(73,749	)		(244,268	)
Investment in Capital Trusts		(434,000	)		(155,000	)		-
Liquidation of Statutory Trusts		434,000			-			-
		(1,544,915	)		(2,728,749	)		(3,194,268	)
Cash Flows from Financing Activities
Dividends Paid		(2,556,438	)		(2,264,320	)		(1,993,100	)
Principal Payments on Notes and Debentures		(14,434,000	)		(2,500,000	)		(1,500,000	)
Proceeds from Notes and Debentures		14,434,000			5,155,000			4,000,000
		(2,556,438	)		390,680			506,900
Increase (Decrease) in Cash		(1,250,621	)		1,994,049			66,109
Cash, Beginning		2,223,581			229,532			163,423
Cash, Ending	$	972,960		$	2,223,581		$	229,532

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(22) Earnings Per Share

SFAS No. 128 establishes standards for computing and presenting basic and diluted earnings per share. Basic earnings per share is calculated and presented based on income available to common stockholders divided by the weighted average number of shares outstanding during the reporting periods. Diluted earnings per share reflects the potential dilution of restricted stock. The following presents earnings per share for the years ended December 31, 2007, 2006 and 2005 under the requirements of Statement 128:

December 31, 2007	Income Numerator		Common Shares Denominator		EPS
Basic EPS
Income Available to Common Stockholders	$	8,546,956		7,188,696	$	1.19
Dilutive Effect of Potential Common Stock
Restricted Stock				8,635
Diluted EPS
Income Available to Common Stockholders After Assumed Conversions of Dilutive Securities	$	8,546,956		7,197,331	$	1.19
December 31, 2006
Basic EPS
Income Available to Common Stockholders	$	10,151,995		7,176,894	$	1.41
Dilutive Effect of Potential Common Stock
Restricted Stock				843
Diluted EPS
Income Available to Common Stockholders After Assumed Conversions of Dilutive Securities	$	10,151,995		7,177,737	$	1.41
December 31, 2005
Basic EPS
Income Available to Common Stockholders	$	8,977,216		7,168,406	$	1.25
Dilutive Effect of Potential Common Stock
Restricted Stock				2,694
Diluted EPS
Income Available to Common Stockholders After Assumed Conversions of Dilutive Securities	$	8,977,216		7,171,100	$	1.25

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