EXHIBIT NO. 13

McNair, McLemore, Middlebrooks & Co., LLP

CERTIFIED PUBLIC ACCOUNTANTS

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

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

www.mmmcpa.com

RALPH S. McLEMORE, SR., CPA (1902-1981)
SIDNEY B. McNAIR, CPA (1913-1992)
	RICHARD A. WHITTEN, JR., CPA
SIDNEY E. MIDDLEBROOKS, CPA, PC	ELIZABETH WARE HARDIN, CPA
RAY C. PEARSON, CPA	CAROLINE E. GRIFFIN, CPA
J. RANDOLPH NICHOLS, CPA	RONNIE K. GILBERT, CPA
WILLIAM H. EPPS, JR., CPA	RON C. DOUTHIT, CPA
RAYMOND A. PIPPIN, JR., CPA	CHARLES A. FLETCHER, CPA
JERRY A. WOLFE, CPA	MARJORIE HUCKABEE CARTER, CPA
W. E. BARFIELD, JR., CPA	BRYAN A. ISGETT, CPA
HOWARD S. HOLLEMAN, CPA	DAVID PASCHAL MUSE, JR., CPA
F. GAY McMICHAEL, CPA	KATHY W. FLETCHER, CPA

March 13, 2009

REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Colony Bankcorp, Inc.

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

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

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

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

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

McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLP

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COLONY BANKCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

DECEMBER 31
ASSETS
	2008			2007
Cash and Cash Equivalents
Cash and Due from Banks	$	29,427,430		$	28,369,037
Federal Funds Sold		30,941			21,737,143
		29,458,371			50,106,180
Interest-Bearing Deposits		146,987			1,466,690
Investment Securities
Available for Sale, at Fair Value		207,644,579			167,123,042
Held to Maturity, at Cost (Fair Value of $63,254 and $72,005 as of December 31, 2008 and 2007, Respectively)		59,886			68,170
		207,704,465			167,191,212
Federal Home Loan Bank Stock, at Cost		6,272,400			5,532,700
Loans		961,036,525			945,278,642
Allowance for Loan Losses		(17,015,883	)		(15,512,940	)
Unearned Interest and Fees		(179,257	)		(300,577	)
		943,841,385			929,465,125
Premises and Equipment		29,671,881			27,808,838
Other Real Estate		12,811,819			1,332,391
Goodwill		2,412,338			2,412,338
Other Intangible Assets		366,505			402,253
Other Assets		20,095,784			23,058,742
Total Assets	$	1,252,781,935		$	1,208,776,469

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

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COLONY BANKCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

DECEMBER 31
LIABILITIES AND STOCKHOLDERS’ EQUITY
	2008			2007
Deposits
Noninterest-Bearing	$	77,496,891		$	86,111,783
Interest-Bearing		929,494,577			932,490,203
		1,006,991,468			1,018,601,986
Borrowed Money
Federal Funds Purchased		2,274,000			1,346,000
Securities Sold Under Agreements to Repurchase		40,000,000			-
Subordinated Debentures		24,229,000			24,229,000
Other Borrowed Money		91,000,000			73,600,000
		157,503,000			99,175,000
Other Liabilities		5,072,312			7,256,365
Commitments and Contingencies
Stockholders’ Equity
Common Stock, Par Value $1 a Share; Authorized 20,000,000 Shares, Issued 7,212,313 and 7,200,913 Shares as of December 31, 2008 and 2007, Respectively		7,212,313			7,200,913
Paid-In Capital		24,535,683			24,420,497
Retained Earnings		51,302,025			52,086,834
Restricted Stock – Unearned Compensation		(210,993	)		(237,002	)
Accumulated Other Comprehensive Income, Net of Tax		376,127			271,876
		83,215,155			83,743,118
Total Liabilities and Stockholders’ Equity	$	1,252,781,935		$	1,208,776,469

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

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COLONY BANKCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31
	2008		2007		2006
Interest Income
Loans, Including Fees	$	66,732,488	$	80,973,666	$	75,086,845
Federal Funds Sold		273,476		1,477,985		2,034,823
Deposits with Other Banks		27,452		142,785		133,321
Investment Securities
U. S. Government Agencies		7,140,902		6,437,743		5,198,384
State, County and Municipal		410,298		549,031		381,085
Corporate Obligations		414,319		269,283		162,377
Other Investments		-		-		3,808
Dividends on Other Investments		298,264		308,840		278,974
		75,297,199		90,159,333		83,279,617
Interest Expense
Deposits		32,801,362		42,730,760		36,610,386
Federal Funds Purchased		513,961		59,145		28,853
Borrowed Money		4,607,347		4,910,945		4,752,642
		37,922,670		47,700,850		41,391,881
Net Interest Income		37,374,529		42,458,483		41,887,736
Provision for Loan Losses		12,937,750		5,930,756		3,987,000
Net Interest Income After Provision for Loan Losses		24,436,779		36,527,727		37,900,736
Noninterest Income
Service Charges on Deposits		4,699,616		4,771,239		4,580,181
Other Service Charges, Commissions and Fees		981,124		921,502		831,472
Mortgage Fee Income		609,044		966,897		767,803
Securities Gains		1,195,314		183,656		-
Other		1,520,092		973,687		1,170,725
		9,005,190		7,816,981		7,350,181
Noninterest Expenses
Salaries and Employee Benefits		16,238,080		17,866,304		16,870,488
Occupancy and Equipment		4,190,845		4,039,327		4,034,909
Directors’ Fees		578,315		632,547		638,721
Legal and Professional Fees		1,379,696		1,144,229		1,070,605
Other Real Estate and Repossession Expense		332,864		100,959		162,384
Loss on Sale of Other Real Estate		49,448		48,384		20,263
FDIC Assessment		603,093		189,635		166,151
Other		7,483,574		7,557,904		6,918,038
		30,855,915		31,579,289		29,881,559
Income Before Income Taxes		2,586,054		12,765,419		15,369,358
Income Taxes		557,230		4,218,463		5,217,363
Net Income	$	2,028,824	$	8,546,956	$	10,151,995
Net Income Per Share of Common Stock
Basic	$	0.28	$	1.19	$	1.41
Diluted	$	0.28	$	1.19	$	1.41
Cash Dividends Declared Per Share of Common Stock	$	0.39	$	0.365	$	0.325
Weighted Average Shares Outstanding		7,199,121		7,188,696		7,176,894

The accompanying notes are an integral part of these statements.

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COLONY BANKCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31

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

The accompanying notes are an integral part of these statements.

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COLONY BANKCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
	Shares Issued			Common Stock			Paid-In Capital			Retained Earnings			Restricted Stock - Unearned Compensation			Accumulated Other Comprehensive Income (Loss)			Total
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
Issuance of Restricted Stock		15,500			15,500			220,100						(235,600	)					-
Forfeiture of Restricted Stock		(4,100	)		(4,100	)		(69,070	)					73,170						-
Tax Loss of Restricted Stock								(35,844	)											(35,844	)
Amortization of Unearned Compensation														188,439						188,439
Change in Net Unrealized Gains (Losses) on Securities Available for Sale, Net of Reclassification Adjustment and Tax Effects																	104,251			104,251
Dividends Declared											(2,813,633	)								(2,813,633	)
Net Income											2,028,824									2,028,824
Balance, December 31, 2008		7,212,313		$	7,212,313		$	24,535,683		$	51,302,025		$	(210,993	)	$	376,127		$	83,215,155

The accompanying notes are an integral part of these statements.

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COLONY BANKCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31
	2008			2007			2006
Cash Flows from Operating Activities
Net Income	$	2,028,824		$	8,546,956		$	10,151,995
Adjustments to Reconcile Net Income to Net Cash Provided from Operating Activities
Depreciation		2,028,158			1,875,779			1,933,290
Amortization and Accretion		777,051			529,805			720,446
Provision for Loan Losses		12,937,750			5,930,756			3,987,000
Deferred Income Taxes		(250,215	)		(1,233,259	)		112,518
Securities Gains		(1,195,314	)		(183,656	)		-
(Gain) Loss on Sale of Equipment		(857	)		(5,813	)		7,507
(Gain) Loss on Sale of Other Real Estate and Repossessions		59,623			53,851			(14,239	)
Unrealized Loss on Other Real Estate		-			-			32,773
Increase in Cash Surrender Value of Life Insurance		(235,305	)		(15,427	)		(185,850	)
Change In
Interest Receivable		2,875,146			362,311			(2,913,483	)
Prepaid Expenses		18,698			144,931			87,542
Interest Payable		(816,819	)		291,225			1,040,748
Accrued Expenses and Accounts Payable		(815,214	)		(109,441	)		344,075
Other		(121,645	)		(1,018,977	)		(301,677	)
		17,289,881			15,169,041			15,002,645
Cash Flows from Investing Activities
Interest-Bearing Deposits in Other Banks		1,319,703			1,608,791			(1,440,066	)
Purchase of Investment Securities Available for Sale		(157,485,718	)		(60,521,076	)		(48,498,815	)
Proceeds from Sale of Investment Securities Available for Sale		65,298,695			16,984,665			-
Proceeds from Maturities, Calls and Paydowns of Investment Securities
Available for Sale		52,666,161			27,603,088			23,868,423
Held to Maturity		13,573			12,054			18,035
Proceeds from Sale of Premises and Equipment		29,888			267,120			4,691
Net Loans to Customers		(42,435,526	)		(8,333,042	)		(88,764,174	)
Purchase of Premises and Equipment		(3,920,230	)		(2,492,797	)		(3,722,786	)
Other Real Estate and Repossessions		3,392,500			2,318,696			4,136,207
Federal Home Loan Bank Stock		(739,700	)		(445,900	)		(52,600	)
Investment in Capital Trusts		-			(434,000	)		(155,000	)
Liquidation of Statutory Trusts		-			434,000			-
Other Investments		-			(420,560	)		(400,000	)
		(81,860,654	)		(23,418,961	)		(115,006,085	)
Cash Flows from Financing Activities
Interest-Bearing Customer Deposits		(2,995,624	)		(32,620,017	)		99,529,936
Noninterest-Bearing Customer Deposits		(8,614,892	)		8,776,104			(1,442,462	)
Proceeds from Other Borrowed Money		122,400,000			41,100,000			41,500,000
Principal Payments on Other Borrowed Money		(65,000,000	)		(29,000,000	)		(50,226,206	)
Dividends Paid		(2,794,520	)		(2,556,438	)		(2,264,319	)
Proceeds from Issuance of Subordinated Debentures		-			14,434,000			5,155,000
Principal Payments of Subordinated Debentures		-			(14,434,000	)		-
Federal Funds Purchased		928,000			276,000			1,070,000
		43,922,964			(14,024,351	)		93,321,949
Net Decrease in Cash and Cash Equivalents		(20,647,809	)		(22,274,271	)		(6,681,491	)
Cash and Cash Equivalents, Beginning		50,106,180			72,380,451			79,061,942
Cash and Cash Equivalents, Ending	$	29,458,371		$	50,106,180		$	72,380,451

The accompanying notes are an integral part of these statements.

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COLONY BANKCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  Summary of Significant Accounting Policies

Principles of Consolidation

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

Nature of Operations

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

Use of Estimates

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

Reclassifications

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

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(1)  Summary of Significant Accounting Policies (Continued)

Concentrations of Credit Risk

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

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

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

Investment Securities

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

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

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(1)  Summary of Significant Accounting Policies (Continued)

Federal Home Loan Bank Stock

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

Loans

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

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

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

Allowance for Loan Losses

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

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

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

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(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 2008 or 2007.

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

- 11 -

(1)  Summary of Significant Accounting Policies (Continued)

Transfers of Financial Assets

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

Statement of Cash Flows

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

Securities Sold Under Repurchase Agreements

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

Advertising Costs

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

Income Taxes

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

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

- 12 -

(1)  Summary of Significant Accounting Policies (Continued)

Income Taxes (Continued)

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

Other Real Estate

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

Comprehensive Income

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

Off-Balance Sheet Credit Related Financial Instruments

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

- 13 -

(1)  Summary of Significant Accounting Policies (Continued)

Changes in Accounting Principles and Effects of New Accounting Pronouncements

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

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

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

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(1)  Summary of Significant Accounting Policies (Continued)

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

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

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

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

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

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(1)  Summary of Significant Accounting Policies (Continued)

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

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

(2)  Cash and Balances Due from Banks

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

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

(3)  Investment Securities

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

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

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

- 16 -

(3)  Investment Securities (Continued)

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

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair 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

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

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

- 17 -

(3)  Investment Securities (Continued)

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

	Less Than 12 Months					12 Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
December 31, 2008
U.S. Government Agencies
Mortgage-Backed	$	52,276,619	$	(266,923	)	$	708,302	$	(42,761	)	$	52,984,921	$	(309,684	)
State, County and Municipal		5,053,601		(211,683	)		91,827		(8,173	)		5,145,428		(219,856	)
Corporate Obligations		5,020,792		(629,628	)		-		-			5,020,792		(629,628	)
Asset-Backed Securities		667,720		(332,280	)		-		-			667,720		(332,280	)
	$	63,018,732	$	(1,440,514	)	$	800,129	$	(50,934	)	$	63,818,861	$	(1,491,448	)
December 31, 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	)

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

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

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(4)  Loans

The composition of loans as of December 31 are:

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

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

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

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

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(5)  Allowance for Loan Losses

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

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

(6)  Premises and Equipment

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

	2008			2007
Land	$	7,805,167		$	7,799,149
Building		23,460,842			20,900,517
Furniture, Fixtures and Equipment		13,529,356			12,641,372
Leasehold Improvements		990,198			994,283
Construction in Progress		127,155			448,087
		45,912,718			42,783,408
Accumulated Depreciation		(16,240,837	)		(14,974,570	)
	$	29,671,881		$	27,808,838

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

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

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

Year Ending December 31	Amount
2009	$	134,838
2010		125,918
2011		125,918
2012		122,813
2013 and Thereafter		98,796
	$	608,283

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(7)  Goodwill and Intangible Assets

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

	2008		2007
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, 2007	$	1,056,693	$	(654,440	)	$	402,253
Amortization Expense		-		(35,748	)		(35,748	)
Balance, December 31, 2008	$	1,056,693	$	(690,188	)	$	366,505

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

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

2009	$	35,749
2010		35,749
2011		35,749
2012		35,749
2013 and Thereafter		223,509
	$	366,505

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(8)  Income Taxes

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

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

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

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

- 22 -

(8)  Income Taxes (Continued)

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

	2008			2007
Deferred Tax Assets
Allowance for Loan Losses	$	5,785,400		$	5,274,506
Deferred Compensation		381,896			393,617
Restricted Stock		411,238			347,169
Other		298,390			263,618
		6,876,924			6,278,910
Deferred Tax Liabilities
Premises and Equipment		(1,237,807	)		(1,013,824	)
Vested Restricted Stock		(269,014	)		(190,117	)
Other		(236,107	)		(191,188	)
		(1,742,928	)		(1,395,129	)
Deferred Tax Assets (Liabilities) on Unrealized Securities Gains (Losses)		(193,763	)		(140,058	)
Net Deferred Tax Assets	$	4,940,233		$	4,743,723

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

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

(9)  Fair Value Measurements

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

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

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

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

- 23 -

(9)  Fair Value Measurements (Continued)

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

Assets

Securities

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

Impaired loans

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

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

- 24 -

(9)  Fair Value Measurements (Continued)

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

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

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

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

(10) Deposits

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

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

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

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

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(10) Deposits (Continued)

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

Year	Amount
2009	$	632,562,438
2010		33,816,266
2011		29,112,206
2012		4,351,483
2013 and Thereafter		2,092,186
	$	701,934,579

(11) Securities Sold Under Repurchase Agreements

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

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

(12) Other Borrowed Money

Other borrowed money at December 31 is summarized as follows:

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

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

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(12) Other Borrowed Money (Continued)

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

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

Year	Amount
2009	$	19,000,000
2010		1,000,000
2011		-
2012		41,000,000
2013 and Thereafter		30,000,000
	$	91,000,000

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

(13) Subordinated Debentures (Trust Preferred Securities)

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

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

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

- 27 -

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

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

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

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

(14) Restricted Stock - Unearned Compensation

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

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

(15) Profit Sharing Plan

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

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(16) Commitments and Contingencies

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

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

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

	Contract Amount
	2008		2007
Commitments to Extend Credit	$	73,610,000	$	93,105,000
Standby Letters of Credit		2,710,000		3,814,000

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

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

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

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

- 29 -

(17) Deferred Compensation Plan

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

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

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

(18) Interest Income and Expense

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

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

(19) Supplemental Cash Flow Information

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

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

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

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

- 30 -

(20) Related Party Transactions

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

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

(21) Fair Value of Financial Instruments

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

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

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

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

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

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

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

- 31 -

(21) Fair Value of Financial Instruments (Continued)

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

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

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

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

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

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

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

- 32 -

(22) Regulatory Capital Matters

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

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

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

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(22) Regulatory Capital Matters (Continued)

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

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

- 34 -

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

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

COLONY BANKCORP, INC. (PARENT ONLY) BALANCE SHEETS DECEMBER 31
ASSETS
	2008			2007
Cash	$	2,227		$	972,960
Premises and Equipment, Net		1,542,040			1,235,508
Investment in Subsidiary, at Equity		105,506,392			104,594,496
Other		1,293,424			2,219,676
Total Assets	$	108,344,083		$	109,022,640
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Dividends Payable	$	703,201		$	684,087
Other		196,727			366,435
		899,928			1,050,522
Subordinated Debt		24,229,000			24,229,000
Stockholders’ Equity
Common Stock, Par Value $1 a Share; Authorized 20,000,000 Shares, Issued 7,212,313 and 7,200,913 Shares as of December 31, 2008 and 2007, Respectively		7,212,313			7,200,913
Paid-In Capital		24,535,683			24,420,497
Retained Earnings		51,302,025			52,086,834
Restricted Stock – Unearned Compensation		(210,993	)		(237,002	)
Accumulated Other Comprehensive Income, Net of Tax		376,127			271,876
		83,215,155			83,743,118
Total Liabilities and Stockholders’ Equity	$	108,344,083		$	109,022,640

- 35 -

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

COLONY BANKCORP, INC. (PARENT ONLY) STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31
	2008			2007			2006
Income
Dividends from Subsidiary	$	5,038,854		$	5,662,500		$	6,800,000
Other		92,111			281,885			168,763
		5,130,965			5,944,385			6,968,763
Expenses
Interest		1,270,942			2,005,971			1,926,647
Amortization		2,250			295,093			30,317
Salaries and Employee Benefits		876,166			974,524			1,013,523
Other		1,240,339			889,093			735,821
		3,389,697			4,164,681			3,706,308
Income Before Taxes and Equity in Undistributed Earnings of Subsidiary		1,741,268			1,779,704			3,262,455
Income Tax Benefits		979,911			1,213,835			1,027,921
Income Before Equity in Undistributed Earnings of Subsidiary		2,721,179			2,993,539			4,290,376
Equity in Undistributed Earnings (Losses) of Subsidiary		(692,355	)		5,553,417			5,861,619
Net Income		2,028,824			8,546,956			10,151,995
Other Comprehensive Income, Net of Tax
Gains on Securities Arising During the Year		893,158			1,367,910			377,840
Reclassification Adjustment		(788,907	)		(121,213	)		-
Change in Net Unrealized Gains on Securities Available for Sale, Net of Reclassification Adjustment and Tax Effects		104,251			1,246,697			377,840
Comprehensive Income	$	2,133,075		$	9,793,653		$	10,529,835

- 36 -

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

COLONY BANKCORP, INC. (PARENT ONLY) STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31
	2008			2007			2006
Cash Flows from Operating Activities
Net Income	$	2,028,824		$	8,546,956		$	10,151,995
Adjustments to Reconcile Net Income to Net Cash
Provided from Operating Activities
Depreciation and Amortization		275,299			294,121			309,388
Equity in Undistributed Earnings of Subsidiary		692,355			(5,553,417	)		(5,861,619	)
Other		720,701			(436,928	)		(267,646	)
		3,717,179			2,850,732			4,332,118
Cash Flows from Investing Activities
Capital Infusion in Subsidiary		(1,500,000	)		(1,500,000	)		(2,500,000	)
Purchases of Premises and Equipment		(393,392	)		(44,915	)		(73,749	)
Investment in Capital Trusts		-			(434,000	)		(155,000	)
Liquidation of Statutory Trusts		-			434,000			-
		(1,893,392	)		(1,544,915	)		(2,728,749	)
Cash Flows from Financing Activities
Dividends Paid		(2,794,520	)		(2,556,438	)		(2,264,320	)
Principal Payments on Notes and Debentures		-			(14,434,000	)		(2,500,000	)
Proceeds from Notes and Debentures		-			14,434,000			5,155,000
		(2,794,520	)		(2,556,438	)		390,680
Increase (Decrease) in Cash		(970,733	)		(1,250,621	)		1,994,049
Cash, Beginning		972,960			2,223,581			229,532
Cash, Ending	$	2,227		$	972,960		$	2,223,581

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(24) Earnings Per Share

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

December 31, 2008	Income Numerator		Common Shares Denominator		EPS
Basic EPS
Income Available to Common Stockholders	$	2,028,824		7,199,121	$	0.28
Dilutive Effect of Potential Common Stock
Restricted Stock				-
Diluted EPS
Income Available to Common Stockholders After Assumed Conversions of Dilutive Securities	$	2,028,824		7,199,121	$	0.28
December 31, 2007
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

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(25) Subsequent Events

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

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