Commitments and Contingencies

9 Months Ended

Sep. 30, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

(17) Commitments and Contingencies

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

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

At September 30, 2011 and December 31, 2010 the following financial instruments were outstanding whose contract amounts represent credit risk:

	Contract Amount
	September 30, 2011		December 31, 2010
Loan Commitments	$	41,692	$	39,457
Standby Letters of Credit		1,619		1,540

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.

IRS Exam.  Colony Bankcorp, Inc. and subsidiary are currently under examination by the Internal Revenue Service (IRS) for the year ended December 31, 2009.  The IRS is examining areas of nonaccrual interest, other real estate and bad debts, and may propose income adjustments, most of which, in the opinion of management, will reverse in 2010.  As a result, management anticipates a net adjustment which would have no material impact on the consolidated financial statements.  In addition to 2009, tax returns for calendar years 2008 and 2007 remain subject to examination by the IRS.

The Internal Revenue Service (IRS) completed their examination of Colony Bankcorp, Inc. and subsidiary for the year ended December 31, 2009.  During the second quarter 2011, a net adjustment in the amount of $190 was paid to the IRS to settle certain tax assessments.  The Company intends to pay the tax assessment resulting from other adjustments through the administrative appeals process.  If the Company is not successful in defending its position, additional amounts may be owed to the IRS which would have no material impact on the consolidated financial statements.