10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR QUARTER ENDED SEPTEMBER 30, 2004

COMMISSION FILE NUMBER 0-12436

COLONY BANKCORP, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

GEORGIA	58-1492391
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)	(I.R.S. EMPLOYER IDENTIFICATION NUMBER)

115 SOUTH GRANT STREET, FITZGERALD, GEORGIA 31750

ADDRESS OF PRINCIPAL EXECUTIVE OFFICES

229/426-6000

REGISTRANT’S TELEPHONE NUMBER INCLUDING AREA CODE

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED REPORTS REQUIRED TO BE FILED BY SECTIONS 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.

YES x    NO ¨

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12b-2 OF THE ACT)

YES x    NO ¨

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER’S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

CLASS	OUTSTANDING AT NOVEMBER 2, 2004
COMMON STOCK, $1 PAR VALUE	5,738,343

PART 1 – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE FOLLOWING FINANCIAL STATEMENTS ARE PROVIDED FOR COLONY BANKCORP, INC. AND SUBSIDIARIES: COLONY BANK OF FITZGERALD, COLONY BANK ASHBURN, COLONY BANK WILCOX, COLONY BANK OF DODGE COUNTY, COLONY BANK WORTH, COLONY BANK SOUTHEAST, COLONY MANAGEMENT SERVICES, INC., AND COLONY BANK QUITMAN, FSB.

A. CONSOLIDATED BALANCE SHEETS – SEPTEMBER 30, 2004 AND DECEMBER 31, 2003.

B. CONSOLIDATED STATEMENTS OF INCOME – FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003.

C. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

D. CONSOLIDATED STATEMENTS OF CASH FLOWS – FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003.

THE CONSOLIDATED FINANCIAL STATEMENTS FURNISHED HAVE NOT BEEN AUDITED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, BUT REFLECT, IN THE OPINION OF MANAGEMENT, ALL ADJUSTMENTS NECESSARY FOR A FAIR PRESENTATION OF THE RESULTS OF OPERATIONS FOR THE PERIODS PRESENTED.

THE RESULTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS TO BE EXPECTED FOR THE FULL YEAR.

2

COLONY BANKCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2004 AND DECEMBER 31, 2003

(DOLLARS IN THOUSANDS)

	Sept 30, 2004			Dec 31, 2003
	(Unaudited)
ASSETS
Cash and Balances Due from Depository Institutions	$	18,792		$	22,355
Interest-Bearing Deposits		3,189			11,615
Federal Funds Sold		28,128			37,368
Investment Securities
Available for Sale, at Fair Value		105,036			110,327
Held to Maturity, at Cost (Fair Value of $89 and $81, Respectively)		89			81
		105,125			110,408
Federal Home Loan Bank Stock, at Cost		3,402			3,000
Loans Held for Sale		1,559			1,677
Loans		777,363			654,210
Allowance for Loan Losses		(10,114	)		(8,516	)
Unearned Interest and Fees		(35	)		(33	)
		767,214			645,661
Premises and Equipment		21,747			17,571
Other Real Estate		3,139			2,724
Goodwill		2,412			448
Intangible Assets		673			243
Other Assets		15,898			15,536
Total Assets	$	971,278		$	868,606
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Noninterest-Bearing	$	62,042		$	64,043
Interest-Bearing		762,467			668,275
		824,509			732,318
Borrowed Money
Subordinated Debentures		19,074			14,434
Other Borrowed Money		62,507			61,184
		81,581			75,618
Other Liabilities		4,660			4,694
Stockholders’ Equity
Common Stock, Par Value $1, Authorized 20,000,000 Shares, Issued 5,738,343 and 5,727,968 Shares as of September 30, 2004 and December 31, 2003, Respectively		5,738			5,728
Paid-In Capital		23,713			23,499
Retained Earnings		31,513			26,857
Restricted Stock - Unearned Compensation		(250	)		(130	)
Accumulated Other Comprehensive Income, Net of Tax		(186	)		22
		60,528			55,976
Total Liabilities and Stockholders’ Equity	$	971,278		$	868,606

The accompanying notes are an integral part of these statements.

3

COLONY BANKCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(UNAUDITED)

(DOLLARS IN THOUSANDS)

	Three Months Ended					Nine Months Ended
	9/30/2004			9/30/2003		9/30/2004			9/30/2003
Interest Income
Loans, including fees	$	12,256		$	10,800	$	34,763		$	32,020
Federal Funds Sold		89			53		227			274
Deposits with Other Banks		13			40		59			120
Investment Securities
U.S. Treasury & Federal Agencies		792			536		2,441			1,543
State, County and Municipal		63			77		229			240
Other Investments		54			104		222			340
Dividends on Other Investments		27			31		79			98
		13,294			11,641		38,020			34,635
Interest Expense
Deposits		3,904			3,673		10,873			11,995
Federal Funds Purchased		1			0		4			1
Borrowed Money		816			754		2,375			2,192
		4,721			4,427		13,252			14,188
Net Interest Income		8,573			7,214		24,768			20,447
Provision for Loan Losses		864			1,455		2,709			2,927
Net Interest Income After Provisions for loan losses		7,709			5,759		22,059			17,520
Noninterest Income
Service Changes on Deposits		1,100			1,011		3,170			2,778
Other Service Changes, Commissions & Fees		269			294		777			800
Security Gains (Losses), net		(31	)		369		(31	)		369
Other Income		253			422		768			1,482
		1,591			2,096		4,684			5,429
Noninterest Expense
Salaries and Employee Benefits		3,189			2,839		9,433			8,414
Occupancy and Equipment		940			848		2,606			2,401
Other Operating Expenses		2,095			1,606		5,630			4,562
		6,224			5,293		17,669			15,377
Income Before Income Taxes		3,076			2,562		9,074			7,572
Income Taxes		1,019			843		3,085			2,543
Net Income	$	2,057		$	1,719	$	5,989		$	5,029
Net Income Per Share of Common Stock
Basic	$	0.36		$	0.30	$	1.05		$	0.88
Diluted	$	0.36		$	0.30	$	1.05		$	0.88
Weighted Average Basic Shares Outstanding		5,707,843			5,694,978		5,703,819			5,694,978
Weighted Average Diluted Shares Outstanding		5,727,619			5,720,374		5,723,475			5,720,481

The accompanying notes are an integral part of these statements.

4

COLONY BANKCORP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(UNAUDITED)

(DOLLARS IN THOUSANDS)

	Three Months Ended					Nine Months Ended
	09/30/04		09/30/03			09/30/04			09/30/03
Net Income	$	2,057	$	1,719		$	5,989		$	5,029
Other Comprehensive Income, Net of Tax
Gains (Losses) on Securities Arising During Year		857		(698	)		(228	)		(699	)
Reclassification Adjustment		20		(244	)		20			(244	)
Unrealized Gains (Losses) on Securities		877		(942	)		(208	)		(943	)
Comprehensive Income	$	2,934	$	777		$	5,781		$	4,086

The accompanying notes are an integral part of these statements.

5

COLONY BANKCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(UNAUDITED)

(DOLLARS IN THOUSANDS)

	2004			2003
CASH FLOW FROM OPERATING ACTIVITIES
Net Income	$	5,989		$	5,029
Adjustments to reconcile net income to net cash provided by operating activities:
(Gain) loss on sale of investment securities		31			(369	)
Depreciation		1,304			1,201
Provision for loan losses		2,709			2,927
Amortization of excess costs		107			117
Other prepaids, deferrals and accruals, net		(1,417	)		(3,923	)
Total Adjustments		2,734			(47	)
Net cash provided by operating activities		8,723			4,982
CASH FLOW FROM INVESTING ACTIVITIES
Cash received in business acquistion, net		14,377			0
Purchase of other assets (FHLB stock)		(402	)		(138	)
Purchases of securities available for sale		(25,793	)		(63,394	)
Proceeds from sales of securities available for sale		10,477			11,141
Proceeds from maturities, calls, and paydowns of investment securities:
Available for Sale		19,233			48,374
Held to Maturity		7			34
Decrease (Increase) in interest-bearing deposits in banks		8,426			130
(Increase) in loans		(105,482	)		(75,136	)
Purchase of premises and equipment		(3,289	)		(1,473	)
Investment in Statutory Trust		(140	)		0
Investment in Other		0			420
Net cash provided by investing activities		(82,586	)		(80,042	)
CASH FLOW FROM FINANCING ACTIVITIES
Net increase in deposits		56,387			33,211
Federal funds purchased		0			0
Dividends paid		(1,290	)		(1,077	)
Net (decrease) increase in other borrowed money		1,323			13,816
Proceeds from issuance of subordinated debentures		4,640			0
Net cash provided by financing activities		61,060			45,950
Net increase (decrease) in cash and cash equivalents		(12,803	)		(29,110	)
Cash and cash equivalents at beginning of period		59,723			69,831
Cash and cash equivalents at end of period	$	46,920		$	40,721

The accompanying notes are an integral part of these statements.

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies

Basis of presentation

Colony Bankcorp, Inc. 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, 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.

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 foreclosure or in satisfaction of loans and the valuation of deferred tax assets.

In certain instances, amounts reported in prior years’ consolidated financial statements have been reclassified to conform to statement presentations selected for 2004. Such reclassifications had no effect on previously reported stockholders’ equity or net income.

All dollars in notes to consolidated financial statements are rounded to the nearest thousand.

Description of Business

The Banks provide a full range of retail and commercial banking services for consumers and small to medium size businesses primarily in South Georgia. Lending and investing activities are funded primarily by deposits gathered through its retail branch office network. Lending is concentrated in commercial and real estate loans to local borrowers. The Banks have 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 Banks have a diversified loan portfolio, a substantial portion of borrowers’ ability to honor their contracts is dependent upon the viability of the real estate economic sector.

The success of Colony is dependent, to a certain extent, upon the economic conditions in the geographic markets it serves. No assurance can be given that the current economic conditions will continue. Adverse changes in the economic conditions in these geographic markets would likely have a material adverse effect on the Company’s results of operations and financial condition The operating results of Colony depend primarily on its net interest income. Accordingly, operations are subject to risks and uncertainties surrounding the exposure to changes in the interest rate environment.

Accounting Policies

The accounting and reporting policies of Colony Bankcorp, Inc. and its subsidiaries are in accordance with accounting principles generally accepted and conform to general practices within the banking industry. The significant accounting policies followed by Colony and the methods of applying those policies are summarized hereafter.

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 reported, net of deferred taxes, in accumulated other comprehensive income, a component of stockholders’ equity. 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.

7

(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 Statement of Financial Accounting Standards (SFAS) No. 115; accordingly, the provisions of SFAS No. 115 are not applicable to this investment. The FHLB stock is reported in the financial statements at cost. Dividend income is recognized when earned.

Loans Held for Sale

Loans held for sale consist primarily of mortgage loans in the process of being sold to a third party investor and are carried at the lower of cost or market value on an aggregate loan portfolio basis. Gains or losses realized on the sale of loans are recognized at the time of sale and are determined by the difference between the net sales proceeds and the carrying value of the loans sold. Gains and losses on sales of loans are included in noninterest income.

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. Interest income on loans is recognized using the effective interest method.

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.

Impaired loans are recorded under Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan and SFAS No. 118, Accounting by Creditors for Impairment of a Loan – Income Recognition and Disclosures. Impaired loans are loans for which principal and interest are unlikely to be collected in accordance with the original terms and, generally, represent loans delinquent in excess of 90 days which have been placed on nonaccrual status and for which collateral values are less than outstanding principal and interest. Small balance, homogenous loans are excluded from impaired loans.

Allowance for Loan Losses

The allowance method is used in providing for losses on loans. Accordingly, all loan losses decrease the allowance and all recoveries increase it. The provision for loan losses is based on factors which, in management’s judgment, deserve current recognition in estimating possible loan losses. Such factors considered by management include growth and composition of the loan portfolio, economic conditions and the relationship of the allowance for loan losses to outstanding loans.

An allowance for loan losses is maintained for all impaired loans. Provisions are made for impaired loans upon changes in expected future cash flows or estimated net realizable value of collateral. When determination is made that impaired loans are wholly or partially uncollectible, the uncollectible portion is charged-off.

Management believes the allowance for possible loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgment about information available to them at the time of their examination.

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.

8

(1) Summary of Significant Accounting Policies (Continued)

Statement of Cash Flows

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

Income Taxes

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

Other Real Estate

Other real estate generally represents real estate acquired through foreclosure and is initially recorded at the lower of cost or estimated market value at the date of acquisition. Losses from the acquisitions 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 statement 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.

New Accounting Standards

SEC Staff Accounting Bulletin (SAB) No. 105 “Application of Accounting Principles to Loan Commitments.” SAB 105 summarizes the views of the staff of the SEC regarding the application of generally accepted accounting principles to loan commitments accounted for as derivate instruments. SAB 105 provides that the fair value of recorded loan commitments that are accounted for as derivates under SFAS 133, “Accounting for Derivate Instruments and Hedging Activities,” should not incorporate the expected future cash flows related to the associated servicing of the future loan. In addition, SAB 105 requires registrants to disclose their accounting policy for loan commitments. The provisions of SAB 105 must be applied to loan commitments accounted for as derivates that are entered into after March 31, 2004. The adoption of this accounting standard did not have a material impact on the Corporation’s financial statements.

Emerging Issues Task Force (EITF) Issue 03-1. “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” EITF 03-1 provides guidance for determining when an investment is considered impaired, whether impairment is other-that-temporary, and measurement of an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. Generally, an impairment is considered other-than-temporary unless; (i) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for an anticipated recovery of fair value up to (or beyond) the cost of the investment; and (ii) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. If impairment is determined to be other-than-temporary, then an impairment loss should be recognized equal to the difference between the investment’s cost and its fair value. The recognition and measurement provisions were initially effective for other-than-temporary impairment evaluations in reporting periods beginning after June 15, 2004. However, in September 2004, the effective date of these provisions was delayed until the finalization of a FASB Staff Position (FSP) to provide additional implementation guidance. Currently, the FASB expects to issue the FSP no later than December 2004.

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 which may be subject to restricted stock awards is 48,787 (split adjusted). During 2000, 2001, 2002, 2003, and 2004, 5,250, 5,250, 7,500, 10,150 and 12,250 shares were issued under this plan, respectively. Of the shares issued, 3,425 were forfeited due to non-vesting. 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 3 years (the restriction period).

9

(1) Summary of Significant Accounting Policies (Continued)

In April 2004, the shareholders of Colony Bankcorp, Inc. adopted a restricted stock grant plan which awards certain executive officers common shares of the Company. The maximum number of shares which may be subject to restricted stock awards is 114,800. No shares have been issued pursuant to this stock grant plan.

(2) Cash and Balances Due from Depository Institutions

Components of cash and balances due from depository institutions at September 30, 2004 and December 31, 2003 are as follows:

	September 30, 2004		December 31, 2003
Cash on Hand and Cash Items	$	9,349	$	8,085
Noninterest-Bearing Deposits with Other Banks		9,443		14,270
	$	18,792	$	22,355

As of September 30, 2004, the Banks had required deposits of approximately $2,932 with the Federal Reserve.

(3) Investment Securities

Investment securities as of September 30, 2004 are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities Available for Sale:
U.S. Government Agencies
Mortgage-Backed	$	72,211	$	133		($735	)	$	71,609
Other		23,110		180		(14	)		23,276
State, County & Municipal		6,876		139		(8	)		7,007
Corporate Obligations		3,121		23		0			3,144
	$	105,318	$	475		($757	)	$	105,036
Securities Held to Maturity:
State, County and Municipal	$	89	$	0	$	0		$	89

The amortized cost and fair value of investment securities as of September 30,2004, by contractual maturity, are shown below. 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	$	821	$	833	$	0	$	0
Due After One Year Through Five Years		25,213		25,388		0		0
Due After Five Years Through Ten Years		5,085		5,150		0		0
Due After Ten Years		1,988		2,056		89		89
		33,107		33,427		89		89
Mortgage-Backed Securities		72,211		71,609		0		0
	$	105,318	$	105,036	$	89	$	89

10

(3) Investment Securities (Continued)

Investment securities as of December 31, 2003 are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities Available for Sale:
U.S. Government Agencies
Mortgage-Backed Securities	$	75,485	$	246	($558	)	$	75,173
Other		17,621		226	(2	)		17,845
State, County & Municipal		9,579		236	(6	)		9,809
Corporate Obligations		6,384		181	(9	)		6,556
Marketable Equity Securities		1,130		0	(186	)		944
	$	110,199	$	889	($761	)	$	110,327
Securities Held to Maturity:
State, County and Municipal	$	81	$	0	$0		$	81

Proceeds from the sale of investments available for sale during nine months ended September 30, 2004 was $10,477 and during nine months ended September 30, 2003 was $11,141.

Investment securities having a carry value approximating $64,224 and $56,611 as of September 30, 2004 and December 31, 2003, respectively, were pledged to secure public deposits and for other purposes.

(4) Loans

The composition of loans as of September 30, 2004 and December 31, 2003 was as follows:

	September 30, 2004		December 31, 2003
Commercial, Financial and Agricultural	$	52,393	$	44,590
Real Estate – Construction		95,846		56,374
Real Estate – Farmland		36,396		33,097
Real Estate – Other		495,034		428,197
Installment Loans to Individuals		76,681		73,020
All Other Loans		21,013		18,932
	$	777,363	$	654,210

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 $7,073 and $7,251 as of September 30, 2004 and December 31, 2003, respectively. On September 30, 2004, the Company had 90 day past due loans with principal balances of $1,104 compared to 90 day past due loans with principal balances of $241 on December 31, 2003.

(5) Allowance for Loan Losses

Transactions in the allowance for loan losses are summarized below for nine months ended September 30, 2004 and September 30, 2003 as follows:

	Sept 30, 2004			Sept 30, 2003
Balance, Beginning	$	8,516		$	7,364
Provision Charged to Operating Expenses		2,709			2,927
Loans Charged Off		(1,249	)		(2,672	)
Loan Recoveries		138			129
Balance, Ending	$	10,114		$	7,748

11

(6) Premises and Equipment

Premises and equipment are comprised of the following as of September 30, 2004 and December 31, 2003:

	September 30, 2004			December 31, 2003
Land	$	4,893		$	2,837
Building		16,445			13,874
Furniture, Fixtures and Equipment		11,919			10,928
Leasehold Improvements		744			678
Construction in Progress		343			551
		34,344			28,868
Accumulated Depreciation		(12,597	)		(11,297	)
	$	21,747		$	17,571

Depreciation charged to operations totaled $1,304 and $1,201 for nine months ended September 30, 2004 and September 30, 2003, respectively.

Certain Company facilities and equipment are leased under various operating leases. Rental expense approximated $128 and $87 for nine months ended September 30, 2004 and 2003.

(7) Income Taxes

The Company records income taxes under SFAS No. 109, Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

(8) Deposits

Components of interest-bearing deposits as of September 30, 2004 and December 31, 2003 are as follows:

	September 30, 2004		December 31, 2003
Interest-Bearing Demand	$	152,104	$	149,518
Savings		39,421		33,513
Time, $100,000 and Over		198,083		163,036
Other Time		372,859		322,208
	$	762,467	$	668,275

The aggregate amount of short-term jumbo certificates of deposit, each with a minimum denomination of one hundred thousand, was approximately $174,976 and $149,154 as of September 30, 2004 and December 31, 2003, respectively.

As of September 30, 2004 and December 31, 2003, the scheduled maturities of certificates of deposits are as follows:

Maturity	September 30, 2004		December 31, 2003
One Year and Under	$	508,139	$	412,897
One to Three Years		43,974		57,378
Three Years and Over		18,829		14,969
	$	570,942	$	485,244

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(9) Borrowed Money

Borrowed money at September 30, 2004 and December 31, 2003 is summarized as follows:

	September 30, 2004		December 31, 2003
Federal Home Loan Bank Advances	$	62,000	$	59,500
First Port City Note Payable		0		1,000
The Banker’s Bank Note Payable		507		684
	$	62,507	$	61,184

Advances from the Federal Home Loan Bank (FHLB) have maturities ranging from 2004 to 2013 and interest rates ranging from 2.46 percent to 5.93 percent. Under the Blanket Agreement for Advances and Security Agreement with the FHLB, residential first mortgage loans, commercial real estate loans and cash balances held by the FHLB are pledged as collateral for the FHLB advances outstanding. At September 30, 2004, the Company had available line of credit commitments totaling $88,894, of which $26,894 was available.

First Port City note payable was originated on December 30, 2003 for $1,000. Annual principal payments of $250 are due beginning January 1, 2005 with interest paid quarterly at the Wall Street Prime beginning April 10, 2004. The debt is secured by 250 shares of capital stock in Colony Bank Wilcox. The note payable was paid off during second quarter 2004 from proceeds of Trust Preferred Securities issued in June 2004.

The Banker’s Bank note payable was renewed on January 7, 2002 for $1,113 at a rate of the Wall Street Prime minus one half percent. Payments are due monthly in the amount of $21 with final maturity of January 7, 2007. The debt is secured by all non-rolling fixed assets of Colony Management Services, Inc. and the guaranty of Colony Bankcorp, Inc.

The aggregate stated maturities of borrowed money at September 30, 2004 are as follows:

Year	Amount
2004	$	63
2005		5,746
2006		3,198
2007		2,500
2008 and Thereafter		51,000
	$	62,507

(10) Subordinated Debentures (Trust Preferred Securities)

During the first quarter of 2002, the Company formed a subsidiary whose sole purpose was to issue $9,000 in Trust Preferred Securities through a pool sponsored by FTN Financial Capital Market. The Trust Preferred Securities have a maturity of 30 years and are redeemable after five years with certain exceptions. At September 30, 2004, the floating-rate securities had a 5.55 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 3.60 percent.

During the fourth quarter of 2002, the Company formed a second subsidiary whose sole purpose was to issue $5,000 in Trust Preferred Securities through a pool sponsored by FTN Financial Capital Market. The Trust Preferred Securities have a maturity of 30 years and are redeemable after five years with certain exceptions. At September 30, 2004, the floating-rate securities had a 5.20 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 3.25 percent.

During the second quarter of 2004, the Company formed a third subsidiary whose sole purpose was to issue $4,500 in Trust Preferred Securities through a pool sponsored by FTN Financial Capital Market. The Trust Preferred Securities have a maturity of 30 years and are redeemable after five years with certain exceptions. At September 30, 2004, the floating rate securities had a 4.57 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 2.68 percent.

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

On December 31, 2003, the Company retroactively implemented FASB Interpretation No. 46R, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51, resulting in the deconsolidation of Colony Bankcorp Statutory Trusts I and II. The implementation of this interpretation resulted in Colony’s $434 investment in the common equity of the trusts being included in the consolidated balance sheets as other assets and the interest income and interest expense received from and paid to the trusts,

13

(10) Subordinated Debentures (Trust Preferred Securities) (continued)

respectively, being included in the consolidated statements of income as other income and interest expense. The increase to other income and interest expense totaled $17 and $16 for the nine months ended September 30, 2004 and 2003, respectively.

(11) Derivative Financial Instruments

On July 1, 2003, the Company adopted SFAS No. 149, Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities. This statement requires that all derivates be recognized as assets or liabilities in the balance sheet and measured at fair value. Loan commitments related to the origination or acquisition of mortgage loans that will be held for sale must be accounted for as derivative instruments.

The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments). Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. Accordingly, such commitments, along with related fees received from potential borrowers, are to be recorded at fair value in derivative assets or liabilities, with changes in fair value recorded in the net gain or loss on sale of mortgage loans. Fair value is based on fees currently charged to enter into similar agreements, and for fixed-rate commitments also considers the difference between current levels of interest rates and the committed rates. The company has not recorded rate lock commitments as derivative assets or liabilities as of September 30, 2004 as the effects did not have a material effect upon the consolidated financial statements.

(12) 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 $476 for 2003, $427 for 2002 and $384 for 2001.

(13) Commitments and Contingencies

In the normal course of business, certain commitments and contingencies are incurred which are not reflected in the consolidated financial statements. Commitments under standby and performance letters of credit to U.S. addresses approximate $2,158 as of September 30, 2004 and $2,032 as of December 31, 2003. Unfulfilled loan commitments as of September 30, 2004 and December 31, 2003 approximated $93,122 and $73,993, respectively. No losses are anticipated as a result of commitments and contingencies.

At September 30, 2004, the company had an outstanding commitment of approximately $1,000,000 to construct and furnish a second office in Valdosta. As of September 30, 2004, approximately $144 has been advanced for construction in progress. Anticipated opening of the office is during first quarter 2005.

(14) 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 $945 and $878 as of September 30, 2004 and December 31, 2003, respectively. Benefit payments under the contracts were $132 and $50 for the nine month period ended September 30, 2004 and September 30, 2003, respectively. Provisions charged to operations totaled $164 and $106 for the nine month period ended September 30, 2004 and September 30, 2003.

(15) 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 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

14

(15) Regulatory Capital Matters (continued)

accounting practices. The Company’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. The amounts and ratios as defined in regulations are presented hereafter. Management believes, as of September 30, 2004, the Company meets all capital adequacy requirements to which it is subject and is classified as well capitalized 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.

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of September 30, 2004
Total Capital to Risk-Weighted Assets	$	85,683	11.22	%	$	61,102	8.00	%	$	76,378	10.00	%
Tier 1 Capital to Risk-Weighted Assets		76,129	9.97	%		30,551	4.00	%		45,827	6.00	%
Tier 1 Capital to Average Assets		76,129	7.99	%		38,098	4.00	%		47,622	5.00	%
As of December 31, 2003
Total Capital to Risk-Weighted Assets	$	77,140	12.06	%	$	51,171	8.00	%	$	63,964	10.00	%
Tier 1 Capital to Risk-Weighted Assets		69,140	10.81	%		25,584	4.00	%		38,376	6.00	%
Tier 1 Capital to Average Assets		69,140	8.12	%		34,059	4.00	%		42,574	5.00	%

15

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

The parent company’s balance sheets as of September 30, 2004 and December 31, 2003 and the related statements of income and comprehensive income and cash flows are as follows:

COLONY BANKCORP, INC. (PARENT ONLY)

BALANCE SHEETS

FOR PERIOD ENDED SEPTEMBER 30, 2004 AND DECEMBER 31, 2003

	Sept 30, 2004			Dec 31, 2003
	(Unaudited)
ASSETS
Cash	$	1,014		$	15
Investments in Subsidiaries at Equity		77,360			69,987
Other		1,780			1,997
Totals Assets	$	80,154		$	71,999
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Dividends Payable		459		$	415
Other		93			174
		552			589
Other Borrowed Money		0			1,000
Subordinated Debt		19,074			14,434
Stockholders’ Equity
Common Stock, Par Value $1 a Share; Authorized 20,000,000 Shares, Issued 5,738,343 and 5,727,968 Shares as of September 30, 2004 and December 31, 2003 Respectively		5,738			5,728
Paid-In Capital		23,713			23,499
Retained Earnings		31,513			26,857
Restricted Stock - Unearned Compensation		(250	)		(130	)
Accumulated Other Comprehensive Income, Net of Tax		(186	)		22
Total Stockholders’ Equity		60,528			55,976
Total Liabilities and Stockholders’ Equity	$	80,154		$	71,999

16

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

COLONY BANKCORP, INC. (PARENT ONLY)

STATEMENT OF INCOME AND COMPREHENSIVE INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003

(UNAUDITED)

	SEPTEMBER 30, 2004			SEPTEMBER 30, 2003
Income
Dividends from Subsidiaries	$	1,942		$	1,816
Other		49			48
		1,991			1,864
Expenses
Interest		600			515
Other		1,067			980
		1,667			1,495
Income Before Taxes and Equity in Undistributed Earnings of Subsidiaries		324			369
Income Tax (Benefits)		(524	)		(477	)
Income Before Taxes and Equity in Undistributed Earnings of Subsidiaries		848			846
Equity in Undistributed Earnings of Subsidiaries		5,141			4,183
Net Income		5,989			5,029
Other Comprehensive Income, Net of Tax
Gains (losses) on Securities Arising During Year		(228	)		(699	)
Reclassification Adjustment		20			(244	)
Unrealized Gains (Losses) in Securities		(208	)		(943	)
Comprehensive Income	$	5,781		$	4,086

17

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

COLONY BANKCORP, INC. (PARENT ONLY)

STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003

(UNAUDITED)

	September 30, 2004			September 30, 2003
Cash Flows from Operating Activities
Net Income	$	5,989		$	5,029
Adjustments to Reconcile Net Income to Net Cash Provided from Operating Activities
Depreciation and Amortization		61			62
Equity in Undistributed Earnings of Subsidiary		(5,141	)		(4,183	)
Other		195			(166	)
		1,104			742
Cash Flows from Investing Activities
Cash used in business acquistion, net		0			0
Capital Infusion in Subsidiary		(2,300	)		(125	)
Purchase of Premises and Equipment		(15	)		(236	)
Investment in Statutory Trust		(140	)		0
		(2,455	)		(361	)
Cash Flows from Financing Activities
Dividends Paid		(1,290	)		(1,077	)
Purchase of Treasury Stock		0			0
Principal Payments on Notes and Debentures		(1,000	)		0
Proceeds from Notes and Debentures		4,640			0
		2,350			(1,077	)
Increase (Decrease) in Cash and Cash Equivalents		999			(696	)
Cash and Cash Equivalents, Beginning		15			745
Cash and Cash Equivalents, Ending	$	1,014		$	49

(17) 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.

(18) Stock Grant Plan

On February 16, 1999, a restricted stock grant plan was approved by the Board. The plan was adopted for the purpose of establishing incentives designed to recognize, reward and retain executive employees whose performance, contribution and skills are critical to the Company. The plan period commenced February 16, 1999 and ends February 15, 2009 with the maximum number of shares subject to restricted stock awards being 48,787 (split-adjusted). During 2000 – 2004, the Company has issued an aggregate total of 40,400 shares pursuant to the stock grant plan, of which 3,425 shares have been forfeited, which leaves 11,812 available shares that can be issued over the remaining life of the plan.

On April 27, 2004, a restricted stock grant plan was approved by the shareholders of Colony Bankcorp, Inc. The plan was adopted for the purpose of establishing incentives designed to recognize, reward and retain executive employees whose performance, contribution and skills are critical to the Company. The plan period commences February 17, 2004 and ends February 16, 2014 with the maximum number of shares subject to restricted stock awards being 114,800. No shares have been issued pursuant to this stock grant plan.

18

(19) Proforma Financial Statement – Business Combination

Colony Bankcorp Inc.’s wholly-owned subsidiary, Colony Bank Ashburn and Flag Bank entered into a Purchase and Assumption Agreement for Flag Bank’s Thomaston Office dated as of December 19, 2003, pursuant to which Flag Bank-Thomaston was merged with and into Colony Bank Ashburn, becoming a branch office of Colony Bank Ashburn contemporaneous with the consummation of the purchase. The purchase was consummated and became effective as of March 19, 2004. The business combination was accounted for by the purchase method of accounting and the results of operations of Flag Bank-Thomaston office since the date of acquisition are included in the Consolidated Financial Statements.

Following is a condensed balance sheet showing fair values of the assets acquired and the liabilities assumed as of the date of acquisition:

Cash Due from Banks and Federal Funds Sold	$	14,377
Loans, net		16,759
Premises and Equipment		2,188
Goodwill Arising in Acquisition		1,944
Core Deposit Intangible		536
Other Assets		54
Deposits		(35,804	)
Other Liabilities		(54	)
Net Assets Acquired	$	0

The proforma information below discloses results of operations for the current period and the corresponding period in the preceding year as though the companies had combined at January 1, 2003:

	Three Months Ended				Nine Months Ended
	Sept 30, 2004		Sept 30, 2003		Sept 30, 2004		Sept 30, 2003
Interest Income	$	13,294	$	12,060	$	38,343	$	35,958
Interest Expense		4,721		4,810		13,379		14,959
Net Income		2,057		1,734		6,062		5,060
Earnings Per Share - Basic	$	0.36	$	0.30	$	1.06	$	0.89
Earnings Per Share - Diluted	$	0.36	$	0.30	$	1.06	$	0.89
Weighted Avg Shares Outstanding - Basic		5,707,843		5,694,978		5,703,819		5,694,978
Weighted Avg Shares Outstanding - Diluted		5,727,619		5,720,374		5,723,475		5,720,481

19

(20) Earnings Per Share

SFAS No. 128 establishes standards for computing and presenting basic and diluted earnings per share. Basic earnings per share is calculated and presented based on income available to common stockholders divided by the weighted average number of shares outstanding during the reporting periods. Diluted earnings per share reflects the potential dilution of restricted stock. The following presents earnings per share for the three months and nine months ended September 30, 2004 and 2003, respectively, under the requirements of Statement 128:

	Three Months Ended September 30, 2004					Three Months Ended September 30, 2003
	Income Numerator		Common Shares Denominator	EPS		Income Numerator		Common Shares Denominator	EPS
Basic EPS
Income Available to Common Stockholders	$	2,057	5,708	$	0.36	$	1,719	5,695	$	0.30
Dilutive Effect of Potential Common Stock
Restricted Stock			20					25
Diluted EPS
Income Available to Common Stockholders after Assumed Conversions of Dilutive Securities	$	2,057	5,728	$	0.36	$	1,719	5,720	$	0.30
	Nine Months Ended September 30, 2004					Nine Months Ended September 30, 2003
	Income Numerator		Common Shares Denominator	EPS		Income Numerator		Common Shares Denominator	EPS
Basic EPS
Income Available to Common Stockholders	$	5,989	5,704	$	1.05	$	5,029	5,695	$	0.88
Dilutive Effect of Potential Common Stock
Restricted Stock			19					25
Diluted EPS
Income Available to Common Stockholders after Assumed Conversions of Dilutive Securities	$	5,989	5,723	$	1.05	$	5,029	5,720	$	0.88

20

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements and Factors that Could Affect Future Results

Certain statements contained in this Quarterly Report that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”), notwithstanding that such statements are not specifically identified. In addition, certain statements may be contained in the Company’s future filings with the SEC, in press releases, and in oral and written statements made by or with the approval of the Company that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans and objectives of Colony Bankcorp, Inc. or its management or Board of Directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes”, “anticipates”, “expects”, “intends”, “targeted” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

• Local and regional economic conditions and the impact they may have on the Company and its customers and the Company’s assessment of that impact.

• Changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements.

• The effects of and changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board.

• Inflation, interest rate, market and monetary fluctuations.

• Political instability.

• Acts of war or terrorism.

• The timely development and acceptance of new products and services and perceived overall value of these products and services by users.

• Changes in consumer spending, borrowings and savings habits.

• Technological changes.

• Acquisitions and integration of acquired businesses.

• The ability to increase market share and control expenses.

• The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Company and its subsidiaries must comply.

• The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Financial Accounting Standards Board and other accounting standard setters.

• Changes in the Company’s organization, compensation and benefit plans.

• The costs and effects of litigation and of unexpected or adverse outcomes in such litigation.

• Greater than expected costs or difficulties related to the integration of new lines of business.

• The Company’s success at managing the risks involved in the foregoing items.

21

Forward-looking statements speak only as of the date on which such statements are made. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events.

The Company

Colony Bankcorp, Inc. (Colony) is a bank holding company headquartered in Fitzgerald, Georgia that provides, through its wholly owned subsidiaries (collectively referred to as the “Company”), a broad array of products and services throughout 18 Georgia markets. The Company offers commercial, consumer and mortgage banking services.

Application of Critical Accounting Policies and Accounting Estimates

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s financial position and/or results of operations. Critical accounting policies are those policies that management believes are the most important to the portrayal of the Company’s financial condition and results of operations, and they require management to make estimates that are difficult, subjective or complete.

Allowance for Loan Losses – The allowance for loan losses provides coverage for probable losses inherent in the Company’s loan portfolio. Management evaluates the adequacy of the allowance for loan losses quarterly based on changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), trends in loan performance, regulatory guidance and economic factors. This evaluation is inherently subjective, as it requires the use of significant management estimates. Many factors can affect management’s estimates of specific and expected losses, including volatility of default probabilities, collateral values, rating migrations, loss severity and economic and political conditions. The allowance is increased through provisions charged to operating earnings and reduced by net charge-offs.

The company determines the amount of the allowance based on relative risk characteristics of the loan portfolio. The allowance recorded for loans is based on reviews of individual credit relationships and historical loss experience. The allowance for losses relating to impaired loans is based on the loan’s observable market price, the discounted cash flows using the loan’s effective interest rate, or the value of collateral for collateral dependent loans.

Regardless of the extent of the Company’s analysis of customer performance, portfolio trends or risk management processes, certain inherent but undetected losses are probable within the loan portfolio. This is due to several factors, including inherent delays in obtaining information regarding a customer’s financial condition or changes in their unique business conditions, the judgmental nature of individual loan evaluations, collateral assessments and the interpretation of economic trends. Volatility of economic or customer-specific conditions affecting the identification and estimation of losses for larger nonhomogeneous credits and the sensitivity of assumptions utilized to establish allowances for homogeneous groups of loans are among other factors. The Company estimates a range of inherent losses related to the existence of these exposures. The estimates are based upon the Company’s evaluation of risk associated with the commercial and consumer levels and the estimated impact of the current economic environment.

Goodwill and Other Intangibles – The Company records all assets and liabilities acquired in purchase acquisitions, including goodwill and other intangibles, at fair value as required by SFAS 141. Goodwill is subject, at a minimum, to annual tests for impairment. Other intangible assets are amortized over their estimated useful lives using straight-line and accelerated methods, and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount. The initial goodwill and other intangibles recorded and subsequent impairment analysis require management to make subjective judgments concerning estimates of how the acquired asset will perform in the future. Events and factors that may significantly affect the estimates include, among others, customer attrition, changes in revenue growth trends, specific industry conditions and changes in competition.

Overview

The following discussion and analysis presents the more significant factors affecting the Company’s financial condition as of September 30, 2004 and 2003, and results of operations for each of the three months and nine months in the periods ended September 30, 2004 and 2003. This discussion and analysis should be read in conjunction with the Company’s consolidated financial statements, notes thereto and other financial information appearing elsewhere in this report. All of the acquisitions during the reported periods were accounted for as purchase transactions, and as such, their related results of operations are included from the date of acquisition.

Prior year financial statements have been restated to de-consolidate the Company’s investment in Colony Bankcorp Statutory Trust I and II in connection with the implementation of a new accounting standard related to variable interest entities during 2003.

22

Taxable-equivalent adjustments are the result of increasing income from tax-free loans and investments by an amount equal to the taxes that would be paid if the income were fully taxable based on a 34% federal tax rate, thus making tax-exempt yields comparable to taxable asset yields.

Dollar amounts in tables are stated in thousands, except for per share amounts.

Results of Operations

The Company’s results of operations are determined by its ability to effectively manage interest income and expense, to minimize loan and investment losses, to generate noninterest income and to control noninterest expense. Since market forces and economic conditions beyond the control of the Company determine interest rates, the ability to generate net interest income is dependent upon the Company’s ability to obtain an adequate spread between the rate earned on earning assets and the rate paid on interest-bearing liabilities. Thus, the key performance for net interest income is the interest margin or net yield, which is taxable-equivalent net interest income divided by average earning assets. Net income totaled $2.057 million, or $0.36 diluted per common share, in three months ended September 30, 2004 compared to $1.719 million, or $0.30 diluted per common share, in three months ended September 30, 2003 and net income totaled $5.989 million, or $1.05 diluted per common share, in nine months ended September 30, 2004 compared to $5.029 million or $0.88 diluted per common share, in nine months ended September 30, 2003.

Selected income statement data, returns on average assets and average equity and dividends per share for the comparable periods were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
Taxable–equivalent net interest income	$	8,639		$	7,279		$	24,973		$	20,646
Taxable-equivalent adjustment		66			65			205			199
Net interest income		8,573			7,214			24,768			20,447
Provision for possible loan losses		864			1,455			2,709			2,927
Non-interest income		1,591			2,096			4,684			5,429
Non-interest expense		6,224			5,293			17,669			15,377
Income before income taxes		3,076			2,562			9,074			7,572
Income taxes		1,019			843			3,085			2,543
Net Income	$	2,057		$	1,719		$	5,989		$	5,029
Basic per common share:
Net income	$	0.36		$	0.30		$	1.05		$	0.88
Diluted per common share:
Net income	$	0.36		$	0.30		$	1.05		$	0.88
Return on average assets:
Net income		0.86	%		0.83	%		0.87	%		0.83	%
Return on average equity:
Net income		13.82	%		12.64	%		13.71	%		12.58	%

Income from operations for three months ended September 30, 2004 increased $0.34 million, or 19.66%, compared to the same period in 2003. The increase was primarily the result of a $1.36 million increase in net interest income. The impact of net interest income was partly offset by a $0.93 million increase in non-interest expense, a decrease of $0.59 million in the provision for possible loan losses, a $0.18 million increase in income tax expense and a $0.51 million decrease in non-interest income.

Income from operations for nine months ended September 30, 2004 increased $0.96 million, or 19.09%, compared to the same period in 2003. The increase was primarily the result of a $4.32 million increase in net interest income. The impact of net interest income was partly offset by a $2.29 million increase in non-interest expense, a decrease of $0.22 million in provision for possible loan losses, a $0.54 million increase in income tax expense and a $0.75 million decrease in non-interest income.

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Details of the changes in the various components of net income are further discussed below.

Net Interest Income

Net interest income is the difference between interest income on earning assets, such as loans and securities, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest income is the Company’s largest source of revenue, representing 58.00% of total revenue for nine months ended September 30, 2004 and 51.04% for the same period a year ago.

Net interest margin is the taxable-equivalent net interest income as a percentage of average earning assets for the period. The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and net interest margin.

The Federal Reserve Board influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. The Company’s loan portfolio is significantly affected by changes in the prime interest rate. The prime interest rate, which is the rate offered on loans to borrowers with strong credit, began 2001 at 9.50% and decreased 150 basis points in the first quarter, decreased 125 basis points in the second quarter, decreased 75 basis points in the third quarter and decreased 125 basis points in the fourth quarter to end the year at 4.75%. During 2002, the prime rate remained at 4.75% until the fourth quarter when the rate decreased 50 basis points to 4.25%. During 2003, the prime rate remained at 4.25% until the end of the second quarter, when the rate decreased 25 basis points to 4.00%. During second and third quarter 2004, the Federal Reserve moved rates up 75 basis points; thus the prime rate increased to 4.75% effective September 22, 2004. The federal funds rate, which is the cost of immediately available overnight funds, decreased in a similar manner. It began 2001 at 6.50% and decreased 475 basis points over the course of the year, and began 2002 at 1.75% and decreased 50 basis points in the fourth quarter. During 2003, the federal funds rate remained at 1.25% until the end of the second quarter, when the rate decreased 25 basis points to 1.00%. During second and third quarter 2004, the Federal Reserve Board increased the Federal Fund rate by 75 basis points to 1.75%. It is anticipated that future interest rate hikes will occur during the balance of 2004.

The following table presents the changes in taxable-equivalent net interest income and identifies the changes due to differences in the average volume of earning assets and interest-bearing liabilities and the changes due to changes in the average interest rate on those assets and liabilities. The changes in net interest income due to changes in both average volume and average interest rate have been allocated to the average volume change or the average interest rate change in proportion to the absolute amounts of the change in each. The Company’s consolidated average balance sheets along with an analysis of taxable-equivalent net interest earnings are presented in the Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.

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Rate/Volume Analysis

The rate/volume analysis presented hereafter illustrates the change from September 30, 2003 to September 30, 2004 for each component of the taxable equivalent net interest income separated into the amount generated through volume changes and the amount generated by changes in the yields/rates.

	Changes from September 30, 2003 to September 30, 2004 (1)
($ in thousands)	Volume			Rate			Total
Interest Income
Loans, Net-taxable	$	5,031			($2,277	)	$	2,754
Investment Securities
Taxable		485			294			779
Tax-exempt		15			(30	)		(15	)
Total Investment Securities		500			264			764
Interest-Bearing Deposits in other Banks		(55	)		(6	)		(61	)
Funds Sold		(34	)		(13	)		(47	)
Other Interest - Earning Assets		6			(25	)		(19	)
Total Interest Income		5,448			(2,057	)		3,391
Interest Expense
Interest-Bearing Demand and Savings Deposits		259			(357	)		(98	)
Time Deposits		1,437			(2,461	)		(1,024	)
Total Interest Expense on Deposits		1,696			(2,818	)		(1,122	)
Other Interest-Bearing Liabilities
Funds Purchased and Securities Under Agreement to Repurchase		4			(1	)		3
Subordinated Debentures		64			21			85
Other Debt		236			(138	)		98
Total Interest Expense (Benefit)		2,000			(2,936	)		(936	)
Net Interest Income	$	3,448		$	879		$	4,327

⁽¹⁾ Changes in net interest income for the periods, based on either changes in average balances or changes in average rates for interest-earning assets and interest-bearing liabilities, are shown on this table. During each year. there are numerous and simultaneous balance and rate changes; therefore, it is not possible to precisely allocate the changes between balances and rates. For the purpose of this table, changes that are not exclusively due to balance changes or rate changes have been attributed to rates.

Our financial performance is impacted by, among other factors, interest rate risk and credit risk. We do not utilize derivatives to mitigate our credit risk, relying instead on an extensive loan review process and our allowance for loan losses.

Interest rate risk is the change in value due to changes in interest rates. The Company is exposed only to U.S. dollar interest rate changes and accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The Company does not have any trading instruments nor does it classify any portion of its investment portfolio as held for trading. The Company does not engage in any hedging activity or utilize any derivatives. The Company has no exposure to foreign currency exchange rate risk, commodity price risk and other market risks. This risk is addressed by our Asset & Liability Management Committee (“ALCO”) which includes senior management representatives. The ALCO monitors interest rate risk by analyzing the potential impact to the net portfolio of equity value and net interest income from potential changes to interest rates and considers the impact of alternative strategies or changes in balance sheet structure.

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Interest rates play a major part in the net interest income of financial institutions. The repricing of interest earning assets and interest-bearing liabilities can influence the changes in net interest income. The timing of repriced assets and liabilities is Gap management and our Company has established its policy to maintain a Gap ratio in the one-year time horizon of .80 to 1.20.

Our exposure to interest rate risk is reviewed on at least a quarterly basis by our Board of Directors and the ALCO. Interest rate risk exposure is measured using interest rate sensitivity analysis to determine our change in net portfolio value in the event of assumed changes in interest rates, in order to reduce the exposure to interest rate fluctuations, we have implemented strategies to more closely match our balance sheet composition. We are generally focusing our investment activities on securities with terms or average lives in the 2-5 year range.

The Company maintains about 41% of its loan portfolio in adjustable rate loans that reprice with prime rate changes, while the bulk of its other loans mature within 3 years. The liabilities to fund assets are primarily in short term certificate of deposits that mature within one year. This balance sheet composition has allowed the Company to be relatively constant with its net interest margin the past several years, though the unprecedented 475 basis point decrease by U.S. Federal Reserve in 2001, 50 basis point decrease in 2002 and 25 basis point decrease in 2003 resulted in significant net interest margin pressure. Net interest margin increased to 3.82% for nine months ended September 30, 2004 compared to 3.61% for the same period a year ago. We anticipate continued improvement or stability in the net interest margin for 2004 given the Federal Reserve’s present neutral/slight interest rates forecast for the balance of 2004.

Taxable-equivalent net interest income for nine months ended September 30, 2004 increased $4.33 million, or 20.96%, compared to the same period a year ago. The significant fluctuation between the comparable periods resulted from the positive impact of growth in the average volume of earning assets that was partially offset by the negative impact of declining average interest rates. The average volume of earning assets during nine months ended September 30, 2004 increased almost $108.4 million compared to the same period a year ago while over the same period the net interest margin increased by 21 basis points from 3.61% to 3.82%. Growth in average earning assets during 2004 and 2003 was primarily in loans. The increase in the net interest margin in 2004 was primarily the result of the general decline in market interest rates and concentration on pricing by company management.

The average volume of loans increased $97.5 million in nine months ended September 30, 2004 compared to the same period a year ago. The average yield on loans decreased 42 basis points in nine months ended September 30, 2004 compared to the same period a year ago. Funding for this growth was primarily provided by deposit growth. The average volume of deposits increased $101.0 million in nine months ended September 30, 2004 compared to the same period a year ago. Interest-bearing deposits made up 88.8% of the growth in average deposits in nine months ended September 30, 2004. Accordingly, the ratio of average interest-bearing deposits to total average deposits was 92.02% in nine months ended September 30, 2004 compared to 92.5% in the same period a year ago. This deposit mix, combined with a general decline in market rates, had the effect of (i) reducing the average cost of total deposits by 50 basis points in nine months ended September 30, 2004 compared to the same period a year ago and, (ii) mitigating a portion of the impact of declining yields on earning assets on the Company’s net interest income.

The Company’s net interest spread, which represents the difference between the average rate earned on earning assets and the average rate paid on interest-bearing liabilities, was 3.63% in nine months ended September 30, 2004 compared to 3.37% in the same period a year ago. The net interest spread, as well as the net interest margin, will be impacted by future changes in short-term and long-term interest rate levels, as well as the impact from the competitive environment. A discussion of the effects of changing interest rates on net interest income is set forth in Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.

Provision for Possible Loan Losses

The provision for possible loan losses is determined by management as the amount to be added to the allowance for possible loan losses after net charge-offs have been deducted to bring the allowance to a level which, in management’s best estimate, is necessary to absorb probable losses within the existing loan portfolio. The provision for possible loan losses totaled $864 thousand in three months ended September 30, 2004 compared to $1.455 million in same period a year ago and the provision for possible loan losses totaled $2.709 million in nine months ended September 30, 2004 compared to $2.927 million in same period a year ago. See the section captioned “Allowance for Possible Loan Losses” elsewhere in this discussion for further analysis of the provision for possible loan losses.

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Non-Interest Income

The components of non-interest income were as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2004			2003		2004			2003
Service charges on deposit accounts	$	1,100		$	1,011	$	3,170		$	2,778
Other charges, commissions and fees		269			294		777			800
Net gain (loss) on securities transactions		(31	)		369		(31	)		369
Other		26			30		101			102
Mortgage banking income		227			392		667			1,380
Total	$	1,591		$	2,096	$	4,684		$	5,429

Total non-interest income for three months ended September 30, 2004 decreased $505 thousand, or 24.09%, compared to the same period a year ago. Growth in non-interest income over the comparable periods was primarily in deposit service charges while mortgage banking fees and gains on the sale of securities decreased significantly over the comparable periods.

Total non-interest income for nine months ended September 30, 2004 decreased $745 thousand, or 13.72%, compared to the same period a year ago. Growth in non-interest income over the comparable periods was primarily in deposit service changes while mortgage banking fees and gains on the sale of securities decreased significantly over the comparable periods. Changes in these items and the other components of non-interest income are discussed in more detail below.

Service Charges on Deposit Accounts. Service charges on deposit accounts for three months ended September 30, 2004 increased $89 thousand, or 8.80%, compared to the same period a year ago. The increase was primarily due to a $85 thousand increase in overdraft fees, which were mostly related to consumer accounts. Service charges on deposit accounts for nine months ended September 30, 2004 increased $392 thousand, or 14.11%, compared to the same period a year ago. The increase was primarily due to a $352 thousand increase in overdraft fees, which were mostly related to consumer accounts. The increase in overdraft fees for both comparable periods was primarily due to the increased volume in consumer and commercial accounts.

Mortgage Banking Fees. Mortgage banking fees for three months ended September 30, 2004 decreased $165 thousand, or 42.09%, compared to the same period a year ago. The decrease was primarily due to decreased mortgage loan activity during third quarter 2004 that was primarily attributable to a decrease in mortgage loan refinancing. Mortgage banking fees for nine months ended September 30, 2004 decreased $713 thousand, or 51.67% compared to the same period a year ago. The decrease was primarily due to decreased mortgage loan activity during the first three quarters of 2004 that was again primarily attributable to a decrease in mortgage loan refinancing. The company anticipates mortgage loan refinancing to trend downward in future years as most borrowers have already refinanced to historical low rates.

All Other Non-Interest Income. The aggregate of all other non-interest income accounts remain relatively flat for both comparable periods, except losses of sale of securities totaled $31 thousand for third quarter 2004 and nine months ended September 30, 2004 while gains on sale of securities totaled $369 thousand for the same year ago period.

Non-Interest Expense

The components of non-interest expense were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
Salaries and employee benefits	$	3,189	$	2,839	$	9,433	$	8,414
Occupancy and Equipment		940		848		2,606		2,401
Other		2,095		1,606		5,630		4,562
Total	$	6,224	$	5,293	$	17,669	$	15,377

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Total non-interest expense for three month ended September 30, 2004 increased $931 thousand, or 17.59%, compared to the same period a year ago. Growth in non-interest expense in three months ended September 30, 2004 was primarily in salaries, employee benefits, occupancy and equipment expense and other non-interest expenses. Total non-interest expense for nine months ended September 30, 2004 increased $2.29 million, or 14.91% compared to the same period a year ago. Growth in non-interest expense in nine months ended September 30, 2004 was primarily in salaries and employee benefits, occupancy and equipment expense and other non-interest expense. These items and the changes in the various components of non-interest expense are discussed in more detail below.

Salaries and Employee Benefits. Salaries and benefits expense for three months ended September 30, 2004 increased $350 thousand, or 12.33%, compared to the same period a year ago. Salaries and benefits expense for nine months ended September 30, 2004 increased $1.02 million, or 12.11%, compared to the same period a year ago. The increase for both comparable periods is primarily related to increases in headcount and merit increases as a result of new offices with the Company’s denovo branch expansions and the acquisition of Flag Bank – Thomaston Office.

Occupancy and Equipment. Net occupancy expense for three months ended September 30, 2004 increased $92 thousand, or 10.85%, compared to the same period a year ago. The company experienced an increase in net occupancy and equipment expense for the three months ended September 30, 2004 resulting from new offices opened during first and third quarter 2004. Net occupancy expense for nine months ended September 30, 2004 increased $205 thousand, or 8.54%, compared to the same period a year ago. The increased occupancy and equipment expense was attributable to the new offices opened during 2004. The impact of new offices and additional leasing of office space resulted in higher building maintenance, insurance and utilities costs, higher depreciation on building and equipment and higher lease expense for both comparable periods.

All Other Non-Interest Expense. All other non-interest expense for three months ended September 30, 2004 increased $489 thousand, or 30.45%, compared to the same period a year ago. The increase is primarily due to additional overhead associated with new offices opened. In addition, director fees increased $9 thousand, city, county and state business occupation taxes increased $82 thousand, software and license fee expense increased $27 thousand, and losses from sale/write down on OREO property increased $221 thousand for three months ended September 30, 2004 compared to the same period a year ago.

All other non-interest expense for nine months ended September 30, 2004 increased $1.068 million, or 23.41%, compared to the same period a year ago. Again, the increase is primarily due to additional overhead associated with new offices opened during 2004. In addition, legal and professional fees increased $17 thousand, director fees increased $64 thousand, city, county and state business occupation taxes increased $118 thousand, software and license fee expense increased $114 thousand, other losses primarily for establishment of contingency fund for potential lawsuit claims increased $94 thousand and losses on sale/write down of OREO property increased $123 thousand to account for additional increases for nine months ended September 30, 2004.

Sources and Uses of Funds

The following table illustrates, during the years presented, the mix of the Company’s funding sources and the assets in which those funds are invested as a percentage of the Company’s average total assets for the period indicated. Average assets totaled $921 million in nine months ended September 30, 2004 compared to $805 million in nine months ended September 30, 2003.

	Nine Months Ended September 30,
	2004				2003
Source of Funds:
Deposits:
Noninterest –Bearing	$	62,214	6.76	%	$	50,890	6.32	%
Interest-Bearing		717,551	77.92	%		627,843	77.98	%
Federal Funds Purchased		372	0.04	%		77	0.01	%
Long-term Debt and Other Borrowings		78,218	8.49	%		68,772	8.54	%
Other Noninterest-Bearing Liabilities		4,285	0.46	%		4,237	0.53	%
Equity Capital		58,251	6.33	%		53,316	6.62	%
Total	$	920,891	100.00	%	$	805,135	100.00	%
Uses of Funds:
Loans	$	709,956	77.10	%	$	613,990	76.26	%
Securities		111,881	12.15	%		90,506	11.24	%
Federal Funds Sold		28,473	3.09	%		32,476	4.03	%
Interest-Bearing Deposits in Other Banks		8,045	0.87	%		14,736	1.83	%
Other Interest-Earning Assets		3,142	0.34	%		2,965	0.37	%
Other Noninterest-Earning Assets		59,394	6.45	%		50,462	6.27	%
Total	$	920,891	100.00	%	$	805,135	100.00	%

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Deposits continue to be the Company’s primary source of funding. Over the comparable periods, the relative mix of deposits continues to be high in interest-bearing deposits. Interest-bearing deposits totaled 92.02% of total average deposits in nine months ended September 30, 2004 compared to 92.50% in the same period a year ago.

The Company primarily invests funds in loans and securities. Loans continue to be the largest component of the Company’s mix of invested assets. Loan demand continues to be strong as total loans were $777.4 million at September 30, 2004, up 18.83%, compared to loans of $654.2 million at December 31, 2003. See additional discussion regarding the Company’s loan portfolio in the section captioned “Loans” included elsewhere in this discussion. The majority of funds provided by deposit growth have been invested in loans.

Loans

The following table presents the composition of the Company’s loan portfolio as of September 30, 2004 and December 31, 2003:

	September 30, 2004			December 31, 2003
Commercial, Financial and Agricultural	$	52,393		$	44,590
Real Estate
Construction		95,846			56,374
Mortgage, Farmland		36,396			33,097
Mortgage, Other		495,034			428,197
Consumer		76,681			73,020
Other		21,013			18,932
		777,363			654,210
Unearned Discount		(35	)		(33	)
Allowance for Loan Losses		(10,114	)		(8,516	)
Loans	$	767,214		$	645,661

The following table presents total loans as of September 30, 2004 according to maturity distribution.

Maturity	($ in Thousands)
One Year or Less	$	507,047
After One Year through Five Years		257,091
After Five Years		13,225
	$	777,363

Overview. Loans totaled $777.4 million at September 30, 2004, up 18.83% from December 31, 2003 loans of $654.2 million. The majority of the Company’s loan portfolio is comprised of the real estate loans-other, real estate construction and installment loans to individuals. Real estate-other, which is primarily 1-4 family residential properties and nonfarm nonresidential properties, made up 63.68% and 65.45% of total loans, real estate construction made up 12.33% and 8.62%, while installment loans to individuals made up 9.86% and 11.16% of total loans at September 30, 2004 and December 31, 2003, respectively. Real estate loans-other include both commercial and consumer balances.

Loan Origination/Risk Management. In accordance with the Company’s decentralized banking model, loan decisions are made at the local bank level. The Company utilizes a Senior Loan Committee to assist lenders with the decision making and underwriting process of larger loan requests. Due to the diverse economic markets served by the Company, evaluation and underwriting criterion may vary slightly by bank. Overall, loans are extended after a review of the borrower’s repayment ability, collateral adequacy, and overall credit worthiness.

Commercial purpose, commercial real estate, and industrial loans are underwritten similar to other loans throughout the company. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria. The company also utilizes information provided by third-party agencies to provide additional insight and guidance about economic conditions and trends affecting the markets it serves.

The Company extends loans to builders and developers that are secured by non-owner occupied properties. In such cases, the Company reviews the overall economic conditions and trends for each market to determine the desirability of loans to be extended for residential construction and development. Sources of repayment for these types of loans may be pre-committed permanent loans from

29

approved long-term lenders, sales of developed property or an interim mini-perm loan commitment from the Company until permanent financing is obtained. In some cases, loans are extended for residential loan construction for speculative purposes and are based on the perceived present and future demand for housing in a particular market served by the Company. These loans are monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, general economic conditions and trends, the demand for the properties, and the availability of long-term financing.

The Company originates consumer loans at the bank level. Due to the diverse economic markets served by the Company, underwriting criterion may vary slightly by bank. The Company is committed to serving the borrowing needs of all markets served and, in some cases, adjusts certain evaluation methods to meet the overall credit demographics of each market. Consumer loans represent relatively small loan amounts that are spread across many individual borrower’s that helps minimize risk. Additionally, consumer trends and outlook reports are reviewed by management on a regular basis.

The Company maintains an independent loan review department that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.

Commercial, Financial and Agricultural. Commercial, financial and agricultural loans at September 30, 2004 increased 17.5% from December 31, 2003 to $52.4 million. The Company’s commercial and industrial loans are a diverse group of loans to small, medium and large businesses. The purpose of these loans varies from supporting seasonal working capital needs to term financing of equipment. While some short-term loans may be made on an unsecured basis, most are secured by the assets being financed with collateral margins that are consistent with the Company’s loan policy guidelines.

Industry Concentrations. As of September 30, 2004 and December 31, 2003, there were no concentrations of loans within any single industry in excess of 10% of total loans, as segregated by Standard Industrial Classification code (“SIC code”). The SIC code is a federally designed standard industrial numbering system used by the Company to categorize loans by the borrower’s type of business.

Collateral Concentrations. Lending is concentrated in commercial and real estate loans primarily to local borrowers. The Company has a high concentration of real estate loans; however, these loans are well collateralized and, in management’s opinion, do not pose an adverse credit risk. In addition, the balance of the loan portfolio is sufficiently diversified to avoid significant concentration of credit risk. Although the Company has a diversified loan portfolio, a substantial portion of borrower’s ability to honor their contracts is dependent upon the viability of the real estate economic sector.

Large Credit Relationships. Colony is currently in seventeen counties in South and Central Georgia and include metropolitan markets in Doughtery, Lowndes, Houston and Chatham counties. As a result, the Company originates and maintains large credit relationships with several commercial customers in the ordinary course of business. The Company considers large credit relationships to be those with commitments equal to or in excess of $5.0 million prior to any portion being sold. Large relationships also include loan participations purchased if the credit relationship with the agent is equal to or in excess of $5.0 million. In addition to the Company’s normal policies and procedures related to the origination of large credits, the Company’s Central Credit Committee must approve all new and renewed credit facilities which are part of large credit relationships. The following table provides additional information on the Company’s large credit relationships outstanding at September 30, 2004 and December 31, 2003.

	September 30, 2004					December 31, 2003
		Period End Balances					Period End Balances
	Number of Relationships	Committed		Outstanding		Number of Relationships	Committed		Outstanding
Large Credit Relationships:
$10 million and greater	1	$	12,869	$	11,457	1	$	10,416	$	9,673
$5 million to $9.9 million	7	$	39,595	$	32,012	2	$	12,299	$	11,591

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Maturities and Sensitivities of Loans to Changes in Interest Rates. The following table presents the maturity distribution of the Company’s loans at September 30, 2004. The table also presents the portion of loans that have fixed interest rates or variable interest rates that fluctuate over the life of the loans in accordance with changes in an interest rate index such as the prime rate.

	Due in One Year or Less		After One, but Within Five Years		After Five Years		Total
Loans with fixed interest rates	$	194,334	$	250,874	$	13,225	$	458,433
Loans with floating interest rates		312,713		6,217		0		318,930
Total	$	507,047	$	257,091	$	13,225	$	777,363

The Company may renew loans at maturity when requested by a customer whose financial strength appears to support such renewal or when such renewal appears to be in the Company’s best interest. In such instances, the Company generally requires payment of accrued interest and may adjust the rate of interest, require a principal reduction or modify other terms of the loan at the time of renewal.

Non-Performing Assets and Potential Problem Loans

Non-performing assets and accruing past due loans as of September 30, 2004 and December 31, 2003 were as follows:

	September 30, 2004			December 31, 2003
Loans accounted for on nonaccrual	$	7,073		$	7,251
Loans past due 90 days or more		1,104			241
Other real estate foreclosed		3,139			2,724
Total non-performing assets	$	11,316		$	10,216
Non-performing assets as a percentage of:
Total loans and foreclosed assets		1.45	%		1.56	%
Total assets		1.17	%		1.18	%
Accruing past due loans:
30-89 days past due	$	8,197		$	6,703
90 or more days past due		1,104			241
Total accruing past due loans	$	9,301		$	6,944

Non-performing assets include non-accrual loans, loans past due 90 days or more, restructured loans and foreclosed real estate. Non-performing assets at September 30, 2004 increased 10.77% from December 31, 2003. A contract is being negotiated for a 1-4 residential subdivision and golf course development for approximately $1.8 million in other real estate foreclosed that we anticipate closing by December 31, 2004. During third quarter 2004 the Company had a write-down of $222 thousand on this OREO property to more accurately reflect the value of the property based on market indications.

Generally, loans are placed on non-accrual status if principal or interest payments become 90 days past due and/or management deems the collectibility of the principal and/or interest to be in question, as well as when required by regulatory requirements. Loans to a customer whose financial condition has deteriorated are considered for non-accrual status whether or not the loan is 90 days or more past due. For consumer loans, collectibility and loss are generally determined before the loan reaches 90 days past due. Accordingly, losses on consumer loans are recorded at the time they are determined. Consumer loans that are 90 days or more past due are generally either in liquidation/payment status or bankruptcy awaiting confirmation of a plan. Once interest accruals are discontinued, accrued but uncollected interest is charged to current year operations. Subsequent receipts on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Classification of a loan as non-accrual does not preclude the ultimate collection of loan principal or interest.

Renegotiated loans are loans on which, due to deterioration in the borrower’s financial condition, the original terms have been modified in favor of the borrower or either principal or interest has been forgiven.

Foreclosed assets represent property acquired as the result of borrower defaults on loans. Foreclosed assets are recorded at estimated fair value, less estimated selling costs, at the time of foreclosure. Write-downs occurring at foreclosure are charged against the allowance for possible loan losses. On an ongoing basis, properties are appraised as required by market indications and applicable regulations. Write-downs are provided for subsequent declines in value and are included in other non-interest expense along with other expenses related to maintaining the properties.

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Allowance for Possible Loan Losses

The allowance for possible loan losses is a reserve established through a provision for possible loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The allowance for possible loan losses includes allowance allocations calculated in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” as amended by SFAS 118, and allowance allocations determined in accordance with SFAS No. 5, “Accounting for Contingencies.” The level of the allowance reflects management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including the performance of the Company’s loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

The company’s allowance for possible loan losses consists of specific valuation allowances established for probable losses on specific loans and historical valuation allowances for other loans with similar risk characteristics.

The allowances established for probable losses on specific loans are based on a regular analysis and evaluation of classified loans. Loans are classified based on an internal credit risk grading process that evaluates, among other things: (i) the obligor’s ability to repay; (ii) the underlying collateral, if any; and (iii) the economic environment and industry in which the borrower operates. This analysis is performed at the subsidiary bank level and is reviewed at the parent company level. Once a loan is classified, it is reviewed to determine whether the loan is impaired and, if impaired, a portion of the allowance for possible loan losses is specifically allocated to the loan. Specific valuation allowances are determined after considering the borrower’s financial condition, collateral deficiencies, and economic conditions affecting the borrower’s industry, among other things.

Historical valuation allowances are calculated from loss factors applied to loans with similar risk characteristics. The loss factors are based on loss ratios for groups of loans with similar risk characteristics. The loss ratios are derived from the proportional relationship between actual loan losses and the total population of loans in the risk category. The historical loss ratios are periodically updated based on actual charge-off experience. The company’s groups of similar loans include similarly risk-graded groups of loans not reviewed for individual impairment.

Management evaluates the adequacy of the allowance for each of these components on a quarterly basis. Peer comparisons, industry comparisons, and regulatory guidelines are also used in the determination of the general valuation allowance.

Loans identified as losses by management, internal loan review, and/or bank examiners are charged-off.

An allocation for loan losses has been made according to the respective amounts deemed necessary to provide for the possibility of incurred losses within the various loan categories. The allocation is based primarily on previous charge-off experience adjusted for changes in experience among each category. Additional amounts are allocated by evaluating the loss potential of individual loans that management has considered impaired. The reserve for loan loss allocation is subjective since it is based on judgment and estimates, and therefore is not necessarily indicative of the specific amounts or loan categories in which the charge-offs may ultimately occur. The following table shows a comparison of the allocation of the reserve for loan losses for the periods indicated.

	September 30, 2004				December 31, 2003
	Reserve		%*		Reserve		%*
Commercial, Financial and Agricultural	$	2,629	7	%	$	2,470	7	%
Real Estate – Construction		1,011	12	%		340	9	%
Real Estate – Farmland		455	5	%		426	5	%
Real Estate – Other		3,338	64	%		2,981	65	%
Loans to Individuals		1,973	10	%		1,703	11	%
All other Loans		708	2	%		596	3	%
Total	$	10,114	100	%	$	8,516	100	%

* Loan balance in each category expressed as a percentage of total end of period loans.

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Activity in the allowance for loan losses is presented in the following table. There were no charge-offs or recoveries related to foreign loans during any of the periods presented.

The following table presents an analysis of the Company’s loan loss experience for the periods indicated.

($ in thousands)	Three Months Ended September 30, 2004			Three Months Ended September 30, 2003
Allowance for Loan Losses at Beginning of Quarter	$	9,677		$	7,963
Charge-Off
Commercial, Financial and Agricultural		83			1,108
Real Estate		113			227
Consumer		244			335
All Other		21			42
		461			1,712
Recoveries
Commercial, Financial and Agricultural		9			7
Real Estate		2			14
Consumer		21			14
All Other		2			7
		34			42
Net Charge-Offs		427			1,670
Provision for Loan Losses		864			1,455
Allowance for Loan Losses at End of Quarter	$	10,114		$	7,748
Ratio of Net Charge-Offs to Average Loans		0.06	%		0.26	%

The allowance for possible loan losses is maintained at a level considered appropriate by management, based on estimated probable losses within the existing loan portfolio. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The provision for possible loan losses reflects loan quality trends, including the level of net charge-offs or recoveries, among other factors. The provision for possible loan losses decreased $591 thousand from $1.455 million in three months ended September 30, 2003 to $864 thousand in three months ended September 30, 2004. Higher provisions were necessary during third quarter 2003 due to one large commercial line being charged-off that accounted for approximately 48 percent of total third quarter charge-offs.

Net charge-offs in three months ended September 30, 2004 decreased $1.243 million compared to the same period a year ago. The decrease in net charge-offs during the comparable periods is reflective of more stringent credit standards that have improved overall asset quality and the one large commercial line charged-off during third quarter 2003 as indicated above.

Management believes the level of the allowance for possible loan losses was adequate as of September 30, 2004. Should any of the factors considered by management in evaluating the adequacy of the allowance for possible loan losses change, the Company’s estimate of probable loan losses could also change, which could affect the level of future provisions for possible loan losses.

33

The following table presents an analysis of the Company’s loan loss experience for the periods indicated.

($ in thousands)	Nine Months Ended September 30, 2004			Nine Months Ended September 30, 2003
Allowance for Loan Losses at Beginning of Quarter	$	8,516		$	7,364
Charge-Off
Commercial, Financial and Agricultural		388			1,589
Real Estate		184			501
Consumer		461			449
All Other		216			133
		1,249			2,672
Recoveries
Commercial, Financial and Agricultural		36			18
Real Estate		8			36
Consumer		78			47
All Other		16			28
		138			129
Net Charge-Offs		1,111			2,543
Provision for Loan Losses		2,709			2,927
Allowance for Loan Losses at End of Quarter	$	10,114		$	7,748
Ratio of Net Charge-Offs to Average Loans		0.15	%		0.41	%

The allowance for possible loan losses is maintained at a level considered appropriate by management, based on estimated probable losses within the existing loan portfolio. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The provision for possible loan losses reflects loan quality trends, including the level of net charge-offs or recoveries, among other factors. The provision for possible loan losses decreased $218 thousand from $2.927 million in nine months ended September 30, 2003 to $2.709 million in nine months ended September 30, 2004. Year-to-date 2004 loan loss provisions are lower than 2003 loan loss provisions due to improved asset quality and the fact that 2003 charge-offs included one large commercial line of approximately $821 thousand that did not reoccur in 2004.

Net charge-offs in nine months ended September 30, 2004 decreased $1.432 million compared to the same period a year ago. The decrease in net charge-offs during the comparable periods is reflective of more stringent credit standards that have improved overall asset quality and the one large commercial line charged-off during third quarter 2003 of approximately $821 that did not reoccur in 2004.

Management believes the level of the allowance for possible loan losses was adequate as of September 30, 2004. Should any of the factors considered by management in evaluating the adequacy of the allowance for possible loan losses change, the Company’s estimate of probable loan losses could also change, which could affect the level of future provisions for possible loan losses.

34

Investment Portfolio

The following table presents carrying values of investment securities held by the Company as of September 30, 2004 and December 31, 2003.

($ in thousands)	September 30, 2004		December 31, 2003
U.S. Treasuries and Government Agencies	$	23,276	$	17,845
Obligations of States and Political Subdivisions		7,096		9,890
Corporate Obligations		3,144		6,556
Marketable Equity Securities		0		944
Investment Securities		33,516		35,235
Mortgage Backed Securities		71,609		75,173
Total Investment Securities and
Mortgage Backed Securities	$	105,125	$	110,408

The following table represents maturities and weighted-average yields of investment securities held by the Company as of September 30, 2004. (Mortgage backed securities are based on the average life at the projected speed, while Agencies and State and Political subdivisions reflect anticipated calls being exercised.)

	Within 1 Year				After 1 Year But Within 5 Years				After 5 Years But Within 10 Years				After 10 Years
	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
U.S. Government Agencies	$	3,357	3.90	%	$	18,930	3.61	%	$	492	3.78	%	$	497	4.71	%
Mortgage Backed Securities		1,435	(7.29	)		66,250	2.22			3,924	4.19			—	—
Obligations of States and Political Subdivisions		2,262	2.46			3,424	4.61			996	5.85			414	8.56
Corporate Obligations		—	—			3,144	3.71			—	—			—	—
Marketable Equity Securities		—	—			—	—			—	—			—	—
Total Investment Portfolio	$	7,054	2.49	%	$	91,748	2.65	%	$	5,412	4.44	%	$	911	6.46	%

Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income. The Company has 99.9% of its portfolio classified as available for sale.

At September 30, 2004, there were no holdings of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of the Company’s shareholders’ equity.

The average yield of the securities portfolio was 3.57% in nine months ended September 30, 2004 compared to 3.29% in the same period a year ago. The increase in the average yield over the comparable periods primarily resulted from the investment of new funds received from deposit growth at higher current yields and the reinvestment of proceeds from the early repayment of mortgage-backed securities in similar investments, also at higher current yields. The early repayment of mortgage-backed securities primarily resulted from borrower refinancing due to lower market interest rates. The overall reduction in the securities portfolio over the comparable periods was primarily due to the Company adopting a lower liquidity policy; thus the funding of more loans and less funding of new securities.

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Deposits

The following table presents the average amount outstanding and the average rate paid on deposits by the Company for the nine months period ended September 30, 2004 and September 30, 2003.

	September 30, 2004				September 30, 2003
($ in thousands)	Average Amount		Average Rate		Average Amount		Average Rate
Noninterest-Bearing Demand Deposits	$	62,214			$	50,890
Interest-Bearing Demand and Savings Deposits		196,427	1.11	%		170,817	1.35	%
Time Deposits		521,124	2.36	%		457,026	2.99	%
Total Deposits	$	779,765	1.86	%	$	678,733	2.36	%

The following table presents the maturities of the Company’s time deposits as of September 30, 2004.

($ in thousands)	Time Deposits $100,000 or Greater		Time Deposits Less Than $100,000		Total
Months to Maturity
3 or Less	$	55,604	$	79,097	$	134,701
Over 3 through 12		119,372		254,066		373,438
Over 12 Months		23,107		39,696		62,803
	$	198,083	$	372,859	$	570,942

Average deposits increased $101.1 million to $779.8 million at September 30, 2004 from $678.7 million at September 30, 2003. The increase included $11.3 million or 11.2%, related to noninterest-bearing deposits. Accordingly the ratio of average noninterest-bearing deposits to total average deposits was 7.98% for nine months ended September 30, 2004 compared to 7.50% for nine months ended September 30, 2003. The general decline in market rates, had the effect of (i) reducing the average cost of total deposits by 50 basis points in nine months ended September 30, 2004 compared to the same period a year ago; and (ii) mitigating a portion of the impact of declining yields on earning assets on the Company’s net interest income.

Total average interest-bearing deposits increased $89.7 million, or 14.3% in nine months ended September 30, 2004 compared to the same period a year ago. The growth in average deposits at September 30, 2004 compared to September 30, 2003 was primarily in money market deposit accounts and savings and interest-on-checking accounts and other time accounts. Due to the uncertainty of the low interest rate environment, it appears that many customers are less inclined to invest their funds for extended periods and are choosing to maintain such funds in readily accessible money market and interest-on-checking accounts and short term time accounts.

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Off-Balance-Sheet Arrangements, Commitments, Guarantees, and Contractual Obligations

The following table summarizes the Company’s contractual obligations and other commitments to make future payments as of September 30, 2004. Payments for borrowings do not include interest. Payments related to leases are based on actual payments specified in the underlying contracts. Loan commitments and standby letters of credit are presented at contractual amounts; however, since many of these commitments are expected to expire unused or only partially used, the total amounts of these commitments do not necessarily reflect future cash requirements.

	Payments Due by Period
	1 Year or Less		More than 1 Year but Less Than 3 Years		3 Years or More but Less Than 5 Years		5 Years or More		Total
Contractual obligations:
Subordinated debentures	$	—	$	—	$	—	$	19,074	$	19,074
Other borrowed money		123		384		—		—		507
Federal Home Loan Bank advances		5,500		3,000		18,500		35,000		62,000
Operating leases		136		166		109		221		632
Deposits with stated maturity dates		508,139		43,975		18,789		39		570,942
		513,898		47,525		37,398		54,334		653,155
Other commitments:
Loan commitments		93,122		—		—		—		93,122
Standby letters of credit		1,751		—		—		—		1,751
Performance letters of credit		407		—		—		—		407
		95,280		—		—		—		95,280
Total contractual obligations and Other commitments	$	609,178	$	47,525	$	37,398	$	54,334	$	748,435

In the ordinary course of business, the Banks have entered into off-balance sheet financial instruments which are not reflected in the consolidated financial statements. These instruments include commitments to extend credit, standby letters of credit, performance letters of credit, guarantees and liability for assets held in trust. Such financial instruments are recorded in the financial statements when funds are disbursed or the instruments become payable. The Company uses the same credit policies for these off-balance sheet financial instruments as they do for instruments that are recorded in the consolidated financial statements.

Loan Commitments. The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of the Company’s commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures. Management assesses the credit risk associated with certain commitments to extend credit in determining the level of the allowance for possible loan losses. Loan commitments outstanding at September 30, 2004 are included in the table above.

Standby and Performance Letters of Credit. Letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third party. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, the Company would be entitled to seek recovery from the customer. The Company’s policies generally require that standby and performance letters of credit arrangements contain security and debt covenants similar to those contained in loan agreements. Standby and performance letters of credit outstanding at September 30, 2004 are included in the table above.

Capital and Liquidity

At September 30, 2004, shareholders’ equity totaled $60.5 million compared to $56 million at December 31, 2003. In addition to net income of $5.99 million, other significant changes in shareholders’ equity during nine months ended September 30, 2004 included $1.33 million of dividends paid and an increase of $0.105 million resulting from the amortization of the stock grant plan. The accumulated other comprehensive income component of shareholders’ equity totaled a loss of $0.186 million at September 30, 2004 compared to a gain of $22 thousand at December 31, 2003. This fluctuation was mostly related to the after-tax effect of changes in the fair value of securities available for sale. Under regulatory requirements, the unrealized gain or loss on securities available for sale does not increase or reduce regulatory capital and is not included in the calculation of risk-based capital and leverage ratios. Regulatory agencies for banks and bank holding companies utilize capital guidelines designed to measure Tier 1 and total capital and take into consideration the risk inherent in both on-balance sheet and off-balance sheet items. Tier 1 capital consists of common stock and qualifying preferred stockholders’ equity less goodwill. Tier 2 capital consists of certain convertible, subordinated and other qualifying debt and the allowance for loan losses up to 1.25 percent of risk-weighted assets. The Company has no Tier 2 capital other than the allowance for loan losses.

Using the capital requirements presently in effect, the Tier 1 ratio as of September 30, 2004 was 9.97 percent and total Tier 1 and 2 risk-based capital was 11.22 percent. Both of these measures compare favorably with the regulatory minimum of 4 percent for Tier 1

37

and 8 percent for total risk-based capital. The Company’s Tier 1 leverage ratio as of September 30, 2004 was 7.99 percent, which exceeds the required ratio standard of 4 percent.

For nine months ended September 30, 2004, average capital was $58.2 million, representing 6.33 percent of average assets for the year. This compares to 6.62 percent for nine months ended September 30, 2003 and 6.59 percent for calendar year 2003.

The Company paid quarterly dividends of $0.075, $0.0775 and $0.08 for first three quarters of 2004, respectively, compared to $0.06, $0.068 and $0.07 for first three quarters of 2003, respectively. This equates to a dividend payout ratio of 22.14% for nine months ended September 30, 2004 compared to 22.50% for nine months ended September 30, 2003.

Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits and to take advantage of interest rate market opportunities. The ability of a financial institution to meet its current financial obligations is a function of balance sheet structure, the ability to liquidate assets, and the availability of alternative sources of funds. The Company seeks to ensure its funding needs are met by maintaining a level of liquid funds through asset/liability management.

Asset liquidity is provided by liquid assets which are readily marketable or pledgeable or which will mature in the near future. Liquid assets include cash, interest-bearing deposits in banks, securities available for sale, maturities and cash flow from securities held to maturity, and federal funds sold and securities purchased under resale agreements.

Liability liquidity is provided by access to funding sources which include core deposits. Should the need arise; the Company also maintains relationships with the Federal Home Loan Bank and several correspondent banks that can provide funds on short notice. Since Colony is a holding company and does not conduct operations, its primary sources of liquidity are dividends up streamed from subsidiary banks and borrowings from outside sources.

The liquidity position of the Company is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Management is not aware of any events that are reasonably likely to have a material adverse effect on the Company’s liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity, which if implemented, would have a material adverse effect on the Company.

Impact of Inflation and Changing Prices

The Company’s financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). GAAP presently requires the Company to measure financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession are generally not considered. The primary effect of inflation on the operations of the Company is reflected in increased operating costs. In management’s opinion, changes in interest rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. Interest rates are highly sensitive to many factors that are beyond the control of the Company, including changes in the expected rate of inflation, the influence of general and local economic conditions and the monetary and fiscal policies of the United States government, its agencies and various other governmental regulatory authorities, among other things, as further discussed in the next section.

Regulatory and Economic Policies

The Company’s business and earnings are affected by general and local economic conditions and by the monetary and fiscal policies of the United States government, its agencies and various other governmental regulatory authorities, among other things. The Federal Reserve Board regulates the supply of money in order to influence general economic conditions. Among the instruments of monetary policy available to the Federal Reserve Board are (i) conducting open market operations in United States government obligations, (ii) changing the discount rate on financial institution borrowings, (iii) imposing or changing reserve requirements against financial institution deposits, and (iv) restricting certain borrowings and imposing or changing reserve requirements against certain borrowing by financial institutions and their affiliates. These methods are used in varying degrees and combinations to affect directly the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. For that reason alone, the policies of the Federal Reserve Board have a material effect on the earnings of the Company.

Governmental policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future; however, the Company cannot accurately predict the nature, timing or extent of any effect such policies may have on its future business and earnings.

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Quantitative and Qualitative Disclosures About Market Risk

AVERAGE BALANCE SHEETS

	Nine Months Ended September 30, 2004					Nine Months Ended September 30, 2003
($ in thousands)	Average Balances		Income/ Expense	Yields/ Rates		Average Balances		Income/ Expense	Yields/ Rates
Assets
Interest-Earning Assets
Loans, Net of Unearned Income Taxable (1)	719,340		34,862	6.46	%	621,842		32,108	6.88	%
Investment Securities
Taxable	103,578		2,686	3.46	%	82,577		1,907	3.08	%
Tax-Exempt (2)	8,303		312	5.01	%	7,929		327	5.50	%
Total Investment Securities	111,881		2,998	3.57	%	90,506		2,234	3.29	%
Interest-Bearing Deposits in Other Banks	8,045		59	0.98	%	14,736		120	1.09	%
Funds Sold	28,473		227	1.06	%	32,476		274	1.12	%
Interest-Bearing Other Assets	3,142		79	3.35	%	2,965		98	4.41	%
Total Interest-Earning Assets	870,881		38,225	5.85	%	762,525		34,834	6.09	%
Non-interest-Earning Assets
Cash	18,503					16,435
Allowance for Loan Losses	(9,384	)				(7,852	)
Other Assets	40,891					34,027
Total Noninterest-Earning Assets	50,010					42,610
Total Assets	920,891					805,135
Liabilities and Stockholders’ Equity
Interest-Bearing Liabilities
Interest-Bearing Deposits
Interest-Bearing Demand and Savings	196,427		1,632	1.11	%	170,817		1,730	1.35	%
Other Time	521,124		9,241	2.36	%	457,026		10,265	2.99	%
Total Interest-Bearing Deposits	717,551		10,873	2.02	%	627,843		11,995	2.55	%
Other Interest-Bearing Liabilities
Debt	61,988		1,775	3.82	%	54,338		1,677	4.11	%
Trust Preferred Securities	16,230		600	4.93	%	14,434		515	4.76	%
Funds Purchased and Securities
Sold Under Agreement to Repurchase	372		4	1.43	%	77		1	1.73	%
Total Other Interest-Bearing Liabilities	78,590		2,379	4.04	%	68,849		2,193	4.25	%
Total Interest-Bearing Liabilities	796,141		13,252	2.22	%	696,692		14,188	2.72	%
Noninterest-Bearing Liabilities and Stockholders’ Equity
Demand Deposits	62,214					50,890
Other Liabilities	4,285					4,237
Stockholder’s Equity	58,251					53,316
Total Noninterest-Bearing Liabilities and Stockholders’ Equity	124,750					108,443
Total Liabilities and Stockholders’ Equity	920,891					805,135
Interest Rate Spread				3.63	%				3.37	%
Net Interest Income			24,973					20,646
Net Interest Margin				3.82	%				3.61	%

⁽¹⁾ The average balance of loans includes the average balance of nonaccrual loans. Income on such loans is recognized and recorded on the cash basis. Taxable equivalent adjustments totaling $99 and $88 for nine month period ended September 30, 2004 and 2003 respectively, are included in tax-exempt interest on loans.

⁽²⁾ Taxable-equivalent adjustments totaling $106 and $111 for nine month period ended September 30, 2004 and 2003, respectively, are included in tax-exempt interest on investment securities. The adjustments are based on a federal tax rate of 34 percent with appropriate reductions for the effect of disallowed interest expense incurred in carrying tax-exempt obligations.

39

Colony Bankcorp, Inc. and Subsidiary

Interest Rate Sensitivity

The following table is an analysis of the Company’s interest rate-sensitivity position at September 30, 2004. The interest-bearing rate-sensitivity gap, which is the difference between interest-earning assets and interest-bearing liabilities by repricing period, is based upon maturity or first repricing opportunity, along with a cumulative interest rate-sensitivity gap. It is important to note that the table indicates a position at a specific point in time and may not be reflective of positions at other times during the year or in subsequent periods. Major changes in the gap position can be, and are, made promptly as market outlooks change.

	Assets and Liabilities Repricing Within
($ in Thousands)	3 Months or Less		4 to 12 Months		1 Year		1 to 5 Years		Over 5 Years		Total
EARNING ASSETS:
Interest-bearing deposits	3,189		0		3,189		0		0		3,189
Federal Funds Sold	28,128		0		28,128		0		0		28,128
Investment Securities	18,964		2,142		21,106		70,388		13,631		105,125
Loans, net of unearned income	335,425		171,622		507,047		257,056		13,225		777,328
Loans held for sale	1,559		0		1,559		0		0		1,559
Other interest-bearing assets	3,402		0		3,402		0		0		3,402
Total Interest-earning assets	390,667		173,764		564,431		327,444		26,856		918,731
INTEREST-BEARING LIABILITIES:
Interest-bearing Demand deposits (1)	152,104		0		152,104		0		0		152,104
Savings (1)	39,421		0		39,421		0		0		39,421
Time Deposits	134,701		373,438		508,139		62,764		39		570,942
Other Borrowings (2)	6,007		0		6,007		21,500		35,000		62,507
Subordinated Debentures	19,074		0		19,074		0		0		19,074
Total Interest-bearing liabilities	351,307		373,438		724,745		84,264		35,039		844,048
Interest rate-sensitivity gap	39,360		(199,674	)	(160,314	)	243,180		(8,183	)	74,683
Cumulative interest-sensitivity gap	39,360		(160,314	)	(160,314	)	82,866		74,683
Interest rate-sensivitiy gap as a percentage of interest-earning assets	4.28	%	(21.73	%)	(17.45	%)	26.47	%	(0.89	%)
Cumulative interest rate-sensitivity as a percentage of interest-earning assets	4.28	%	(17.45	%)	(17.45	%)	9.02	%	8.13	%

⁽¹⁾ Interest-bearing Demand and Savings Accounts for repricing purposes are considered to reprice within 3 months or less.

⁽²⁾ Short-term borrowings for repricing purposes are considered to reprice within 3 months or less.

The foregoing table indicates that we had a one year negative gap of ($160) million, or (17.45%) of total assets at September 30, 2004. In theory, this would indicate that at September 30, 2004, $160 million more in liabilities than assets would reprice if there were a change in interest rates over the next 365 days. Thus, if interest rates were to decline, the gap would indicate a resulting increase in net interest margin. However, changes in the mix of earning assets or supporting liabilities can either increase or decrease the net interest margin without affecting interest rate sensitivity. In addition, the interest rate spread between an asset and our supporting liability can vary significantly while the timing of repricing of both the assets and our supporting liability can remain the same, thus impacting net interest income. This characteristic is referred to as a basis risk and, generally, relates to the repricing characteristics of short-term funding sources such as certificates of deposits.

Gap analysis has certain limitations. Measuring the volume of repricing or maturing assets and liabilities does not always measure the full impact on the portfolio value of equity or net interest income. Gap analysis does not account for rate caps on products; dynamic changes such as increasing prepay speeds as interest rates decrease, basis risk, or the benefit of non-rate funding sources. The majority of our loan portfolio reprices quickly and completely following changes in market rates, while non-term deposit rates in

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general move slowly and usually incorporate only a fraction of the change in rates. Products categorized as non-rate sensitive, such as our noninterest-bearing demand deposits, in the gap analysis behave like long term fixed rate funding sources. Both of these factors tend to make our actual behavior more asset sensitive than is indicated in the gap analysis. In fact, we experience higher net interest income when rates rise, opposite what is indicated by the gap analysis. In fact, during the recent period of declines in interest rates, our net interest margin has declined. Therefore, management uses gap analysis, net interest margin analysis and market value of portfolio equity as our primary interest rate risk management tools.

Return on Assets and Stockholder’s Equity

The following table presents selected financial ratios for each of the periods indicated.

	Three Months Ended September 30				Nine Months Ended September 30
	2004		2003		2004		2003
Return on Assets	0.86	%	0.83	%	0.87	%	0.83	%
Return on Equity	13.82	%	12.64	%	13.71	%	12.58	%
Dividend Payout Ratio	22.22	%	23.33	%	22.14	%	22.50	%
Equity to Assets	6.23	%	6.58	%	6.32	%	6.63	%

Future Outlook

Colony is an emerging company in an industry filled with nonregulated competitors and a rapid pace of consolidation. The year brings with it new opportunities for growth in our existing markets, as well as opportunities to expand into new markets through acquisitions and denovo branching. Colony completed the acquisition of Quitman Federal during 2002 and with the Quitman acquisition opened a branch in the Valdosta/Lowndes County market during the first quarter of 2003. The company has purchased real estate for a second location in Lowndes County that should open in first quarter 2005. The company purchased real estate in the Dougherty/Lee Counties market during 2002 and has constructed its third office that opened in early 2004. Additionally, real estate was purchased in the Thomas County market for a future office, probably in 2005. Other areas of interest in South and Central Georgia include Glynn, Ware, and Chatham Counties, with annual retail sales greater than $650 million and a population greater than 35,000. The company opened a loan production office in Savannah during first quarter 2004 and has purchased real estate for a branch office to open in 2005. In addition, the company opened its second office in Tift County during third quarter 2004. In addition, the Company signed a definitive agreement to purchase Flag-Thomaston office that closed on March 19, 2004. The office, with current deposits of approximately $36 million, will allow Colony to compete in Upson County and Muscogee County Georgia. The company opened a loan production office in Columbus, Georgia during third quarter 2004. The company has purchased real estate for a second office in Warner Robins that should open during the last half of 2005.

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BUSINESS

General

The Company was organized in 1983 as a bank holding company through the merger of Colony Bank of Fitzgerald with a subsidiary of the Company. Since that time, Colony Bank of Fitzgerald, which was formed by principals of Colony Bankcorp, Inc. in 1976, has operated as a wholly-owned subsidiary of the Company. In April 1984, Colony Bankcorp, Inc. acquired Colony Bank Wilcox, and in November 1984, Colony Bank Ashburn became a wholly-owned subsidiary of Colony Bankcorp, Inc. Colony Bankcorp, Inc. continued its growth with the acquisition of Colony Bank of Dodge County in September 1985. In August 1991, Colony Bankcorp, Inc. acquired Colony Bank Worth. In November 1996, Colony Bankcorp, Inc. acquired Colony Bank Southeast and in November 1996 formed a non-bank subsidiary Colony Management Services, Inc. In March 2002, Colony Bankcorp, Inc. acquired Colony Bank Quitman, FSB and also formed Colony Bankcorp Statutory Trust I. In December 2002, Colony formed its second trust, Colony Bankcorp Statutory Trust II and in June, 2004, Colony formed its third trust, Colony Bankcorp Statutory Trust III.

Through its seven subsidiary banks, Colony Bankcorp, Inc. operates a full-service banking business and offers a broad range of retail and commercial banking services including checking, savings, NOW accounts, money market and time deposits of various types; loans for business, agriculture, real estate, personal uses, home improvement and automobiles; credit card; letters of credit; investment and discount brokerage services; IRA’s; safe deposit box rentals, bank money orders; electronic funds transfer services, including wire transfers and automated teller machines and internet accounts. Each of the Banks is a member of Federal Deposit Insurance Corporation whose customer deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation.

On April 2, 1998, the Company was listed on Nasdaq National Market. The Company’s common stock trades on the Nasdaq Stock Market under the symbol “CBAN”. The Company presently has approximately 1,628 shareholders as of September 30, 2004. “The Nasdaq Stock Market” or “Nasdaq” is a highly-regulated electronic securities market comprised of competing Market Makers whose trading is supported by a communications network linking them to quotation dissemination, trade reporting and order execution systems. This market also provides specialized automation services for screen-based negotiations of transactions, on-line comparison of transactions, and a range of informational services tailored to the needs of the securities industry, investors and issuers. The Nasdaq Stock Market is operated by The Nasdaq Stock Market, Inc., a wholly-owned subsidiary of the National Association of Securities Dealers, Inc.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See pages 39-41 of this report for disclosure.

ITEM 4 – CONTROLS AND PROCEDURES

We maintain a system of internal controls and procedures designed to provide reasonable assurance as to the realiability of our published financial statements and other disclosures included in this report. As of the end of the period covered by this report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and our Principal Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to Colony Bankcorp, Inc. (including its consolidated subsidiaries) required to be included in this quarterly report on Form 10-Q.

There have been no significant changes in our internal controls or in other factors which could significantly affect internal controls subsequent to the date that we carried out our evaluation.

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PART II – OTHER INFORMATION

ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable

ITEM 6 – EXHIBITS AND REPORTS ON FORM 8-K

A.     Exhibits –	3.1 Articles of Incorporation
	•     filed as Exhibit 3(a) to the Registrant’s Registration Statement on Form 10 (File No. 0-18486), filed with the Commission on April 25, 1990 and incorporated herein by reference
	3.2 Bylaws, as Amended
	•     filed as Exhibit 3(b) to the Registrant’s Registration Statement on Form 10 (File No. 0-18486), filed with the Commission on April 25, 2990 and incorporated herein by reference
	4.1 Instruments Defining the Rights of Security Holders
	•     incorporated herein by reference to page 1 of the Company’s Definitive Proxy Statement for Annual Meeting of Stockholders to be held on April 27, 2004, filed with the Securities and Exchange Commission on March 3, 2004 (File No. 000-12436)
	10.1 Deferred Compensation Plan and Sample Director Agreement
	•     filed as Exhibit 10(a) to the Registrant’s Registration Statement on Form 10 (File No. 0-18486), filed with the Commission on April 25, 1990 and incorporated herein by reference
	10.2 Profit-Sharing Plan Dated January 1, 1979
	•     filed as Exhibit 10(b) to the Registrant’s Registration Statement on Form 10 (File No. 0-18486), filed with the Commission on April 25, 1990 and incorporated herein by reference
	10.3 1999 Restricted Stock Grant Plan and Restricted Stock Grant Agreement
	•     filed as Exhibit 10(c) the Registrant’s Annual Report on Form 10-K (File No. 000-12436), filed with the Commission on March 30, 2001 and incorporated herein by reference
	10.4 2004 Restricted Stock Grant Plan and Restricted Stock Grant Agreement
	•     filed as Exhibit C to the Registrant’s Definitive Proxy Statement for Annual Meeting of Stockholders to be held on April 27, 2004, filed with the Securities and Exchange Commission on March 3, 2004 (File No. 000-12436) and incorporated herein by reference
	10.5 Lease Agreement – Mobile Home Tracts, LLC c/o Stafford Properties, Inc. and Colony Bank Worth
	11.1 Statement of Computation of Earnings Per Share
	31.1 Certificate of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
	31.2 Certificate of Chief Financial Officer Pursuant to Section 302 of Sarbanes – Oxley Act of 2002
	32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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B. The Company filed Form 8-K on July 9, 2004 reporting that a press release had been issued on July 9, 2004 in which financial results for the quarter ended June 30, 2004 was reported.

The Company filed Form 8-K on August 19, 2004 reporting that a press release had been issued on August 19, 2004 announcing the opening of a new banking facility in Tifton/Tift County, Ga.

The Company filed Form 8-K on September 20, 2004 reporting that a press release had been issued on September 20, 2004 announcing the opening of a loan production office in Columbus/Muscogee County, Ga.

The Company filed Form 8-K on September 22, 2004 reporting that a press release had been issued on September 22, 2004 announcing declaration of its third quarter dividends.

The Company filed Form 8-K on October 8, 2004 reporting that a press release had been issued on October 8, 2004 announcing the financial results for the quarter ended September 30, 2004.

The Company filed Form 8-K on October 22, 2004 reporting that Charles E. Myler and DeNean Stafford, III had been elected to the Board of Directors on October 19, 2004.

SIGNATURE

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 2, 2004	/s/ James D. Minix
	James D. Minix, President and
	Chief Executive Officer
Date: November 2, 2004	/s/ Terry L. Hester
	Terry L. Hester, Executive Vice President and
	Chief Financial Officer

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EX-10.5

EXHIBIT 10.5

LEASE AGREEMENT – MOBILE HOME TRACTS, LLL

C/O STAFFORD PROPERTIES, INC. AND COLONY BANK WORTH

LEASE

FACE PAGE

LEASE DATE:	as of the 15th day of January, 2004
LANDLORD:	Mobile Home Tracts, LLC c/o Stafford Properties, Inc., or its assigns
LANDLORD’S ADDRESS:	80 West Wieuca Road, NE Suite 302 Atlanta, Georgia 30342
TENANT:	Colony Bank Worth
TENANT’S ADDRESS:	601 North Main Street Sylvester, Georgia 31791
TENANT’S CONTACT PERSON:	Walter Patten
TENANT PHONE NUMBER:	Work: 229-776-7641
	Branch:
CENTER:	Village Center
DEMISED PREMISES:	Store No: 11
	Address: Intersection of Highway 82 and Hunt Road in Tifton, Georgia 31794, site plan shown as Exhibit “A”
	Store Width: 35	Store Depth: 80
	Approximate Store Size: 2,800 square feet
PERMITTED USE:	Bank Branch site
NAME TO BE USED BY TENANT:	Colony Bank
LEASE TERM:	Ten (10) years
OPTION TERM:	Two (2) Five (5) year options
LEASE BEGINS:	Upon execution of the Lease Agreement
RENT BEGINS:	Upon opening or sixty (60) days following receipt of turnover of premises, whichever is earlier
ADD-ONS BEGINS:	Upon opening or sixty (60) days following receipt of turnover of premises, whichever is earlier
LEASE ENDS:	Ten (10) years from Rent Commencement Date
MONTHLY RENT:	SEE EXHIBIT “G”
SECURITY DEPOSIT:	U.S. N/A

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ESTIMATED ADDITIONAL RENTAL CHARGES:

1.	Common Area and Operating Cost:
	Per Sq. Ft. .55 ;	Per Month:	$	128.33	;	Per Year:	$	1,540.00
2.	Real Estate Taxes:
	Per Sq. Ft. .55 ;	Per Month:	$	128.33	;	Per Year:	$	1,540.00
3.	Insurance:
	Per Sq. Ft. .20 ;	Per Month:	$	46.67	;	Per Year:	$	560.00

GUARANTOR(S) N/A

This is a legally binding document. Please read it thoroughly before you sign; the items contained on this FACE PAGE relate to various contents of the Lease. There are no agreements between the parties unless contained in writing in this Lease.

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STANDARD SHOPPING CENTER LEASE

NOTE: See Face Page for the definitions of certain terms used in this Lease, which Face Page and terms are incorporated herein by reference.

THIS AGREEMENT OF LEASE (hereinafter referred to as the “Lease”) is made as of the Lease Date (as defined on the Face Page) by and between Landlord (as defined on the Face Page) and Tenant (as defined on the Face Page).

WITNESSETH

In consideration of the obligations of Tenant to pay rent and in consideration of the terms, covenants and conditions hereof to be observed and performed, Landlord hereby leases to Tenant and Tenant takes from Landlord, the Premises (as defined on the Face Page), TO HAVE AND TO HOLD for the term, at the rental, and subject to and upon all of the terms and conditions hereinafter set forth.

1. PREMISES.

The Premises, which Tenant hereby leases in the Center (as defined on the Face Page) consists of a storeroom which is deemed to have the size and square footage as set forth on the Face Page. The location of the Premises is outlined in red on the Center site plan which is attached hereto as EXHIBIT “A”. The Center includes the real estate, the building, and improvements shown on the site plan whether now or hereafter constructed, or owned by Landlord or others and all alterations and additions thereto and all other buildings and improvements now or hereafter on the Premises. The “Common Area” shall mean all portions of the Center that are intended for use in common by all tenants and their employees and customers including, without limitation, the parking lot and pedestrian walkways shown on EXHIBIT “A”.

2. RENT COMMENCEMENT DATE.

The “Rent Commencement Date” shall be the earliest to occur of (a) the date which is sixty (60) days following receipt of turnover of the premises or (b) the date on which Tenant shall open for business. Tenant shall promptly upon Landlord’s request execute the statement shown on EXHIBIT “B” confirming the Rent Commencement Date.

3. LEASE TERM OR TERM.

The “Lease Term” or “Term” of this Lease shall be the period of time commencing with the date of this Lease and terminating Ten (10) years after the Rent Commencement Date, unless such termination date is other than the last day of a calendar month, in which event the Lease Term shall be deemed to be extended and the Lease shall terminate on the last day of the calendar month in which such date occurs.

4. SECURITY.

As security for prompt, faithful, full and complete performance by Tenant of all the agreements, terms and condition to be performed by Tenant hereunder throughout the full Term stated herein, as may be extended, Tenant shall pay to Landlord immediately upon execution of this Lease the Security Deposit (as defined on the Face Page). If Tenant is not in default hereunder, then the Security Deposit will be returned to Tenant, without interest, within sixty (60) days after the expiration of the full Term stated herein, as may be extended, and the Tenant has completely vacated the Premises, less deduction for all sums due from Tenant to Landlord and the reasonable cost to repair any damages to the Premises or the Center resulting from Tenant’s failure to comply with any of the provisions of this Lease. Tenant agrees that the Security Deposit is not an advance payment of rent and is not a measure of Landlord’s damages in the event of Tenant’s default. Upon any default of Tenant hereunder, Landlord shall be entitled, from time to time, without obligation to do so and without prejudice to any other remedy of Landlord, to deduct from the Security Deposit to pay any sum due hereunder or to perform or obtain performance of Tenant’s obligations hereunder. Immediately following such deduction, Tenant shall pay to Landlord the sum deducted from the Security Deposit plus all other sums due. Deduction of sums from the Security Deposit shall not cure any default existing hereunder and such default shall continue unless the sum deducted and all other sums due are paid to Landlord within the time required hereunder. Landlord shall be entitled to commingle such funds with other funds of Landlord. Landlord shall have no duty to account for the Security Deposit prior to return of the Security Deposit as provided herein. If Landlord conveys the Center or the Premises then Landlord shall be released from all liability for the return of the Security Deposit after Landlord transfers the balance, if any, of Tenant’s Security Deposit to the successor in title to the Center or the Premises. Tenant shall not assign any interest in the Security Deposit or grant any security interest in the Security Deposit.

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5. ACCEPTANCE OF THE PREMISES.

Tenant shall accept the Premises as ready for occupancy when completed by the Landlord in accordance with the “Landlord’s Work” as described in EXHIBIT “C”.

Tenant shall deliver to Landlord, for Landlord’s prior written approval, such plans and specifications in such detail as Landlord may request concerning all construction, installations and improvements to be performed in the Premises by Tenant. The term “Tenant’s Work” shall include all such plans and specifications and the requirements described in EXHIBIT “C” as work to be performed by Tenant or its agents.

Upon Landlord’s notice to Tenant that the Premises are ready for occupancy, Tenant shall proceed with due diligence to perform the Tenant’s Work. By commencing the Tenant’s Work in the Premises, Tenant shall be deemed to have accepted the Premises as fully complying with the Landlord’s Work and all of the Landlord’s covenants and obligations with respect to construction of the Center and the delivery of the Premises to the Tenant as ready for occupancy.

6. USE OF PREMISES.

Tenant shall not use or permit any vending machines in the Premises without the prior written consent of Landlord. Tenant shall operate the business in the Premises in accordance with good standards of store operation to (a) maintain a retail business operation consistent with the other stores in the Center; (b) produce the maximum amount of gross sales from the Premises; and (c) keep the Premises properly equipped and stocked with satisfactory fixtures, inventory and merchandise and employ adequate sales personnel for the sale of such inventory and merchandise. Tenant shall continuously remain open to the public and use and operate the entire Premises only for the Permitted Use (as defined on the Face Page) and for no other purposes throughout the entire Term and any extensions thereof. Tenant shall use Tenant’s trade name set forth on page one (1) hereof in the transaction of business in the Premises at all times Tenant shall not sell, display or solicit sales in the Common Area without Landlord’s prior written consent which may be conditioned upon the payment of additional rent. Tenant shall not sell or remove from the Premises any inventory or goods except in the ordinary course of business. The Tenant agrees that it shall (a) use and occupy the Premises and appurtenances in a careful, safe and proper manner; (b) at its expense, comply with the directions of all government officials and officers as to the use and maintenance thereof; (c) not allow the Premises to be used for any purpose or in any way that will increase the rate of insurance on the Premises and the Center and not for any purpose other than hereinbefore specified; (d) not bring nor permit to be brought into or on the Premises or Center any substance that will increase the hazard of fire or casualty in or on the Premises or in the Center; (e) not permit the Premises to be used for any unlawful purpose nor in any way to insure the reputation of the Center or create a nuisance or bring about trespass thereon; and (f) not permit the Premises or any portion thereof to be vacant or unoccupied at any time.

7. RENT.

Rental and other charges to be paid by Tenant shall accrue commencing on the Rent Commencement Date and shall be due and payable at the Landlord’s Address (as defined on the Face Page) on the dates and at the times set forth herein throughout the Term. Landlord may by notice to Tenant change the Landlord’s address Tenant’s obligation to pay all rentals and other charges hereunder is a separate and independent covenant and Tenant shall have no right of deduction, set-off or abatement whatsoever. Tenant acknowledges that the amounts due hereunder for rentals and other charges are subject to being increased from time to time as provided for herein. As a matter of information only, certain of the rentals and charges initially due and payable by Tenant are summarized on the Face Page of this Lease. From time to time Landlord shall have the right but not the obligation by notice to the Tenant to attach to this Lease an updated Face Page to reflect a more current summary of the rentals and other charges due from Tenant. With each payment of rent or any other charge due hereunder, Tenant shall pay to Landlord any and all rent, taxes or equivalent taxes or charges imposed by any governmental authority. All rent shall be paid to Landlord without deduction, offset, abatement or diminution.

8. MINIMUM GUARANTEED RENTAL.

(a) Tenant shall pay to Landlord a “Minimum Guaranteed Rental” of FORTY TWO THOUSAND DOLLARS AND 00/100 ($42,000.00) per annum in twelve (12) equal monthly installments of THREE THOUSAND FIVE HUNDRED DOLLARS ($3,500.00). The first monthly installment shall be due and payable by Tenant on or before the Rent Commencement Date (except that if the Rent Commencement Date is on a day other than the first day of a calendar month, the first payment shall be an amount equal to that percentage of a monthly installment which the number of days remaining in such month, including the Rent Commencement Date, bears to the total number of days in such month) and thereafter monthly installments shall be due and payable by Tenant without notice on or before the first day of each succeeding calendar month throughout the Term.

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9. RENTAL ADJUSTMENTS AND ADDITIONAL RENT.

Throughout the Term of Lease, the rent and other charges payable by Tenant to Landlord hereunder shall be adjusted and additional rent payable as set forth in EXHIBIT “D” attached hereto.

10. LATE CHARGE.

In consideration of the additional expenses incurred by Landlord concerning late payments and in addition to all other sums due hereunder, Tenant shall immediately pay Landlord for each and every payment of Minimum Guaranteed Rental, Percentage Rent, if any, and any other charges due hereunder that is not paid within five (5) days of the due date a service charge equal to ten percent (10%) of the past due sum plus an additional charge of $5.00 for every day or part thereof thereafter until all sums due are received by Landlord. If any three (3) checks of Tenant for payment of sums due hereunder to Landlord shall be dishonored and returned due to insufficient funds then after dishonor of the third check all subsequent payments due hereunder shall be tendered to Landlord in cash or by certified or cashier’s check. If a check of Tenant is dishonored, then Tenant shall be in default hereunder until full payment of all sums due hereunder are fully paid by cash or cashier’s or certified check.

11. COMMON AREA CHARGE.

Landlord hereby grants to Tenant non-exclusive right, in common with Landlord and others granted such right by Landlord, to use all of the Common Areas within or about the Center. Landlord reserves the right to change, alter, add to, reduce or modify the size, location, nature or use of the Common Areas or components thereof from that shown on EXHIBIT “A” hereto and/or to develop portions thereof as out parcels, at any time and from time to time during the Term hereof. Landlord hereby also reserves the right to designate and to re-designate areas for employee parking, and Tenant agrees to cause all of its personnel to utilize the same.

(a) Tenant shall pay Landlord on or before the first day of each calendar month as additional rental a common area maintenance charge equal to the greater of: (1) one-twelfth of a minimal charge of FIFTY FIVE cents (.550) per square foot of the Premises or (2) one-twelfth of Tenant’s pro-rata share of the Annual Common Area Expense. If the actual annual expenses incurred by Landlord are greater than the sums paid pursuant to the above provision, then Tenant shall immediately pay Landlord the total amount of Tenant’s pro rata share of the amount of the actual common area expenses in excess of the sums paid by Tenant attributable to the same period. When used herein, the “Annual Common Area Expense” shall mean the actual or estimated total annual cost of operating and maintaining the Common Area and facilities of the Center. Annual Common Area Expense shall include, for example and without limitation, the following: (1) all costs of labor, materials, insurance premiums and deductibles (if paid), supplied, equipment, tools and services for the management, operation, maintenance and repair of the Center, including all property management fees; (2) all real estate taxes, assessments and other governmental levies and charges, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind and nature (including any interest on such assessments whenever the same are permitted to be paid in installments) which may presently or hereafter be imposed, levied, assessed or confirmed by any lawful taxing authorities or which may become due and payable out of or for, or which may become a lien or charge upon or against the whole, or any part, of the Center and all other improvements now or at any time during the Term constituting a part of the Center, and any taxes in lieu or in substitution thereof which, as to the incidence thereof would be payable even if the Center was the sole property of Landlord subject thereto and even if the income of Landlord from the Center was the sole income of Landlord subject thereto (all of which real estate taxes, assessments, levies, charges and costs are hereafter collectively referred to as “Taxes”); Landlord shall have the sole, absolute and unrestricted right, but not the obligation, to contest the validity or amount of the Taxes by appropriate proceedings and the costs thereof shall be included in Annual Common Area Expense, and Landlord shall have the sole, absolute and unrestricted right to settle any contest, proceeding or action upon whatever terms Landlord may, in its sole discretion, determine; and (3) the cost, amortized over such reasonable period as Landlord shall determine, together with interest at a rate equal to a rate of two percent (2%) per annum above the prime rate charged by Bank of America in Atlanta, Georgia from time to time (but in no event greater than the maximum rate of interest permitted by Georgia law upon such indebtedness) on the unamortized balance, of any capital improvements or structural alterations made to the Center by Landlord that reduces or limits costs of any item of operating expenses, or which are required under any governmental law or regulation or by Landlord’s insurance carrier. Annual Common Area Expense shall not include costs of tenant improvements, real estate broker’s commissions, interest directly related to financing the Center, costs of services directly recoverable from tenants in the Center and capital items, except the cost of capital improvements specified above. At any time and from time to time the Landlord shall be entitled to compute and adjust the total Annual Common Area Expenses based on such estimated expenses and notify Tenant of such adjustment in computation and thereafter Tenant’s pro rata share shall be computed on the basis of the adjusted Annual Common Area Expenses. When used herein, “pro rata share” shall mean a fraction having the total square footage of the Premises as its numerator and its denominator the total Gross Leaseable Area of the Center. For any calendar year or partial calendar year the “Gross Leaseable Area” shall be the average of the total square footage of buildings located in the Center that are completed and ready for rental to Tenants during the current Lease Year.

5

(b) Landlord, may, at its sole option at any time and from time to time, do any one or more of the following with respect to the land, buildings, improvements and/or Common Areas which are now or hereafter a part of the Center:

(i) construct alterations therein;

(ii) construct additions or modifications thereto, or otherwise add thereto or remove therefrom;

(iii) construct additional stores thereon;

(iv) construct additional buildings, free standing or connected to the then existing buildings;

(v) construct deck or elevated parking facilities, free standing or connected to the then existing buildings; or

(vi) rearrange, build upon or eliminate any Common Areas, buildings or improvements.

12. INSURANCE.

Tenant shall pay Landlord on the first day of each and every calendar month as additional rent a monthly payment equal to one-twelfth of Tenant’s pro rata share of the total sum of insurance premiums for all policies of Landlord in anyway related to coverage of loss at or protection of improvements located in the Center, including, without limitation, coverage for fire and other casualty with all risk, extended coverage and public liability insurance insuring the Center. Landlord shall be entitled at any time and from time to time to adjust the total sum of insurance premiums on which Tenant’s pro rata share is based in order to estimate the total sums required in order to pay all such premiums when due. After Landlord gives Tenant notice of such adjustment then Tenant’s monthly payments shall thereafter be computed on the basis of the Tenant’s pro rata share of the adjusted total sum of insurance premiums. If the monthly payments of Tenant are less than the Tenant’s pro rata share of the actual expenses incurred by Landlord for payment of such insurance premiums attributable to that period, then Tenant shall immediately pay to Landlord such additional sums. if the monthly insurance payments of Tenant exceed the Tenant’s pro rata share of the actual premiums paid by Landlord for such policies attributable to the period of payment then such excess shall be applied to the insurance premiums next due. Landlord shall be entitled to require Tenant to pay more than Tenant’s pro rata share of the insurance expense described above to the extent the insurance premiums are increased or charged at a higher than normal rate as a result of the activities and business conducted and materials stored in the Premises.

13. TAXES.

Tenant shall pay Landlord on the first day of each and every calendar month as additional rent a monthly payment equal to one-twelfth of Tenant’s pro rata share of the total amount of taxes assessed against the Center and Landlord concerning the Center based on actual taxes for the Center that will next be payable by Landlord. If the monthly payments paid by Tenant are less than the Tenant’s pro rata share of the actual taxes to that period, then Tenant shall immediately pay to Landlord Tenant’s pro rata share of the additional sums. If the monthly payment of Tenant exceed the Tenant’s pro rata share of the actual taxes attributable to that period, then such excess shall be applied to the taxes next due.

14. UTILITIES.

Tenant shall promptly pay as additional rent the cost of all utilities that serve the Premises, including, without limitation, the cost of all electrical service, impact fees, system charges, water service, sewage service, gas service, trash collection and telephone service. To the extent the utilities or services supplied to the Premises are separately computed for the Premises or billed to or contracted with the Tenant, the Tenant shall pay, as its share, all such sums directly to the company or other party providing such service. To the extent the utilities or services supplied to the Premises are computed, contracted or billed to the Landlord or the Center, then Tenant shall pay to Landlord on the first day of each and every calendar month a monthly payment equal to the greater of (i) the cost attributable to the actual usage of Tenant; or (ii) the Tenant’s pro rata share of the actual or estimate total amount of the cost of all such commonly billed utilities. If the monthly payments paid by Tenant to Landlord are less than the Tenant’s pro rata share of the actual cost of all such utilities paid by Landlord attributable to the same period or if the utility services used at the Premises are greater than the pro rata share of the Premises, then Tenant shall immediately pay to Landlord the Tenant’s pro rata share of such excess sums. If the monthly payments of Tenant exceed the Tenant’s pro rata share of the actual utilities or services attributable to that period, then such excess shall be applied to the utility expenses next due.

15. GARBAGE.

Tenant shall properly dispose of all trash and garbage from the Premises in proper receptacles provided by Tenant. Tenant shall pay as additional rent the full cost of such trash and garbage disposal and collection. If Landlord supplies trash disposal and collection facilities for use of Tenant then Tenant shall pay Landlord on the first day of each and every calendar month a monthly payment equal to the cost of trash removal that is allocable to Tenant’s use of trash collection facilities as determined by Landlord on its sole discretion, which discretion shall be conclusive deemed correct, together with an additional administration charge equal to fifteen percent (15%) of Tenant’s allocable usage.

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16. MERCHANT’S ASSOCIATION.

INTENTIONALLY OMMITTED

MARKETING FUND.

INTENTIONALLY OMMITTED

17. OPERATION TIMES.

Subject to any applicable laws and ordinances relating to the conduct of its business in the Premises, the Tenant agrees to maintain and conduct its business continuously in the Premises throughout the Term and remain open to the public at least during the hours between 10 a.m. continuously through 6 p.m. on Monday through Saturday and between 12 p.m. continuously through 6 p.m. on Sunday throughout the entire year; except, however, only during such times or hours as Tenant may be prevented from conducting its business due to strikes, agreement with labor unions, acts of God, or causes beyond the control of Tenant.

18. INSURANCE AND RESTORATION OF PREMISES

Landlord shall not be held responsible or liable to Tenant, Tenant’s employees, patrons, visitors, or others for any personal injury or damage to personal property caused by the act, or omission of negligence of Tenant, its employees, patrons, visitors or others, or by catastrophe. Tenant, at its own cost, shall obtain and maintain during the Term a policy of Owner’s, Landlord’s and Tenant’s public liability insurance, with extended all risk coverage written by a licensed insurance company or companies approved by Landlord, which will fully cover and insure Landlord as a named additional insured against any and all liability for property damages and personal injuries suffered by reason of such afore described acts or use of the Premises, in a coverage amount of at least $1,000,000.00 for each occurrence. In addition the insurance shall include a coverage amount of $50,000 for damage to the rented Premises, $5,000 for medical expenses for any one person, $1,000,000 for any personal and advertising injury, an aggregate of $2,000,000 for all coverages, and an aggregate of $2,000,000 for products and completed operations. The Tenant shall furnish to Landlord properly certified copies (in the form of Acord 27, Certificate of Liability Insurance) of such insurance policies and of the renewals thereof prior to the Rent Commencement Date and thereafter prior to each expiration of such previous policies proving the existence and renewal of all such coverage and that such coverage cannot be canceled without 30 days prior written notice to Landlord. Tenant hereby indemnifies and shall hold Landlord harmless from any and all liability, damages and expenses, including attorneys’ fees, for any injuries suffered or damage occasioned in the Premises.

Tenant shall give immediate written notice to Landlord of any damage to the Premises by fire or other casualty, and if Landlord does not elect to terminate this Lease as hereinafter provided, Landlord shall proceed with reasonable diligence to rebuild and repair the portion of the Premises that Landlord is required to maintain as provided herein and Tenant shall proceed with reasonable diligence and at its cost and expense to rebuild, repair and restock the portion of the Premises that Tenant is required to maintain. If the building in which the Premises is located is (a) destroyed or substantially damaged by a casualty not covered by standard fire, casualty or extended coverage insurance, (b) destroyed or rendered untenantable to an extent in excess of fifty percent (50%) of the first floor area, (c) partially destroyed and there is less than two years remaining in the Term of this Lease, or (d) partially destroyed and Landlord does not receive sufficient insurance proceeds to rebuild and repair the destruction, then, in any of such events, Landlord shall have the right to elect either to terminate this Lease or to proceed to rebuild and repair the portion of the Premises Landlord is required to maintain as provided herein and require Tenant to rebuild, repair and restock the remaining portion of the Premises. Landlord shall give written notice to Tenant of such election within sixty (60) day after the Landlord receives notice of such casualty or destruction. Landlord agrees at all times during the period of this Lease, at its expense, to keep the portions of the buildings in the Center that Landlord is required to maintain as provided herein insured against fire, with extended coverage in an amount adequate to prevent Landlord from becoming a co-insurer of the Premises.

Landlord’s obligation to rebuild and repair under this Lease shall in any event be limited to restoring Landlord’s Work as described in EXHIBIT “C” to substantially the condition in which the same existed prior to the casualty, and in the event Landlord was originally reimbursed by Tenant for such work then Tenant shall reimburse Landlord for such construction Tenant agrees that, promptly after completion of such work by Landlord, Tenant shall proceed with reasonable diligence and its sole cost and expense to rebuild, repair, and restore its signs, fixtures, equipment and the other items of Tenant’s Work.

Tenant agrees that during any period of reconstruction or repair of the Premises it will continue the operation of its business within the Premises to the extent practicable. During the period from the occurrence of the casualty until Landlord’s repairs are completed, the Minimum Guaranteed Rental shall be reduced in proportion to the percentage of square footage of the Premises that is rendered unusable as compared to the total square footage originally in the Premises; however, there shall be no abatement of the Percentage Rental and any other charges provided for herein.

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Tenant agrees at all times, at its expense, to keep its merchandise, fixtures and other property situated within the Premises insured against fire and other casualty, with extended coverage to the extent of at least eighty percent of the value thereof. Such insurance shall be continuously maintained with licensed companies satisfactory to Landlord, containing coverage satisfactory to Landlord and shall require thirty (30) days written notice to Landlord prior to cancellation or expiration of such policy. Such policies or duly executed certificates of insurance proving coverage, renewal and continuation of such policies shall be delivered to Landlord at least thirty (30) days prior to the Rent Commencement Date and prior to all renewals and expirations of such policies thereafter. The proceeds of such insurance shall not be used, except with the prior written consent of Landlord, for any purpose other than the repair or replacement of merchandise, fixtures and other property situated within the Premises.

All liability, casualty, fire and extended coverage insurance, boiler insurance, earned either by Landlord or Tenant covering losses arising out of destruction or damage to the Premises or its contents or to other portions of the Center or arising from personal injury or death shall provide for a waiver of subrogation rights against Landlord and Tenant on the part of the insurance carrier as required in paragraph 36 below.

19. RULES AND REGULATIONS.

The Tenant agrees to abide by all rules and regulations which may be promulgated by the Landlord in connection with signs, loading, unloading, parking or other controls of the use, care, cleanliness and safety of the Center by the Tenant, its agents, employees and customers.

20. SIGNS.

The Tenant shall not erect, install or maintain any sign, advertisement or display device, including, without limitation, portable signs and painted trucks, on the exterior of the Premises or upon any other part of the Center without the prior written approval of the Landlord. Upon written notice from the Landlord, the Tenant shall promptly remove any sign, advertisement or display device erected or maintained in violation of this provision and restore the Premises and Center to the condition prior to installation of such sign or advertising, if the Tenant fails to remove the sign or advertisement after notice from the Landlord, then in such event the Landlord may cause such sign, advertisement, or display device to be removed and Tenant shall pay Landlord the cost of such removal and the restoration of the Premises and Center made necessary by the removal of the sign as additional rent. The location of the sign and the color, size and design thereof shall be subject to the approval of the Landlord. See attached EXHIBIT “E”.

Tenant shall not, without the prior written consent of Landlord (i) paint, decorate or alter the exterior of the Premises; (ii) install any exterior lighting, awning, or other structure or protrusion or advertising matter; or (iii) install any drapes, shades or other coverings on exterior window or doors. Upon written notice, Tenant shall remove any such exterior modification in violation of this provision. If Tenant fails to remove such violating exterior modification or sign then Landlord is hereby authorized to remove such exterior modification and restore the Premises and Center to its original condition. Tenant shall immediately pay as additional rental to Landlord the full cost incurred by Landlord in such repair and restoration of the Center.

The Tenant shall not engage in or permit or promote any of the following activities in the Center (i) sales or displays in front of a store or in the Common Area; (ii) kiddie rides; (iii) outside vending machines or vendors; (iv) loudspeakers audible from outside; and (v) bulk inventory removal during regular business hours, auctions, fire, bankruptcy, or “going out of business sales”.

If Landlord should undertake any remodeling or renovation of the Shopping Center which requires modification of Tenant’s signs, then Tenant shall, if required by Landlord, conform to the standard Sign Criteria used for such remodeling or renovation.

The parties acknowledge the existence of federal, state and local laws, regulations, and guidelines and that additional laws, regulations and guidelines may hereafter be enacted or go into effect, relating to or affecting the Premises, the Center, and any larger parcel of land of which the Premises and the Center may be a part, concerning the impact on the environment of construction, land use, the maintenance and operation of structures, and the conduct of business. Tenant will not cause, or permit any act or practice, by negligence, omission, or otherwise, that would adversely affect the environment, or do anything to be done that would violate any of said laws, regulations, and guidelines. Any violation of this covenant shall be an event of default pursuant to paragraph 31 hereof. Tenant shall have no claim of violation of this Lease or otherwise against Landlord by reason of any changes made in the Center or the Premises pursuant to said laws, regulations, and guidelines from time to time. Tenant hereby indemnifies and shall hold Landlord harmless from any and all liabilities, damages, expenses, costs, demands and suits, including attorneys’ fees, in any way relating to or caused by a violation of the above stated laws, regulation and guidelines.

21. REPAIRS BY TENANT MAINTENANCE AND WAIVER OF LIABILITY.

Tenant shall, at its own expense, keep and maintain all of the Premises and appurtenances thereof, including, without limitation, sprinkler systems, if any, heating, air-conditioning, water and sewer systems, electrical, machinery, fixtures, plumbing,

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plumbing fixtures and equipment, in good order and repair throughout the Term of this Lease and any extension and renewals thereof, including, without limitation, maintaining the Premises in a neat, orderly and attractive retail condition and to keep the Premises free of all insects, rodents and other pests. Tenant shall be liable to Landlord for any damage or injury which may be caused by or resulting from the Tenant’s failure to fully comply with all of the terms and conditions contained herein.

The Tenant shall, within ninety (90) days after the commencement of the fourth Lease Year and once during every Lease Year thereafter, during the Term and during any extensions and renewals thereof, paint, varnish, renovate and otherwise redecorate, at Tenant’s cost, the interior of the Premises in accordance with the reasonable requirements of Landlord in order to place the Premises in the same condition as it was upon completion of all improvements of the Premises and first opening to the public for retail sales on or about the Rent Commencement Date, including replacement and renovation of exterior signs, fixtures and machinery that are the Tenant’s responsibility to maintain and other portions of the interior and exterior of the Premises.

In the event the Tenant penetrates the roof or any wall of the Premises for any reason, including, without limitation, any type of ventilation other than as shown on the Plans and Specifications prepared by the Landlord, or installs any structure on the roof or exterior walls of the Premises then in any of such events the Tenant shall pay Landlord for any damages, including consequential damages, which may be caused by or result from such installation and for the cost of restoring the roof and the exterior walls of the Premises to their previous quality and condition prior to such installation. Such installation shall not be commenced until the prior written consent and approval of the Landlord is obtained and all costs shall be paid for by Tenant in advance.

The Tenant hereby indemnifies and shall hold harmless, at its own cost, the Landlord from and against any and all liability, damage, injury actions, causes of action whatsoever and liens resulting from the operation, conduct and use of the Premises by Tenant.

The Tenant accepts the risk of loss for all personal property, fixtures and other property of every kind or description which may at any time be located in the Premises and Landlord shall not be liable for any damage to said property or loss suffered by the business or occupation of Tenant arising from any casualty, including, without limitation, the bursting, overflowing or leaking of water, roof leaks, if applicable, sewer or steam pipe leaks, heating or plumbing leaks, electrical wires, gas or odors.

Tenant shall obtain prior to the Rent Commencement Date and continuously maintain in good standing, at Tenant’s expense, throughout the Term a maintenance and repair contract approved by Landlord with a service company previously approved in writing by Landlord providing for the preventive maintenance and repair of all heating and air conditioning and ventilating equipment servicing the Premises. If Tenant fails to maintain and pay for such contract with an approved company then Tenant shall be in default hereunder and Landlord shall have the right in addition to all other remedies of Landlord to pay any sums due to maintain such contract in force and Tenant shall immediately pay Landlord the total sum of expenses so incurred by Landlord as additional rent.

22. HAZARDOUS SUBSTANCES.

(a) Hazardous Substances. The term “Hazardous Substances”, as used in this Lease, shall include, without limitation, flammables, explosives, radioactive materials, asbestos, polychlorinated biphenyls (PCBs), chemicals known to cause cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes, toxic substances or related materials, petroleum and petroleum products, and substances declared to be hazardous or toxic under any law or regulation now or thereafter enacted or promulgated by any governmental authority.

(b) Tenant’s Restrictions. Tenant shall not cause or permit to occur:

(i) Any violation of any federal, state or local law, ordinance or regulation now or hereafter enacted, related to environmental conditions on, under or about the Premises, or arising from Tenant’s use or occupancy of the Premises, including, but not limited to, soil and ground water conditions; or

(ii) The use, generation, release, manufacture, refining, production, processing, storage or disposal of any Hazardous Substances on, under or about the Premises or the Center, or the transportation to or from the Premises or the Center of any Hazardous Substances.

(c) Environmental Clean-up.

(i) Tenant shall, at Tenant’s own expense, comply with all laws regulating the use, generation, storage, transportation or disposal of Hazardous Substances (the “Laws”).

(ii) Tenant shall, at Tenant’s own expense, make all submissions to, provide all information required by, and comply with all requirements of all governmental authorities (the “Authorities”) under the Laws.

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(iii) Should any Authority or any third party demand that a clean-up plan be prepared and that a clean-up Undertaken because of any deposit, spill, discharge or other release of Hazardous Substances that occurs during the term of this Lease, at or from the Premises, or which arises at any time from Tenant’s use or occupancy of the Premises, then Tenant shall, at Tenant’s own expense, prepare and submit the required plans and all related bonds and other financial assurances; and Tenant shall carry out all such clean-up plans.

(iv) Tenant shall promptly provide all information regarding the use, generation, storage, transportation or disposal of Hazardous Substances that is requested by Landlord. If Tenant fails to fulfill any duty imposed under this Paragraph (c) within a reasonable time, Landlord may do so; and in such case, Tenant shall cooperate with Landlord in order to prepare all documents Landlord deems necessary or appropriate to determine the applicability of the Laws to the Premises and Tenant’s use thereof, and for compliance therewith, and Tenant shall execute all documents promptly upon Landlord’s request. No such action by landlord and no attempt made by Landlord to mitigate damages under any Laws shall constitute a waiver of any of Tenant’s obligations under this Paragraph (c).

(v) Tenant’s obligation and liabilities under this Paragraph (c) shall survive the expiration or earlier termination of this Lease.

(d) Tenant’s Indemnity.

(i) Tenant hereby agrees to and shall indemnify, defend and hold harmless Landlord, the manage of the Center and their respective officers, directors, beneficiaries, shareholders, partuers, agents, and employees from all fines, suits, procedures, claims and actions of every kind, and all costs associated therewith (including attorneys’ and consultants’ fees) arising out of or in any way connection with any deposit, spill, discharge or other release of Hazardous Substances that occurs during the term of this Lease, at or form the Premises, or which arises at any time from Tenant’s use or occupancy of the Premises, or from Tenant’s failure to provide all information, make all submissions, and take all steps required by all Authorities under the Laws and all other environmental laws.

(ii) Tenant’s obligations and liabilities under this Paragraph (d) shall survive the expiration or earlier termination of this Lease.

23. REPAIRS BY LANDLORD.

Subject to the provisions in this Lease concerning reconstruction in the event of casualty or in the event of the taking of the Premises by eminent domain, the Landlord agrees to keep in good repair the foundations, exterior walls (except plate glass, doors, door closures, door frames, store fronts, windows and window frames located in exterior building walls), downspouts, gutters and roof of the Premises, except, however, for any damage or injury thereto caused by or resulting from any act, failure to act, or negligence of the Tenant or any of the Tenant’s agents, servants, employees, sub-lessees, licensees, invitees or customers. It is expressly agreed by the parties hereto, and it is a condition precedent to all of the obligations of the Landlord to repair and maintain the exterior of the Premises, as aforesaid, that the Tenant shall have notified the Landlord, in writing, of the need of such repairs Landlord shall have no obligation to inspect the Premises for defective condition until Tenant delivers notice to Landlord of a specific defective condition. Landlord shall not be responsible or liable for any consequential costs, expenses or damages in any way related to a defective condition of the Premises or the repair of such condition including, without limitation, liability for loss of income, business or profits or any other costs.

24. ADDITIONS AND ALTERATIONS.

The Tenant shall not make or permit any additions, alterations or improvements in and to the Premises, the exterior of the Premises or the Center without the prior written consent of the Landlord, but in no event shall such addition, alterations or improvements in any way, as determined in the sole discretion of the Landlord, impair the structural strength or soundness of the building of which the Premises is a part or result in an exterior appearance that does not conform with the general appearance of the Premises and the Center. Tenant shall pay cash for all additions, alterations or improvements in the Premises or Center and shall not attempt to grant a security interest of any kind in the Premises, the Center or any fixtures in the Premises to secure repayment of any debt. Tenant shall not allow the filing of any liens against the Premises or Center arising from work performed at Tenant’s instance. Landlord and Tenant agree that no party performing services or delivering material to the Premises or the Center at Tenant’s instance shall have any right to claim a lien in the Premises or the Center. Tenant shall immediately obtain the cancellation or release of any such lien. If Tenant fails to obtain the cancellation or release of any such lien, then Landlord, in addition to all other remedies, shall be entitled, but not required, to pay such sums as are reasonably necessary to cancel or release such lien and Tenant shall immediately pay the Landlord all such sums expended by Landlord as additional rental.

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25. PLATE GLASS.

Tenant agrees, at its own cost, to replace promptly any and all plate glass or other glass in the Premises which may become damaged or broken from whatever cause using glass of the same kind and quality.

26. BANKRUPTCY OR INSOLVENCY.

If at any time during the Term or any extension or renewals thereof, a petition for relief under the bankruptcy laws of the United States or a petition for reorganization or arrangement under any of the bankruptcy laws of the United States is filed by the Tenant or is filed against Tenant or the assets of the Tenant or the business conducted by the Tenant on the Premises is taken over or sequestered by a trustee or any other person pursuant to any judicial proceedings, or if the Tenant makes an assignment for the benefit of creditors, then the occurrence of any such act shall be deemed, at the option of the Landlord, to constitute a breach of this Lease by the Tenant. At any time and from time to time, Landlord, at its election, may immediately terminate this Lease in the event of occurrence of any of the events enumerated above.

27. INSPECTION AND ACCESS TO PREMISES.

Landlord, its agents and employees, shall have the right, at all reasonable times, to enter the Premises or any part thereof to inspect and examine same and for the purpose of making alterations, repairs and improvements to or within the Premises. During the last six (6) months of the Term, Landlord shall have the right to exhibit the Premises to prospective tenants and leasing agents and Landlord shall also have the right to post upon the exterior of the Premises the usual notice advertising the Premises “For Rent” which notice shall not be removed, obliterated or hidden by the Tenant. Notwithstanding anything herein to the contrary, Landlord shall have no obligation to inspect the Premises or repair any defective condition until Tenant notifies Landlord of a specific defective condition and the Landlord is required under this Lease to make such repair.

28. PARKING.

Tenant’s customers have the non-exclusive right, in common with other tenants of the Center, for the use of customer parking in the spaces shown on the plot plan hereto attached Tenant, its employees and agents shall park their cars only in such areas designated for that purpose by Landlord. Tenant shall furnish Landlord with the automobile license numbers assigned to Tenant’s car or cars and cars used by its employees within five (5) days after the Rent Commencement Date and shall thereafter notify Landlord of any changes within five (5) days after such changes occur. If Tenant or its employees shall fail to park their cars in the designated parking areas, then, without limiting any other remedy which Landlord may pursue in the event of Tenant’s default, Landlord shall have the right to charge Tenant, as additional rental, the sum of Twenty-Five Dollars ($25.00) per day per car parked in violation of the provisions of these parking requirements. Tenant shall not store vehicles or goods in the parking area or Common Area.

29. ASSIGNMENT AND SUBLETTING.

Tenant shall not assign this Lease or sublet all or any part of the Premises without the prior written consent of Landlord and upon such terms and conditions as may be mutually agreed upon by the parties. Any assignment or sublease by Tenant shall be only for the purposes specified in Section (6) hereof and for no other purpose, and in no event shall any assignment or sublease of the Premises release or relieve Tenant from any of its obligations under this Lease.

In the event Tenant shall assign its interest in this Lease or sublet the Premises for rentals in excess of those rentals reserved hereunder, Tenant shall pay all of such excess rent to Landlord as additional rent.

Any proposed assignee or subtenant of Tenant shall assume Tenant’s obligations hereunder and deliver to Landlord an assumption agreement in form satisfactory to Landlord within ten (10) days after the effective date of the assignment.

30. FIXTURES.

During the Term, Tenant shall not remove any fixtures, showcases, trade equipment, furnishings, or any other improvements. Within the period sixty (60) days before the final expiration of the Term or any extension or renewals thereof, the Tenant, if not in default under the terms of this Lease, shall have the right to remove, at its cost, all trade fixtures and trade equipment which it has placed on the Premises, provided, however, that Tenant shall immediately repair all damage to and restore the Premises to its previous condition without loss in rental to the Landlord. After expiration of the Term all trade fixtures and trade equipment shall, at Landlord’s option, become the property of Landlord and such property may be disposed of by Landlord as Landlord may determine in its sole and exclusive discretion. If Tenant does not remove its signs, fixtures and trade equipment before the expiration of the Term then Landlord shall be entitled to require Tenant to remove or to obtain the removal of all such property and repair the Premises to its previous condition and Tenant shall immediately pay the full cost incurred by Landlord in such removal. In no event is Landlord responsible for storing or exercising any degree of care with respect to any property which remains in the Premises after expiration of the Term.

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31. DEFAULT BY TENANT.

If Tenant shall fail to pay any rental or other payment due hereunder within five (5) days after it is due, or if the Tenant shall breach or fail to perform any agreement contained herein (other than the agreement to pay rent) and shall fail to cure such breach or perform such agreement within ten (10) days after written notice is given, or if the Tenant shall desert or vacate any portion of Premises during the Term hereof, then the Tenant shall be in default and the Landlord, at its option, elect to do and perform any one or more of the following in addition to, and not in limitation of, any other remedy or right permitted by law or by this Lease (all of which are hereby reserved by Landlord):

(a) Terminate Tenant’s occupancy of the Premises, resume possession of the Premises for its own account and recover immediately from the Tenant all sums past due plus a sum equal to the average annual rental, including Minimum Guaranteed Rental, Percentage Rent and all other charges due, for the immediately preceding two (2) years or portion of the actually expired Term if less than two (2) years, multiplied by the number of years and fractions thereof remaining in the full Term stated herein, together with any other damages occasioned by or resulting from such breach or default; or

(b) Terminate Tenant’s occupancy of the Premises, resume possession and lease or rent the Premises for the remainder of the Term for the account of Tenant and recover from Tenant, at the end of the Term or at the time each payment of rent comes due under this Lease, as the Landlord may choose, the difference between the rent provided for in this Lease and the rent received on the re-lease or renting, together with all costs and expenses of the Landlord in connection with the re-leasing or re-rental and collection of rent and the cost of all repairs or renovations reasonably necessary in connection with the re-leasing or re-rental. If this option is exercised Landlord shall not be obligated to re-lease or rent the Premises and, in addition, shall be entitled to recover from Tenant immediately any other damages occasioned by or resulting from the abandonment or a breach or default other than a default in payment of rent.

In addition to the remedies set forth in subparagraphs (a) and (b) above, Landlord shall be entitled to terminate this Lease at any time and from time to time after such defaults have occurred even if such termination occurs after the remedies set forth above and other remedies of Landlord have been partially or fully exercised, provided, however, in no event shall Landlord be required to terminate this Lease in order to exercise any of Landlord’s remedies upon default by Tenant hereunder. Tenant shall remain liable and obligated to perform all obligations set forth hereunder even if Tenant’s occupancy is terminated, this Lease is terminated or Landlord exercises any other remedies upon Tenant’s default hereunder. Any act of abandonment or cessation of business operations within the Premises by Tenant shall automatically render Tenant’s right to occupy the Premises null and void, and Landlord may reclaim possession to the Premises immediately for re-letting without terminating Tenant’s obligation or liability to pay rent and other charges outlined herein throughout the full term of this Lease. The remedies provided in this Paragraph 31 shall not be exclusive and in addition thereto the Landlord shall be entitled to pursue such other remedies as are provided by law or in equity in the event of any breach, default or abandonment by Tenant or termination of this Lease or termination of Tenant’s occupancy. In any event and irrespective of any option exercised, Tenant agrees to pay and the Landlord shall be entitled to recover all costs and expenses incurred by the Landlord, including the greater of (i) fifteen percent (15%) of the sums owed as attorney fees; or (ii) all of Landlord’s actual attorney’s fees, in connection with collection of rental or damages or enforcing other rights of the Landlord in the event of any breach, default or abandonment by Tenant. The Tenant hereby expressly waives any and all rights of redemption, if any, granted by or under any present or future law in the event the Tenant shall be evicted or disposed for any cause, or in the event the Landlord shall obtain possession of the Premises by virtue of the provisions of this Lease, or otherwise. All past due rent, and any other amount which the Landlord has advanced in order to cure the Tenant’s defaults hereunder, shall bear interest at the rate of fifteen percent (15%) per annum from date of payment until paid. Any amounts advanced by the Landlord pursuant to the terms and provisions of this Lease shall be paid to the Landlord by the Tenant upon the earlier of demand by the Landlord or the first day of the calendar month following date of such advances. If any rent or such other amounts owing under this Lease is collected by or through an attorney-at-law, Tenant agrees to pay the full amount of all of Landlord’s costs and expenses in connection therewith as required above, including, but not limited to, Landlord’s attorney fees at trial or on appeal.

32. EFFECT OF TERMINATION OF LEASE.

No termination of this Lease prior to the end of the Term hereof shall affect Landlord’s right to collect full rent for the full Terms of this Lease, as extended.

33. HOLDING OVER.

If Tenant holds over and does not deliver possession of the Premises to Landlord upon termination of this Lease or termination of Tenant’s right to occupy the Premises, or Tenant fails to remove all its property from the Premises on termination of this Lease, then, in addition to all other remedies provided herein and at law and equity, the Tenant immediately shall pay Landlord rent for the hold over period equal to double the amount of rent that otherwise would be due hereunder for a like period during the Term of this Lease, including, without limitation, payment of all Minimum Guaranteed Rental, Percentage Rent, if any, and all other sums, charges and interest due hereunder.

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34. EMINENT DOMAIN.

If all of the Premises, or such portion thereof as will make the Premises completely unusable for the purposes for which the Premises are leased, shall be appropriated or taken pursuant to the power of eminent domain by any public or quasi public authority, then the Term shall cease and terminate from the date when possession thereof is taken by such public authority and the parties hereto shall be released from any further liability hereunder, except all rent and other charges due hereunder shall be paid and computed through that day. Such termination, however, shall be without prejudice to the rights of either Landlord or Tenant to recover from the condemnor compensation and damage caused by condemnation and neither party shall have any rights in any award or settlement so received by the other from the condemning authority. In the event of a partial taking, the Landlord shall be entitled to elect to replace or restore the remaining portion of the Premises that Landlord is required to maintain hereunder by notice given to Tenant within sixty (60) days after such taking or conveyance and in such event this Lease shall continue in full force and effect, except that during the period of rebuilding and restoration if the Tenant can operate its business during such period, the Guaranteed Minimum Rental shall be reduced in the same proportion that the amount of the floor area of the Premises taken bears to the total area of the Premises immediately prior to such taking. In no event shall Percentage Rent or any other charges be reduced or abated. If a portion of the Premises are taken by eminent domain and Landlord does not elect to replace or restore the Premises then this Lease shall terminate and Tenant shall pay all rent due hereunder through the termination of the Lease. Sale by Landlord to any public or quasi public body having the power of eminent domain under threat of condemnation or while condemnation proceedings are pending, shall be deemed to be a taking by eminent domain.

35. SUBORDINATION TO LANDLORD MORTGAGE.

This Lease, at the option of the Landlord or Landlord’s lender, may be and at all times after notice thereof shall be subject and subordinate to any and all present and future mortgages, deeds to secure debt, deeds of trust, or other encumbrances which may be granted by the Landlord for the Premises, the Center or any part thereof. The Tenant covenants and agrees to execute upon demand of the Landlord all instruments subordinating this Lease to the lien of any mortgage or mortgages, deeds to secure debt, or encumbrances as shall be required by Landlord. The Tenant hereby irrevocably appoint: Landlord as attorney in fact of the Tenant, with power to execute and deliver, without subjecting Landlord to liability of any kind, such instrument or instruments for and in the name of the Tenant, in the event the Tenant shall fail to execute such instrument or instruments.

In addition Tenant shall, upon Landlord’s request, at any time or times, execute, seal and deliver to Landlord without expense to Landlord, any and all instruments that may be necessary to make this Lease superior to the lien of any such mortgage, deed to secure debt, deed of trust or other instrument. Landlord in the nature thereof, and each renewal, modification, consolidation, replacement, and extension thereof, and, if Tenant shall fail at any time to execute, seal and deliver such instrument. Landlord in addition to any other remedies available to it in consequence thereof, may execute, seal and deliver the same as the attorney in fact of Tenant and in Tenant’s name, place and steed, and Tenant hereby irrevocably makes, constitutes, and appoints Landlord, its successors and assigns, such attorney in fact for that purpose.

(a) If the holder of any mortgage, deed to secure debt, deed of trust, or other instrument in the nature thereof shall hereafter succeed to the rights of Landlord under this Lease, whether through possession or foreclosure action or delivery of a new lease, then, at the option of such holder, Tenant shall attorn to and recognize such successor as Tenant’s Landlord under this Lease, and shall promptly execute and deliver any instrument that may be necessary to evidence such attornment.

(b) Upon the attornment provided for in subsection (a) above, this Lease shall continue in full force and effect as a direct lease between such successor landlord and Tenant, subject to all the terms, covenants, and conditions of this Lease; provided, however, that such holder, as successor landlord, shall not be liable for returning to Tenant, nor crediting against any rent due hereunder, any advance rentals previously paid by Tenant to Landlord or the Security Deposit unless such holder has acknowledged the receipt of the Security Deposit.

36. WAIVER OF SUBROGATION.

The Landlord and Tenant agree to cause to be inserted in all liability, casualty, fire and extended coverage insurance policies carried for the Premises, a provision substantially as follows: “It is hereby stipulated that this insurance shall not be invalidated if the insured waives or releases in writing prior to a loss, any or all rights of recovery against any party for loss occurring to the property covered by this policy.” Landlord and Tenant hereby mutually release each other from any and all liabilities or responsibilities to the other or anyone claiming through or under them by way of subrogation or otherwise, for any claims, damages, losses or liabilities arising out of the Premises, even if such claims, damages, losses or liabilities shall have been caused by the fault or negligence of the other party, or anyone for whom such party must be responsible; provided, however, this release shall be effective and in force and effect only (a) with respect to claims, damages, losses or liabilities occurring during such time as the releaser’s public liability, fire and extended coverage insurance policies contain a clause or endorsement that any such release shall not adversely affect or in any way impair said policies or prejudice the right of the releaser to recover thereunder; and (b) to the extent that any such claims, damages, losses and liabilities are covered by said insurance policies and the releaser has recovered thereunder.

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37. LEASE STATUS.

Upon Landlord’s request, the Tenant shall execute, acknowledge and deliver to the Landlord, a “Lease Status” letter and a statement in writing certifying that this Lease is in full force and effect and containing the dates through which the Guaranteed Minimum Rent, the Percentage Rent and any other charges have been paid. The statement so delivered to the Landlord may be relied upon by any prospective purchaser of or by any mortgagee of the Center.

38. RELEASE FROM LIABILITY IN CERTAIN EVENTS.

If Landlord is delayed or prevented from performing any obligations of Landlord hereunder, including, without limitation, repairs, rebuilding, or restoration, furnishing any services or performing any other covenant or duty, whether expressed herein or implied, due to the inability or difficulty in obtaining labor and materials necessary therefor or due to strike, lockout, embargo, war, governmental order or acts of God or any other cause beyond the control of Landlord then the Landlord shall not be liable to the Tenant for damages resulting therefrom, nor, except as expressly otherwise provided in connection with casualty losses or condemnation proceedings, shall the Tenant be entitled to any abatement or reduction of rent by reason thereof, nor shall the same give rise to a claim in the Tenant’s favor that such failure constitutes actual or constructive, partial or total, eviction from the Premises.

Notwithstanding any other provisions herein to the contrary, the liability of Landlord to Tenant or any other party claiming through Tenant or this Lease or in any relation to the Premises or the tenancy or status created by this Lease shall be expressly and completely limited to the enforcement of such liability against the interest of Landlord in the Premises only. Tenant and all other parties claiming through this lease or in relation to the Premises hereby agree that no enforcement or collection action or remedy shall be instituted, maintained or enforced against any assets of Landlord, except the Premises.

Tenant shall not be entitled to any compensation or reduction of rent by reason of inconvenience or loss arising from the necessity of the Landlord’s entering the Premises for any of the purposes authorized in this Lease, or for repairing the Premises or any portion of the building of which the Premises are a part, except as expressly otherwise provided herein in connection with casualty losses or condemnation proceedings.

39. REARRANGEMENT OF CENTER.

The Landlord reserves the right at any time and from time to time to rearrange the Center and to change, add to or modify the number and location of buildings, building dimensions and the Common Area of the Center, including, without limitation, the construction of new buildings, kiosks and other improvements in the parking area and reduction of the number of parking spaces, if in its sole judgment, the development, management or operation of the Center would be better served and provided that reasonable access to the Premises and the parking facilities within the Center are not materially impaired.

40. RELOCATION OF PREMISES.

(a) In the event the Premises leased to Tenant contain less than one-half of the total square feet of rentable floor area within all of the improvements located on the Property, Landlord reserves the right at any time after the 1st year anniversary of the Rental Commencement-Date, and upon giving not less than sixty (60) days prior written notice to Tenant, to transfer and remove Tenant from the Premises herein specified to any other Comparable Space (as hereinafter defined) in the improvements located on the Property and at an equivalent rental rate. The term “Comparable Space” as used herein shall mean other space which, in Landlord’s reasonable opinion, is of substantially equal size and has a comparable layout, substantially the same number of windows, and comparable visibility within the center. If Landlord determines in good faith that there is no Comparable Space and Tenant declines to relocate to other available, non-comparable space, then Landlord shall have the right to terminate this Lease effective ninety (90) days after the initial written notice from Landlord to Tenant. Landlord shall bear the expense of said removal and the expense of any renovations or alterations to said substituted space necessary to make the same substantially conform in arrangement and layout to the original space described in this Lease. If Landlord exercises such option, then the substituted space shall for all purposes hereof be deemed to be and constitute Premises under this Lease and all terms, conditions, covenants, warranties, agreements and provisions of this Lease, including, but not limited to, the rental rate per square foot and other rental adjustments shall continue in full force and effect and shall apply to the substituted space. Tenant agrees to vacate the Premises herein specified and to relocate to said substituted space promptly after the substituted space is ready for tenant occupancy as provided herein, and Tenant’s failure to do so shall constitute an event of default by Tenant under this Lease.

(b) In the event the Premises leased to Tenant contain less than one-half of the total square feet of rentable floor area within the Center, Landlord shall have the right to terminate this Lease effective at any time during the final twelve (12) months of the Lease term upon giving written notice of such election to Tenant at least ninety (90) days prior to the effective date of such termination. In the event Landlord shall exercise such option to terminate this Lease, Landlord shall bear the cost of moving Tenant’s furniture, files and other personal property from the Premises to other office space within miles of the Center selected by Tenant, and, in addition, the rental rate for the last month of Tenant’s occupancy of the Premises shall be waived.

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41. OPENING.

Tenant agrees to open the Premises for business within thirty (30) days after the Landlord notifies the Tenant that the Premises are ready for occupancy. The Rent Commencement Date may be prior to the Tenant opening for business.

42. SUCCESSORS.

The agreements, covenants, condition and stipulations contained in this Lease shall bind and inure to the benefit of the Landlord and the Tenant and their respective successors-in-trust, permitted sublessees, permitted assigns, heirs, executors and legal representatives, except as otherwise provided in this Lease. “Landlord” and “Tenant” as used herein shall include male and female, singular and plural, corporation, partnership, individual or entity in any place or places herein in which the context may require or permit such substitution, substitutions or designations.

43. RIGHTS CUMULATIVE.

All rights, powers and privileges available hereunder to the parties hereto are cumulative and are in addition to the rights granted by law.

44. SERVICE OF NOTICE AND ADDRESS OF THE PARTIES.

The Tenant herewith irrevocably agree to appoint as its agent the person in charge of the Tenant’s business being then operated in the Premises, to receive service of all notices hereunder including dispossessory and distraint complaints and pleadings, and if no person is then in charge of Tenant’s business in the Premises, then such notice may be given and service may be made by affixing a copy thereof on the main entrance of said Premises. All such notices given by or in behalf of the Landlord pursuant to the provision contained in this Lease may be mailed to the Tenant and Landlord at the addresses set forth on the Face Page of this Lease.

The notices required or permitted to be given pursuant to the term of this Lease, shall be deemed to be duly given if personally delivered to the Premises as provided above, if notice is personally delivered to Tenant or an officer or partner of Tenant or if deposited in the United States Mail, postage prepaid, by registered or certified mail, addressed to the parties at the place above named, or such other place as they may hereafter designate in writing for the delivery of such notices.

45. WAIVER OF RIGHTS.

No failure of Landlord to exercise from time to time any right or privilege granted Landlord hereunder, or to insist upon strict and faithful compliance by Tenant with all of the obligations hereunder required of the Tenant, and no custom or practice of the parties at variance with the terms hereof shall constitute a waiver of Landlord’s right to demand strict compliance with the terms hereof. No waiver by Landlord of any breach of any covenant of the Tenant herein contained shall be construed as a waiver of any subsequent breach of the same or any other covenant herein contained. Failure to adjust Rent or other charges is not a waiver and such may be done by Landlord at any time.

46. CAPTIONS.

Paragraph captions and marginal notes throughout this Lease are inserted for convenience and reference only, and the words contained therein shall in no way be held to explain, notify, amplify or aid in the interpretation, construction or meaning of the provisions of this Lease or as a limitation of the scope of the particular paragraph to which they refer.

47. QUIET ENJOYMENT.

So long as the Tenant pays the Rent reserved by this Lease and all other sums required herein and faithfully performs and observes each and every covenant and provision of Tenant contained herein Tenant shall have peaceable and quiet enjoyment and possession of the Premises together with the use of the Common Area facilities, subject to modifications of the Common Area as permitted herein, without any hindrance from the Landlord or of any person or entities lawfully claiming through the Landlord.

48. SECURITY.

The Landlord is not obligated to protect from the criminal acts of third parties the Tenant, Tenant’s agents, customers, invitees or employees, the Premises or the property of Tenant or any property of any of Tenant’s agents, customers, invitees or

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employees. Tenant hereby acknowledges that Tenant has the sole responsibility for the protection of the Premises, the Tenant’s property and the Tenant’s customers, agents, invitees and employees.

49. ENTIRE AGREEMENT.

This Lease together with the Face Page and all the exhibits and schedules which are referred to herein and by this reference made a part hereof, contain and embody the entire agreement of the parties hereto and no representations, inducements or agreements, oral or otherwise, between the parties not contained and embodied in the Lease shall be of any force or effect, and this Lease may not be modified, changed or terminated in whole or in part orally or in any other manner, except by an agreement in writing duly signed by all of the parties hereto.

50. TIME.

TIME IS OF THE ESSENCE.

51. GOVERNING LAW.

This Lease and the obligations of the parties shall be governed by the substantive laws of the State in which the Premises is located without regard to conflict laws.

52. SPECIAL STIPULATIONS.

Attached as EXHIBIT “F” are certain additional agreements between the parties which are by this reference made a part hereof.

53. NO ESTATE.

If this Lease is for Premises located in the State of Georgia then notwithstanding any other provision hereof this Lease shall not be construed to be a grant of an estate for years, but shall only be a usufruct.

54. NO PARTNERSHIP.

Nothing contained in this Lease shall be deemed or construed to create a partnership or joint venture between the Landlord and the Tenant or between the Landlord and any other party, or cause the Landlord to be responsible in any way for the debts or obligations of the Tenant or any other party, it being the intention of the parties that the only relationship hereunder is solely that of Landlord and Tenant.

55. LANDLORD’S LIEN.

In addition to the statutory landlord’s lien, Landlord shall have at all times a valid security interest to secure payment of all rental and other sums of money becoming due hereunder from Tenant, and to secure payment of any damages or loss which Landlord may suffer by reason of the breach by Tenant of any covenant, agreement or condition contained herein, upon all goods, wares, equipment, fixtures, furniture, improvements and other personal property of Tenant presently, or which may hereafter be, situated in the Premises, and all proceeds therefrom, and such property shall not be removed therefrom without the consent of Landlord until all arrearages in rent as well as any and all other sums of money then due to Landlord hereunder shall first have been paid and discharged and all the covenants, agreements and conditions hereof have been fully complied with and performed by Tenant. Upon the occurrence of default by Tenant, Landlord may, in addition to any other remedies provided herein or by law, enter upon the Premises and take possession of any and all goods, wares, equipment, fixtures, furniture, improvements and other personal property of Tenant situated in the Premises, without liability for trespass or conversion, and sell the same at public or private sale in compliance with the applicable Uniform Commercial Code with or without having such property at the sale, after giving Tenant reasonable notice of the time and place of any public sale or of the time after which any private sale is to be made, at which sale Landlord may purchase unless otherwise prohibited by law. Unless otherwise provided by law, and without intending to exclude any other manner of giving Tenant reasonable notice, the requirement of reasonable notice shall be met if such notice is given in the manner prescribed in this Lease given as therein provided at least ten (10) days before the time of sale. Any sale made pursuant to the provisions of this paragraph shall be deemed to have been a public sale conducted in a commercially reasonable manner if held in the Premises or where the property is located after the time, place and method of sale and a general description of the types of property to be sold have been advertised in the newspaper prescribed for advertisement of public sales at least once each week for two weeks before the date of the sale. The proceeds from any such disposition, less any and all expenses connected with the taking of possession, holding and selling of the property (including reasonable attorney’s fees and expenses), shall be applied as a credit against the indebtedness secured by the security interest granted in this paragraph. Any surplus shall be paid to Tenant or as otherwise required by law; Tenant shall pay any

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deficiencies forthwith. Upon request by Landlord, Tenant agrees to execute and deliver to Landlord a financing statement in form sufficient to perfect the security interest of Landlord in the aforementioned property and proceeds thereof under the provisions of the applicable Uniform Commercial Code in force. The statutory lien for rent is not hereby waived, the security interest herein granted being in addition and supplementary thereto.

56. EXECUTION AUTHORITY.

Each person signing this Lease as Tenant or on behalf of Tenant represents and warrants that such person has the full power and authority to execute the Lease as Tenant or on behalf of Tenant and that upon such execution, Tenant shall be fully bound by each and every provision of this Lease.

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LEASE EXHIBIT SUMMARY

Exhibit “A”	=	Center site plan with premises outlined in red
Exhibit “B”	=	Statement of Rent Commencement Date
Exhibit “C”	=	Statement of Landlord’s Work and Tenant’s Work
Exhibit “D”	=	Rental Adjustments
Exhibit “E”	=	Sign Specifications
Exhibit “F”	=	Special Stipulations
Exhibit “G”	=	Summary of Rent and Other Charges
Exhibit “H”	=	Lease Guaranty

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EXHIBIT “C”

LANDLORD’S AND TENANT’S ARCHITECTURAL

AND CONSTRUCTION WORK

Landlord agrees to construct for tenant the area designated as leased premises on Exhibit “A” for the Colony Bank at Tifton Village, located in Tifton, GA. The responsibilities as between landlord and tenant shall be hereinafter set forth. Landlord’s work shall be done at landlord’s sole cost and expense in accordance with applicable building codes. Tenant’s work shall be done at tenant’s sole cost and expense and be completed within thirty (30) days after completion of landlord’s work.

SECTION I - ARCHITECTURAL

1. Landlord will furnish to tenant a drawing of the premises showing thereon the location of all columns, and all doors opening to service area.

2. Tenant will, within 30 days from receipt of said drawing, complete its final design of the premises and submit for landlord’s approval of same.

3. Landlord shall bear the cost of architectural and engineering work necessary to accomplish work set forth in section iii of this Exhibit “C”.

4. Tenant shall bear the cost of architectural and engineering work necessary to accomplish work set forth in Section IV of this Exhibit “C”.

SECTION II - GENERAL DESIGN CRITERIA

1. Landlord will specify a standard type sign treatment of the existing sign facia located 10’-0 above the window and/or door line of the store front.

2. No store front or any part thereof shall project beyond the exterior perimeter of the premises, with the exception of signs approved by the landlord.

3. Maximum ceiling height from the top of the concrete floor slab to the finished ceiling shall be ten (10) feet.

4. Signs on the premises shall be in accordance with Landlord’s “sign standards,” which shall contain, among other things, the following:

(a) location of signs

(b) size of signs

(c) a prohibition against all box-type, open-face, non-lighted, incandescent, moving or blinking signs.

(d) shop drawings of all signs to be used must be submitted to the landlord fob approval or revision before fabrication

(e) all signs shall bear a UL label

SECTION III - LANDLORD’S WORK

Landlord will incorporate in the construction of the premises at landlord’s cost and expense the following items:

1. Building shell: building shell shall include and be limited to:

(a) complete roofing system

(b) complete structural roof system construction: columns, beams, rafters (exposed construction)

(c) rear wall and rear door with frame, if required by code or option of landlord.

2. Concrete floor slab: floor of the premises to be steel trowelled finish concrete slab or existing finish.

3. Demised wall partitions: demising wall partitions shall be metal studs covered with dry wall, finished with gypsum wallboard. Wall to be 1 hour rated and extend to underside of roof deck.

4. Store front, including glazing: store front shall be as existing

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5. Plumbing: water and sewer service to premises (excluding water meter).

6. Electrical: 200 amp maib service to the rear of the Premises.

SECTION IV - TENANT’S WORK

Any work beyond or in addition to that set forth in section iii of this Exhibit “C” shall be considered as tenant’s work and cost and expense of same shall be paid for by the tenant.

All tenant’s work shall conform to all applicable governing codes and landlord’s outline plans and specifications.

Tenant will furnish four complete sets of store plans with specifications to the landlord for landlord’s approval.

Tenant will furnish four complete sets of signage to landlord. The scale of the signage plans to be 1 inch = 1 foot.

Tenant will pay for any utility charges associated with the premises during and after construction of the premises.

Tenant will require any contractor or subcontractor to remove and dispose of, at least once a week, all debris and rubbish caused by the tenant’s work and upon completion to remove all temporary tenant structures, debris and rubbish of whatever kind remaining on any part of the Center.

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EXHIBIT “D”

RENTAL ADJUSTMENT

Effective upon the commencement of the First Lease Year and upon the commencement of each and every Lease Year thereafter the Minimum Guaranteed Rental shall be increased, but not decreased, over the initial Minimum Guaranteed Rental stated above and such increased Minimum Guaranteed Rental shall be due and payable in twelve (12) equal monthly installments during that following Lease Year commencing on the first day of the Lease Year. The Minimum Guaranteed Rental shall be increased to be the sums set forth below

1. During the FIRST Lease Year Minimum Guaranteed Rental shall be $42,000.00 per annum and payable $3,500.00 per month.

2. During the SECOND Lease Year Minimum Guaranteed Rental shall be $42,840.00 per annum and payable $3,570.00 per month.

3. During the THIRD Lease Year Minimum Guaranteed Rental shall be $43,680.00 per annum and payable $3,640.00 per month.

4. During the FOURTH Lease Year Minimum Guaranteed Rental shall be $44,520.00 per annum and payable $3,710.00 per month.

5. During the FIFTH Lease Year Minimum Guaranteed Rental shall be $45,360.00 per annum and payable $3,780.00 per month.

6. During the SIXTH Lease Year Minimum Guaranteed Rental shall be $46,200.00 per annum and payable $3,850.00 per month.

7. During the SEVENTH Lease Year Minimum Guaranteed Rental shall be $47,040.00 per annum and payable $3,920.00 per month.

8. During the EIGHTH Lease Year Minimum Guaranteed Rental shall be $47,880.00 per annum and payable $3,990.00 per month.

9. During the NINTH Lease Year Minimum Guaranteed Rental shall be $48,720.00 per annum and payable $4,060.00 per month.

10. During the TENTH Lease Year Minimum Guaranteed Rental shall be $49,560.00 per annum and payable $4,130.00 per month.

RENEWAL OPTION:

Tenant shall have the right to renew this Lease for Two (2) additional term of Five (5) years each; such renewal term to commence immediately upon the expiration of the preceding term hereof and to be upon the same terms, covenants and conditions of this Lease effective during such preceding term, except that Minimum Guaranteed Rent shall be computed as hereinbelow provided. Such renewal term shall be exercised by Tenant giving Landlord notice in writing of its election to renew at lease 120 days prior to the expiration the preceding lease term.

During such renewal term, Tenant agrees to pay to Landlord, a Minimum Guaranteed Rental amount to be calculated annually with Three (3)% increases each year of the Renewal teen.

Tenant may not exercise the aforementioned renewal option if:

1. Tenant is not occupying and doing business from the Premises at the time the option is exercised;

2. Tenant is in default under this Lease;

3. Tenant has not maintained a history of payments within the applicable grace period, if any, provided under this Lease;

4. Tenant has not continually occupied and operated from the Premises.

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EXHIBIT “E”

TENANT SIGN CRITERIA

GENERAL CRITERIA:

The purpose of these criteria is to allow flexibility of tenant signage within guidelines which are part of the overall design concept of the center.

Each tenant is allowed one (1) primary sign unit. All sign units must be submitted for approval to the landlord prior to fabrication and installation. The cost of fabrication and installation is the responsibility of each individual Tenant. Sign construction is to be completed in compliance with the instructions, limitations and criteria contained herein.

SPECIFICATIONS:

Type of sign is to be individual lighted letters on a raceway.

Choice of type style and use of logo are optional with the approval of Landlord. Fabrication is to be as follows:

(a) Letters to be fabricated aluminum channel with a minimum of .063 aluminum returns and backs.

(b) Letter face to be 1/8” acrylic sheet with 1” Jewelite trim cap.

(c) Raceway to be 8” tall, 6” deep fabricated aluminum with angle iron frame. (Minimum of .040 aluminum skin over frame)

(d) All light source is to be internal and concealed—13mm neon tubing, 6500 voltarc white.

(e) All wiring and transformers to be concealed in raceway and comply with the appropriate local ordinances.

Maximum letter height to be 20”. This may consist of:

One line of copy at 20” or

Two lines of copy at 9” with 2” space between lines.

Maximum width of sign to be equal to 80% of width of storefront.

Colors:

Letter return and raceway to be same color as shopping center fascade.

Face color and color of Jewelite trim are optional with approval of Landlord.

No two adjacent tenants will be allowed the same face color.

(This will be determined on a first come basis.)

Installation:

All signs are to have concealed attachment devices and clips.

Raceway to be flush mounted on sign band with no exposed fasteners.

(See sketch and detail attached.)

Sign manufacturer will supply electrical lead from sign through signband approximately 3’ in length.

Sign manufacturer is not responsible for final electrical hookup.

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EXHIBIT “F”

SPECIAL STIPULATIONS

1. For a period of two years after the turnover of Premises to Tenant, Landlord will not lease or sell the parcel land (described on attached plan, Exhibit “F-1”) to a user that operates a federally or state chartered bank.

2. Should Landlord not receive its final building permit on or before 12/31/04, then Landlord or Tenant may terminate this Lease.

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EXHIBIT “G”

SUMMARY OF RENT AND OTHER CHARGES

AS OF: November 19, 2003

Rental payments and other sums due pursuant to the Lease from Tenant to Landlord shall be delivered to Landlord’s offices at:

Stafford Properties, Inc.

80 West Wieuca Road

Suite 302

Atlanta, Georgia 30342

or to other locations Landlord may from time to time designate. All checks should be made payable to the following:

Mobile Home Tracts, LLC

FOR INFORMATION ONLY, the following payments without limitations, are currently due each month from Tenant, and on or before the first (1st) day of each month commencing on

Minimum Guaranteed Rental:	$	3,500.00
Common Area Maintenance:	$	128.33
Insurance:	$	46.67
Property Taxes:	$	128.33
TOTAL OF MONTHLY CHARGES:	$	3,803.33

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EX-11.1

EXHIBIT 11.1

STATEMENT OF COMPUTATION OF EARNINGS PER SHARE

	Nine Months Ended September 30, 2004			Three Months Ended September 30, 2004
	Shares	Earnings Per Share		Shares	Earnings Per Share
	(in Thousands)			(in Thousands)
Basic Weighted Average Shares Outstanding	5,704	$	1.05	5,708	$	0.36
Diluted
Average Shares Outstanding	5,704			5,708
Common Stock Equivalents	19			20
	5,723	$	1.05	5,728	$	0.36
	Nine Months Ended September 30, 2003			Three Months Ended September 30, 2003
	Shares	Earnings Per Share		Shares	Earnings Per Share
	(in Thousands)			(in Thousands)
Basic Weighted Average Shares Outstanding	5,695	$	0.88	5,695	$	0.30
Diluted
Average Shares Outstanding	5,695			5,695
Common Stock Equivalents	25			25
	5,720	$	0.88	5,720	$	0.30

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, James D. Minix, President and Chief Executive Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Colony Bankcorp, Inc. (the “Report”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:

a) designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

November 2, 2004

/s/ James D. Minix

James D. Minix, President and

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Terry L. Hester, Executive Vice President and Chief Financial Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Colony Bankcorp, Inc. (the “Report”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:

a) designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

November 2, 2004

/s/ Terry L. Hester

Terry L. Hester, Executive Vice President and

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CEO AND CFO PURSUANT TO

18 U.S.C. § 1350

AS ADOPTED PURSUANT TO

§ 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Form 10-Q of Colony Bankcorp, Inc. (the Company) for the period ending September 30, 2004 as filed with the Securities and Exchange Commission on the Date hereof (the Report), James D. Minix, President and Chief Executive Officer of the Company, and Terry L. Hester, Executive Vice President and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

November 2, 2004

/s/ James D. Minix

James D. Minix, President and

Chief Executive Officer

November 2, 2004

/s/ Terry L. Hester

Terry L. Hester, Executive Vice President and

Chief Financial Officer

This certification accompanies this Report pursuant to § 906 of the Sarbanes-Oxley Act 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended.