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, 2005 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 BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE 12B-2 OF THE ACT).     YES  ¨     NO  x

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

CLASS	OUTSTANDING AT NOVEMBER 7, 2005
COMMON STOCK, $1 PAR VALUE	7,181,320

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, 2005 AND DECEMBER 31, 2004.	3
B.      CONSOLIDATED STATEMENTS OF INCOME – FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004.	4
C.      CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004.	5
D.      CONSOLIDATED STATEMENTS OF CASH FLOWS – FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004.	6
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, 2005 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, 2005 AND DECEMBER 31, 2004

(DOLLARS IN THOUSANDS)

	September 30, 2005			December 31, 2004
	(Unaudited)
ASSETS
Cash and Cash Equivalents
Cash and Due from Banks	$	23,064			20,950
Federal Funds Sold		43,204			43,997
		66,268			64,947
Interest-Bearing Deposits		4,233			3,229
Investment Securities
Available for Sale, at Fair Value		107,910			112,512
Held to Maturity, at Cost (Fair Value of $80 and $81, Respectively)		80			81
		107,990			112,593
Federal Home Loan Bank Stock, at Cost		5,102			4,479
Loans Held for Sale		0			1,191
Loans		842,354			778,680
Allowance for Loan Losses		(10,663	)		(10,012	)
Unearned Interest and Fees		(198	)		(37	)
		831,493			768,631
Premises and Equipment		24,461			21,824
Other Real Estate		2,695			1,127
Goodwill		2,412			2,412
Intangible Assets		545			635
Other Assets		18,012			16,523
Total Assets	$	1,063,211		$	997,591
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Noninterest-Bearing	$	66,381		$	68,169
Interest-Bearing		834,350			782,160
		900,731			850,329
Borrowed Money
Subordinated Debentures		19,074			19,074
Other Borrowed Money		70,781			61,450
		89,855			80,524
Other Liabilities		5,732			4,975
Commitments and Contingencies
Stockholders’ Equity
Common Stock, Par Value $1 a Share, Authorized 20,000,000 Shares, Issued 7,181,320 and 5,738,343 Shares as of September 30, 2005 and December 31, 2004, Respectively		7,181			5,738
Paid-In Capital		24,000			23,713
Retained Earnings		36,834			33,119
Restricted Stock - Unearned Compensation		(358	)		(210	)
Accumulated Other Comprehensive Income (Loss), Net of Tax		(764	)		(597	)
		66,893			61,763
Total Liabilities and Stockholders’ Equity	$	1,063,211		$	997,591

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, 2005 AND 2004

AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

(UNAUDITED)

(DOLLARS IN THOUSANDS)

	Three Months Ended				Nine Months Ended
	9/30/2005		9/30/2004		9/30/2005		9/30/2004
Interest Income
Loans, including fees	$	15,065	$	12,256	$	42,179	$	34,763
Federal Funds Sold		241		89		669		227
Deposits with Other Banks		23		13		57		59
Investment Securities
U.S. Government Agencies		782		792		2,420		2,441
State, County and Municipal		60		63		178		229
Corporate Obligations		36		54		102		222
Dividends on Other Investments		55		27		136		87
		16,262		13,294		45,741		38,028
Interest Expense
Deposits		5,984		3,904		15,531		10,873
Federal Funds Purchased		8		1		15		4
Borrowed Money		1,004		816		2,832		2,375
		6,996		4,721		18,378		13,252
Net Interest Income		9,266		8,573		27,363		24,776
Provision for Loan Losses		869		864		2,702		2,709
Net Interest Income After Provisions for Loan Losses		8,397		7,709		24,661		22,067
Noninterest Income
Service Charges on Deposits		1,077		1,100		3,057		3,170
Other Service Charges, Commissions & Fees		186		149		539		413
Mortgage Banking Income		219		281		553		823
Other		124		92		659		365
		1,606		1,622		4,808		4,771
Noninterest Expense
Salaries and Employee Benefits		3,580		3,189		10,454		9,433
Occupancy and Equipment		994		940		2,819		2,606
Security Losses, net		0		31		0		31
Other Operating Expenses		1,990		2,095		5,968		5,694
		6,564		6,255		19,241		17,764
Income Before Income Taxes		3,439		3,076		10,228		9,074
Income Taxes		1,188		1,019		3,556		3,085
Net Income	$	2,251	$	2,057	$	6,672	$	5,989
Net Income Per Share of Common Stock
Basic	$	0.32	$	0.29	$	0.93	$	0.84
Diluted	$	0.31	$	0.29	$	0.93	$	0.84
Dividends Paid Per Share of Common Stock	$	0.072	$	0.064	$	0.21	$	0.186
Weighted Average Basic Shares Outstanding		7,143,741		7,134,803		7,143,741		7,129,773
Weighted Average Diluted Shares Outstanding		7,171,622		7,159,523		7,173,602		7,154,343

Per Share Data has been adjusted to reflect 5-for-4 stock split effective May 16, 2005.

The accompanying notes are an integral part of these statements.

4

COLONY BANKCORP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

(UNAUDITED)

(DOLLARS IN THOUSANDS)

	Three Months Ended					Nine Months Ended
	09/30/05			09/30/04		09/30/05			09/30/04
Net Income	$	2,251		$	2,057	$	6,672		$	5,989
Other Comprehensive Income, Net of Tax
Gains (Losses) on Securities Arising During Year		(150	)		857		(167	)		(228	)
Reclassification Adjustment		0			20		0			20
Unrealized Gains (Losses) on Securities		(150	)		877		(167	)		(208	)
Comprehensive Income	$	2,101		$	2,934	$	6,505		$	5,781

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, 2005 AND 2004

(UNAUDITED)

(DOLLARS IN THOUSANDS)

	2005			2004
CASH FLOW FROM OPERATING ACTIVITIES
Net Income	$	6,672		$	5,989
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on sale of investment securities		0			31
Depreciation		1,396			1,304
Provision for loan losses		2,702			2,709
Amortization of excess costs		89			107
Other prepaids, deferrals and accruals, net		1,303			1,970
Total adjustments		5,490			6,121
Net cash provided by operating activities		12,162			12,110
CASH FLOW FROM INVESTING ACTIVITIES
Cash received in business acquistion, net		0			14,357
Purchase of other assets (FHLB stock)		(623	)		(402	)
Purchases of securities available for sale		(24,691	)		(25,793	)
Proceeds from sales of securities available for sale		0			10,477
Proceeds from maturities, calls, and paydowns of investment securities:
Available for Sale		28,292			19,233
Held to Maturity		8			7
Decrease (increase) in interest-bearing deposits in banks		(1,004	)		8,426
Proceeds from sale of premises and equipment		12			0
Increase in loans		(68,286	)		(109,948	)
Purchase of premises and equipment		(4,033	)		(3,289	)
Other real estate and repossessions		1,303			1,175
Investment in other		0			(140	)
Cash surrender value of insurance		(116	)		(155	)
Net cash used by investing activities		(69,138	)		(86,052	)
CASH FLOW FROM FINANCING ACTIVITIES
Net increase in deposits		50,431			56,466
Dividends paid		(1,465	)		(1,290	)
Net increase in other borrowed money		9,331			1,323
Proceeds from issuance of subordinated debentures		0			4,640
Net cash provided by financing activities		58,297			61,139
Net increase (decrease) in cash and cash equivalents		1,321			(12,803	)
Cash and cash equivalents at beginning of period		64,947			59,723
Cash and cash equivalents at end of period	$	66,268		$	46,920

The accompanying notes are an integral part of these statements.

6

COLONY BANKCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies

Principles of Consolidation

Colony Bankcorp, Inc. (the Company) is a multi-bank holding company located in Fitzgerald, Georgia. The consolidated financial statements include the accounts of Colony Bankcorp, Inc. and its wholly-owned subsidiaries, Colony Bank of Fitzgerald, Fitzgerald, Georgia; Colony Bank Ashburn, Ashburn, Georgia; Colony Bank Worth, Sylvester, Georgia; Colony Bank of Dodge County, Eastman, Georgia; Colony Bank Wilcox, Rochelle, Georgia; Colony Bank Southeast, Broxton, Georgia; Colony Bank Quitman, FSB, Quitman, Georgia (the Banks); and Colony Management Services, Inc., Fitzgerald, Georgia. All significant intercompany accounts have been eliminated in consolidation. The accounting and reporting policies of Colony Bankcorp, Inc. conform to generally accepted accounting principles and practices utilized in the commercial banking industry.

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

Nature of Operations

The Banks provide a full range of retail and commercial banking services for consumers and small to medium size businesses located primarily in south and central Georgia. Lending and investing activities are funded primarily by deposits gathered through its retail branch office network.

Use of Estimates

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

Reclassifications

In certain instances, amounts reported in prior years’ consolidated financial statements have been reclassified to conform to statement presentations selected for 2005. Such reclassifications had no effect on previously reported stockholders’ equity or net income.

Concentrations of Credit Risk

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

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

Accounting Policies

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

7

(1) Summary of Significant Accounting Policies (Continued)

Investment Securities

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

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

Federal Home Loan Bank Stock

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

Loans Held for Sale

Loans held for sale are reported at the lower of cost or market value on an aggregate loan portfolio basis. Gains or losses realized on the sales 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.

Allowance for Loan Losses

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

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

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as either doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that

8

(1) Summary of Significant Accounting Policies (Continued)

Allowance for Loan Losses (Continued)

loan. The general component covers nonclassified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

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

Large groups of smaller balance homogenous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restricting agreement.

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.

Transfers of Financial Assets

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

Statement of Cash Flows

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

Income Taxes

The provision for income taxes is based upon income for financial statement purposes, adjusted for nontaxable income and nondeductible expenses. Deferred income taxes have been provided when different accounting methods have been used in determining income for income tax purposes and for financial reporting purposes. Deferred tax assets and liabilities are recognized based on future tax consequences attributable to differences arising from the financial statement carrying values of assets and liabilities and their tax bases. The differences relate primarily to depreciable assets (use of different depreciation methods for financial statement and income tax purposes) and allowance for loan losses (use of the allowance method for financial statement purposes and

9

(1) Summary of Significant Accounting Policies (Continued)

Income Taxes (Continued)

the direct write-off method for tax purposes). In the event of changes in the tax laws, deferred tax assets and liabilities are adjusted in the period of the enactment of those changes, with effects included in the income tax provision. The Company and its subsidiaries file a consolidated federal income tax return. Each subsidiary pays its proportional share of federal income taxes to the Company based on its taxable income.

Other Real Estate

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

Comprehensive Income

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

Off-Balance Sheet Credit Related Financial Instruments

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

Changes in Accounting Principles and Effects of New Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement No. 154, (“SFAS No. 154”) “Accounting Changes and Error Corrections – A Replacement of APB Opinion No. 20 and FASB Statement No. 3.” This new standard replaces Accounting Principles Board (“APB”) Opinion No. 20, “Accounting Changes”, and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statement.” Among other changes, SFAS No. 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. SFAS No. 154 also provides that (1) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a “restatement”. The new standard is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not anticipate this revision will have a material effect on its financial statements.

In December 2004, the FASB issued Statement No. 123 (Revised 2004) (“SFAS No. 123R”) “Share-Based Payment,” which requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. SFAS No. 123R replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” Share-based compensation arrangements include share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. SFAS No. 123R requires all share-based payments to employees be valued using a fair value method on the date of grant and expensed based on that fair value over the applicable vesting period. The Company adopted the cost recognition provision of SFAS No. 123 in 1995 and has been expensing compensation cost related to its restricted plan. SFAS No. 123R also amends SFAS No. 95 “Statement of Cash Flows”, requiring the benefits of tax deductions in excess of recognized compensation cost be reported as financing instead of operating cash flows. The Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107, (“SAB No. 107”) which expresses the SEC’s views regarding the interaction between SFAS No. 123R and certain SEC rules and regulations. Additionally, SAB No. 107 provides guidance related to share-based payment transactions for public companies. The Company will be required to apply SFAS No. 123R as of the annual reporting period that begins after September 15, 2005. The Company does not anticipate this revision will have a material effect on its financial statements.

In November 2004, the Emerging Issues Task Force (“EITF”) published Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” The Task Force discussed the meaning of other-than-temporary impairment and its application to certain investments carried at cost. The Task Force requested that the FASB staff consider other impairment models within the U.S. Generally Accepted Accounting Principles (“GAAP”) when developing its views. The Task Force also

10

(1) Summary of Significant Accounting Policies (Continued)

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

requested that the scope of the impairment issue be expanded to include equity investments and investments subject to FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and that the issue be addressed by the Task Force as a separate EITF issue. At the EITF meeting, the Task Force reached a consensus on one issue that certain quantitative and qualitative disclosures should be required for securities accounted for under Statement 115 that are impaired at the balance sheet date but for which an other-than-temporary impairment has not been recognized. The Board ratified the consensus on that one issue at its November 25, 2004 meeting. In September 2004, the Financial Accounting Standards Board (“FASB”) directed the FASB staff to issue two proposed FASB Staff Positions (“FSP”): Proposed FSP EITF Issue 03-1-a, which provides guidance for the application of paragraph 16 of EITF Issue 03-1 to debt securities that are impaired because of interest rate and/or sector spread increases, and Proposed FSP EITF Issue 03-1-b, which delays the effective date of Issue 03-1 for debt securities that are impaired because of interest rate and/or sector spread increases. In September 2005, the FASB reached a decision whereby they declined to provide additional guidance on the meaning of other-than-temporary impairment. The Board directed the FASB staff to issue EITF 03-1a as final and to draft a new FSP that will replace EITF 03-01. The final FSP (retitled FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments”) would be effective for other-than-temporary impairment analysis conducted in periods beginning after September 15, 2005. The Company does not anticipate this revision will have a material effect on its financial statements.

Restricted Stock – Unearned Compensation

In 1999, the board of directors of Colony Bankcorp, Inc. adopted a restricted stock grant plan which awards certain executive officers common shares of the Company. The maximum number of shares (split-adjusted) which may be subject to restricted stock awards is 64,701. During 2000 - 2005, 66,993 split-adjusted shares were issued under this plan, respectively and since the plan’s inception, 8,227 shares have been forfeited; thus, remaining shares which may be subject to restricted stock awards are 5,935 at September 30, 2005. 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).

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 (split-adjusted) which may be subject to restricted stock awards is 143,500. No shares have been issued pursuant to this stock grant plan.

(2) Cash and Balances Due from Banks

Components of cash and balances due from banks are as follows as of September 30, 2005 and December 31, 2004:

	September 30, 2005		December 31, 2004
Cash on Hand and Cash Items	$	8,641	$	8,316
Noninterest-Bearing Deposits with Other Banks		14,423		12,634
	$	23,064	$	20,950

As of September 30, 2005, the Banks had required deposits of approximately $2,749 with the Federal Reserve; of which, $2,734 was met by cash on hand and $15 was met through a reserve allocation with a correspondent bank.

11

(3) Investment Securities

Investment securities as of September 30, 2005 are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities Available for Sale:
U.S. Government Agencies
Mortgage-Backed	$	71,341	$	53	$	(1,013	)	$	70,381
Other		28,285		32		(362	)		27,955
State, County & Municipal		6,205		68		(18	)		6,255
Corporate Obligations		3,074		0		(28	)		3,046
Marketable Equity Securities		163		129		(19	)		273
	$	109,068	$	282	$	(1,440	)	$	107,910
Securities Held to Maturity:
State, County and Municipal	$	80	$	0	$	0		$	80

The amortized cost and fair value of investment securities as of September 30, 2005, by contractual maturity, are shown hereafter. Expected maturities will differ from contractual maturities because issuers have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities
	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in One Year or Less	$	3,659	$	3,631	$	0	$	0
Due After One Year Through Five Years		26,506		26,139		0		0
Due After Five Years Through Ten Years		6,184		6,259		0		0
Due After Ten Years		1,215		1,227		80		80
		37,564		37,256		80		80
Mortgage-Backed Securities		71,341		70,381		0		0
Marketable Equity Securities		163		273		0		0
	$	109,068	$	107,910	$	80	$	80

Investment securities as of December 31, 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	$	74,431	$	106	$	(1,079	)	$	73,458
Other		29,076		81		(103	)		29,054
State, County & Municipal		6,800		98		(11	)		6,887
Corporate Obligations		3,109		4		0			3,113
	$	113,416	$	289	$	(1,193	)	$	112,512
Securities Held to Maturity:
State, County and Municipal	$	81	$	0	$	0		$	81

Proceeds from sales of investments available for sale during first three quarters of 2005 and 2004 was $0 and $10,477 respectively.

Investment securities having a carry value approximating $63,213 and $70,117 as of September 30, 2005 and December 31, 2004, respectively, were pledged to secure public deposits and for other purposes.

12

(3) Investment Securities (Continued)

Information pertaining to securities with gross unrealized losses at September 30, 2005 and December 31, 2004 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	Less Than 12 Months					12 Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
September 30, 2005
U.S. Government Agencies
Mortgage-Backed	$	22,545	$	(213	)	$	41,318	$	(800	)	$	63,863	$	(1,013	)
Other		8,406		(64	)		17,265		(298	)		25,671		(362	)
State, County and Municipal		798		(1	)		1,376		(17	)		2,174		(18	)
Corporate Obligations		0		0			2,040		(28	)		2,040		(28	)
Marketable Equity Securities		60		(19	)		0		0			60		(19	)
	$	31,809	$	(297	)	$	61,999	$	(1,143	)	$	93,808	$	(1,440	)
December 31, 2004
U.S. Government Agencies
Mortgage-Backed	$	31,300	$	(423	)	$	31,391	$	(656	)	$	62,691	$	(1,079	)
Other		13,811		(92	)		1,180		(11	)		14,991		(103	)
State, County and Municipal		2,246		(11	)		0		0			2,246		(11	)
	$	47,357	$	(526	)	$	32,571	$	(667	)	$	79,928	$	(1,193	)

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

At September 30, 2005, the debt securities with unrealized losses have depreciated 1.51 percent from the Company’s amortized cost basis. These securities are guaranteed by either U.S. Government or other governments. These unrealized losses relate principally to current interest rates for similar type of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other-than-temporary.

(4) Loans

The composition of loans as of September 30, 2005 and December 31, 2004 was as follows:

	September 30, 2005		December 31, 2004
Commercial, Financial and Agricultural	$	59,543	$	44,284
Real Estate – Construction		129,300		100,774
Real Estate – Farmland		40,604		38,246
Real Estate – Other		522,058		500,869
Installment Loans to Individuals		72,705		73,685
All Other Loans		18,144		20,822
	$	842,354	$	778,680

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 $9,145 and $7,856 as of September 30, 2005 and December 31, 2004, respectively and total recorded investment in loans past due 90 days or more and still accruing interest approximated $8 and $953, respectively.

13

(5) Allowance for Loan Losses

Transactions in the allowance for loan losses are summarized below for nine months ended September 30, 2005 and September 30, 2004 as follows:

	September 30, 2005			September 30, 2004
Balance, Beginning	$	10,012		$	8,516
Provision Charged to Operating Expenses		2,702			2,709
Loans Charged Off		(2,266	)		(1,249	)
Loan Recoveries		215			138
Balance, Ending	$	10,663		$	10,114

(6) Premises and Equipment

Premises and equipment are comprised of the following as of September 30, 2005 and December 31, 2004:

	September 30, 2005			December 31, 2004
Land	$	6,094		$	4,889
Building		17,322			16,418
Furniture, Fixtures and Equipment		11,736			10,821
Leasehold Improvements		991			967
Construction in Progress		1,303			455
		37,446			33,550
Accumulated Depreciation		(12,985	)		(11,726	)
	$	24,461		$	21,824

Depreciation charged to operations totaled $1,396 and $1,304 for September 30, 2005 and September 30, 2004, respectively.

Certain Company facilities and equipment are leased under various operating leases. Rental expense approximated $152 and $128 for nine months ended September 30, 2005 and September 30, 2004, respectively.

(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

The aggregate amount of overdrawn deposit accounts reclassified as loan balances totaled $931 and $462 as of September 30, 2005 and December 31, 2004.

Components of interest-bearing deposits as of September 30, 2005 and December 31, 2004 are as follows:

	September 30, 2005		December 31, 2004
Interest-Bearing Demand	$	161,333	$	167,320
Savings		38,119		38,862
Time, $100,000 and Over		280,685		203,886
Other Time		354,213		372,092
	$	834,350	$	782,160

14

(8) Deposits (Continued)

The aggregate amount of short-term jumbo certificates of deposit, each with a minimum denomination of one hundred thousand was approximately $230,827 and $180,731 as of September 30, 2005 and December 31, 2004, respectively.

As of September 30, 2005 and December 31, 2004, the scheduled maturities of certificates of deposits are as follows:

Maturity	September 30, 2005		December 31, 2004
One Year and Under	$	531,419	$	511,310
One to Three Years		79,630		44,752
Three Years and Over		23,849		19,916
	$	634,898	$	575,978

Brokered deposits are third party deposits placed by or through the assistance of a deposit broker. As of September 30, 2005, the Company had $53,070 in brokered deposits compared to $0 at December 31, 2004.

(9) Other Borrowed Money

Other borrowed money at September 30, 2005 and December 31, 2004 is summarized as follows:

	September 30, 2005		December 31, 2004
Federal Home Loan Bank Advances	$	69,000	$	61,000
The Banker’s Bank Note Payable (1)		281		450
The Banker’s Bank (2)		1,500		0
	$	70,781	$	61,450

Advances from the Federal Home Loan Bank (FHLB) have maturities ranging from 2005 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 and cash balances held by the FHLB are pledged as collateral for the FHLB advances outstanding. At September 30, 2005, the Company had available line of credit commitments totaling $94,521, of which $25,521 was available.

(1) The Banker’s Bank note payable was renewed on January 7, 2003 for $1,113 at a rate of the Wall Street Prime minus one half percent. Payments are due monthly with the entire unpaid balance due January 7, 2007. The debt is secured by all furniture, fixtures, machinery, equipment and software of Colony Management Services, Inc. Colony Bankcorp, Inc. guarantees the debt.

(2) The Banker’s Bank note payable originated on May 27, 2005 at a rate of Wall Street Prime minus 0.75 percent with a maturity date of May 27, 2006. Interest only payments will be made quarterly. Any outstanding principal and accrued interest will be due and payable at maturity. Collateral is a negative pledge of Colony Bank Wilcox stock.

The aggregate stated maturities of other borrowed money at September 30, 2005 are as follows:

Year	Amount
2005	$	4,073
2006		13,208
2007		2,500
2008		16,000
2009 and Thereafter		35,000
	$	70,781

(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 Markets. The Trust Preferred Securities have a maturity of 30 years and are redeemable after five years with certain exceptions. At September 30, 2005, the floating-rate securities had a 7.56 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 Markets. The Trust Preferred Securities have a maturity of 30 years and are redeemable after five years with certain exceptions. At September 30, 2005, the floating-rate securities had a 7.21 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 3.25 percent.

15

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

During the second quarter of 2004, the Company formed a third subsidiary whose sole purpose was to issue $4,500 in Trust Preferred Securities through a pool sponsored by FTN Financial Capital Markets. The Trust Preferred Securities have a maturity of 30 years and are redeemable after five years with certain exceptions. At September 30, 2005, the floating rate securities had a 6.57 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 2.68 percent.

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

(11) Rate Lock Commitments

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, 2005 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 $479 for 2004, $426 for 2003 and $427 for 2002.

(13) Commitments and Contingencies

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

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

At September 30, 2005 and December 31, 2004 the following financial instruments were outstanding whose contract amounts represent credit risk:

	Contract Amount
	September 30, 2005		December 31, 2004
Loan Commitments	$	102,714	$	85,094
Standby Letters of Credit		2,062		1,829
Performance Letter of Credit		468		329

16

(13) Commitments and Contingencies (Continued)

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

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

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

Purchase Commitments. The Company has signed a contract for approximately $991 for the construction of a Savannah office. As of September 30, 2005 the Company has paid $838 toward construction in progress. The Company has also signed a contract for approximately $759 for construction of a second office in Warner Robins. As of September 30, 2005, the Company has paid $324 toward construction in progress. The Company has signed a contract for approximately $886 for construction of a Columbus office. As of September 30, 2005 no payments have been made.

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.

(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 $1,106 and $945 as of September 30, 2005 and December 31, 2004, respectively. Benefit payments under the contracts were $126 and $132 for the nine month periods ended September 30, 2005 and September 30, 2004, respectively. Provisions charged to operations totaled $314 and $164 for the nine month periods ended September 30, 2005 and September 30, 2004, respectively.

Fee income recognized with deferred compensation plans totaled $279 and $88 for nine month periods ended September 30, 2005 and September 30, 2004, respectively.

(15) Regulatory Capital Matters

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

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. The amounts and ratios as defined in regulations are presented hereafter. Management believes, as of September 30, 2005, the Company meets all capital adequacy requirements to which it is subject under the regulatory framework for prompt corrective action. In the opinion of management, there are no conditions or events since prior notification of capital adequacy from the regulators that have changed the institution’s category.

17

(15) Regulatory Capital Matters (Continued)

The following table summarizes regulatory capital information as of September 30, 2005 and December 31, 2004 on a consolidated basis and for each significant subsidiary, as defined.

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of September 30, 2005
Total Capital to Risk-Weighted Assets
Consolidated	$	93,722	11.19	%	$	67,007	8.00	%	$	83,759	10.00	%
Fitzgerald		16,190	11.09			11,683	8.00			14,604	10.00
Ashburn		27,574	11.09			19,893	8.00			24,866	10.00
Worth		13,326	10.50			10,152	8.00			12,690	10.00
Southeast		13,665	10.80			10,119	8.00			12,649	10.00
Quitman		10,952	12.04			7,276	8.00			9,096	10.00
Tier 1 Capital to Risk-Weighted Assets
Consolidated	$	83,200	9.93	%	$	33,504	4.00	%	$	50,076	6.00	%
Fitzgerald		14,470	9.91			5,842	4.00			8,762	6.00
Ashburn		24,464	9.84			9,946	4.00			14,920	6.00
Worth		11,735	9.25			5,076	4.00			7,614	6.00
Southeast		12,418	9.82			5,060	4.00			7,590	6.00
Quitman		9,921	10.91			3,638	4.00			5,457	6.00
Tier 1 Capital to Average Assets
Consolidated	$	83,200	8.07	%	$	41,217	4.00	%	$	51,521	5.00	%
Fitzgerald		14,470	7.90			7,324	4.00			9,155	5.00
Ashburn		24,464	7.97			12,279	4.00			15,348	5.00
Worth		11,735	7.47			6,281	4.00			7,851	5.00
Southeast		12,418	8.78			5,659	4.00			7,073	5.00
Quitman		9,921	7.86			5,047	4.00			6,309	5.00

18

(15) Regulatory Capital Matters (Continued)

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2004
Total Capital to Risk-Weighted Assets
Consolidated	$	87,446	11.35	%	$	61,620	8.00	%	$	77,025	10.00	%
Fitzgerald		15,024	11.55			10,407	8.00			13,009	10.00
Ashburn		26,709	11.01			19,413	8.00			24,266	10.00
Worth		12,398	10.24			9,687	8.00			12,108	10.00
Southeast		10,686	10.59			8,075	8.00			10,093	10.00
Quitman		10,049	12.90			6,232	8.00			7,790	10.00
Tier 1 Capital to Risk-Weighted Assets
Consolidated	$	77,813	10.10	%	$	30,810	4.00	%	$	46,215	6.00	%
Fitzgerald		13,396	10.30			5,204	4.00			7,805	6.00
Ashburn		23,674	9.76			9,706	4.00			14,559	6.00
Worth		10,882	8.99			4,843	4.00			7,265	6.00
Southeast		9,560	9.47			4,037	4.00			6,056	6.00
Quitman		9,230	11.85			3,116	4.00			4,674	6.00
Tier 1 Capital to Average Assets
Consolidated	$	77,813	7.88	%	$	39,488	4.00	%	$	49,360	5.00	%
Fitzgerald		13,396	8.02			6,680	4.00			8,350	5.00
Ashburn		23,674	7.56			12,521	4.00			15,652	5.00
Worth		10,882	6.93			6,277	4.00			7,846	5.00
Southeast		9,560	8.26			4,628	4.00			5,785	5.00
Quitman		9,230	8.49			4,349	4.00			5,436	5.00

(16) Business Combination

Colony Bankcorp, Inc.’s wholly-owned subsidiary, Colony Bank Ashburn, and Flag Bank entered into a Purchase and Assumption Agreement dated as of December 19, 2003, for Flag Bank’s Thomaston office 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	$	14,357
Loans, Net		16,760
Premises and Equipment		2,188
Goodwill Arising in Acquisition		1,964
Core Deposit Intangible		536
Other Assets		54
Deposits		(35,804	)
Other Liabilities		(55	)
Net Assets Acquired	$	—

19

(16) Business Combination (Continued)

The following proforma information is based on the assumption that the acquisition took place as of January 1, 2004:

	Three Months Ended				Nine Months Ended
	September 30, 2005		September 30, 2004		September 30, 2005		September 30, 2004
Interest Income	$	16,262	$	13,294	$	45,741	$	38,343
Interest Expense		6,996		4,721		18,378		13,379
Net Income		2,251		2,057		6,672		6,062
Earnings Per Share
Basic	$	0.32	$	0.29	$	0.93	$	0.85
Diluted	$	0.31	$	0.29	$	0.93	$	0.85
Weighted Average Shares - Basic		7,143,741		7,134,803		7,143,741		7,129,773
Weighted Average Shares - Diluted		7,171,622		7,159,523		7,173,602		7,154,343

20

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

The parent company’s balance sheets as of September 30, 2005 and December 31, 2004 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, 2005 AND DECEMBER 31, 2004

	September 30, 2005			December 31, 2004
	(Unaudited)
ASSETS
Cash	$	166		$	163
Premises and Equipment, Net		1,251			1,102
Investment in Subsidiaries, at Equity		86,036			79,540
Other		878			703
Totals Assets	$	88,331		$	81,508
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Dividends Payable	$	517		$	473
Other		347			198
		864			671
Other Borrowed Money		1,500			0
Subordinated Debt		19,074			19,074
Stockholders’ Equity
Common Stock, Par Value $1 a Share; Authorized 20,000,000 Shares, Issued 7,181,320 and 5,738,343 Shares as of September 30, 2005 and December 31, 2004, Respectively		7,181			5,738
Paid-In Capital		24,000			23,713
Retained Earnings		36,834			33,119
Restricted Stock - Unearned Compensation		(358	)		(210	)
Accumulated Other Comprehensive Income (Loss), Net of Tax		(764	)		(597	)
		66,893			61,763
Total Liabilities and Stockholders’ Equity	$	88,331		$	81,508

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

COLONY BANKCORP, INC. (PARENT ONLY)

STATEMENT OF INCOME AND COMPREHENSIVE INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004

(UNAUDITED)

	SEPTEMBER 30, 2005			SEPTEMBER 30, 2004
Income
Dividends from Subsidiaries	$	3,452		$	1,942
Other		52			49
		3,504			1,991
Expenses
Interest		946			600
Salaries and Employee Benefits		773			600
Other		551			467
		2,270			1,667
Income Before Taxes and Equity in Undistributed Earnings of Subsidiaries		1,234			324
Income Tax (Benefits)		(725	)		(524	)
Income Before Taxes and Equity in Undistributed Earnings of Subsidiaries		1,959			848
Equity in Undistributed Earnings of Subsidiaries		4,713			5,141
Net Income		6,672			5,989
Other Comprehensive Income, Net of Tax
Losses on Securities Arising During Year		(167	)		(228	)
Reclassification Adjustment		0			20
Unrealized Losses in Securities		(167	)		(208	)
Comprehensive Income	$	6,505		$	5,781

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

COLONY BANKCORP, INC. (PARENT ONLY)

STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004

(UNAUDITED)

	2005			2004
Cash Flows from Operating Activities
Net Income	$	6,672		$	5,989
Adjustments to Reconcile Net Income to Net Cash Provided from Operating Activities
Depreciation and Amortization		69			61
Equity in Undistributed Earnings of Subsidiary		(4,713	)		(5,141	)
Other		86			195
		2,114			1,104
Cash Flows from Investing Activities
Capital Infusion in Subsidiary		(1,950	)		(2,300	)
Purchases of Premises and Equipment		(196	)		(15	)
Investment in Statutory Trust		0			(140	)
		(2,146	)		(2,455	)
Cash Flows from Financing Activities
Dividends Paid		(1,465	)		(1,290	)
Principal Payments on Notes and Debentures		0			(1,000	)
Proceeds from Notes		1,500			0
Proceeds from Subordinated Debt		0			4,640
		35			2,350
Increase in Cash		3			999
Cash, Beginning		163			15
Cash, Ending	$	166		$	1,014

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(18) Earnings Per Share

SFAS No. 128 establishes standards for computing and presenting basic and diluted earnings per share. Basic earnings per share is calculated and presented based on income available to common stockholders divided by the weighted average number of shares outstanding during the reporting periods. Diluted earnings per share reflects the potential dilution of restricted stock. The following presents earnings per share for the three months and nine months ended September 30, 2005 and 2004, respectively, under the requirements of Statement 128:

	Three Months Ended September 30, 2005					Three Months Ended September 30, 2004
	Income Numerator		Common Shares Denominator	EPS		Income Numerator		Common Shares Denominator		EPS
Basic EPS
Income Available to Common Stockholders	$	2,251	7,144	$	0.32	$	2,057	7,135	$0.29
Dilutive Effect of Potential Common Stock
Restricted Stock			28					24
Diluted EPS
Income Available to Common Stockholders After Assumed Conversions of Dilutive Securities	$	2,251	7,172	$	0.31	$	2,057	7,159	$0.29
	Nine Months Ended September 30, 2005					Nine Months Ended September 30, 2004
	Income Numerator		Common Shares Denominator	EPS		Income Numerator		Common Shares Denominator		EPS
Basic EPS
Income Available to Common Stockholders	$	6,672	7,144	$	0.93	$	5,989	7,130	$0.84
Dilutive Effect of Potential Common Stock
Restricted Stock			30					24
Diluted EPS
Income Available to Common Stockholders After Assumed Conversions of Dilutive Securities	$	6,672	7,174	$	0.93	$	5,989	7,154	$0.84

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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.

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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, 2005 and 2004, and results of operations for each of three months and nine months in the periods ended September 30, 2005 and 2004. 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.

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

26

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 $2.251 million, or $0.31 diluted per common share, in three months ended September 30, 2005 compared to $2.057 million, or $0.29 diluted per common share, in three months ended September 30, 2004 and net income totaled $6.672 million or $0.93 diluted per common share in nine months ended September 30, 2005 compared to $5.989 million, or $0.84 diluted per common share, in nine months ended September 30, 2004.

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
	2005			2004			2005			2004
Taxable-equivalent net interest income	$	9,325		$	8,639		$	27,533		$	24,981
Taxable-equivalent adjustment		59			66			170			205
Net interest income		9,266			8,573			27,363			24,776
Provision for possible loan losses		869			864			2,702			2,709
Non-interest income		1,606			1,622			4,808			4,771
Non-interest expense		6,564			6,255			19,241			17,764
Income before income taxes		3,439			3,076			10,228			9,074
Income Taxes		1,188			1,019			3,556			3,085
Net income	$	2,251		$	2,057		$	6,672		$	5,989
Basic per common share:
Net income	$	0.32		$	0.29		$	0.93		$	0.84
Diluted per common share:
Net income	$	0.31		$	0.29		$	0.93		$	0.84
Return on average assets:
Net income		0.87	%		0.86	%		0.88	%		0.87	%
Return on average equity:
Net income		13.60	%		13.82	%		13.83	%		13.71	%

Income from operations for three months ended September 30, 2005 increased $0.19 million, or 9.43 percent, compared to the same period in 2004. The increase was primarily the result of a $0.69 million increase in net interest income, a decrease of $0.02 million in non-interest income, an increase of $0.005 million in the provision for loan losses, a $0.31 million increase in non-interest expense and a $0.17 million increase in income tax expense.

Income from operations for nine months ended September 30, 2005 increased $0.68 million, or 11.40 percent compared to the same period in 2004. The increase was primarily the result of a $2.59 million increase in net interest income and an increase of $0.04 million in non-interest income. These positive impacts were partly offset by $1.48 million increase in non-interest expense and $0.47 million increase in income tax expense.

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

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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 54.13 percent of total revenue for nine months ended September 30, 2005 and 57.89 percent for the same period a year ago.

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

The Federal Reserve Board influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. The Company’s loan portfolio is significantly affected by changes in the prime interest rate. The prime interest rate, which is the rate offered on loans to borrowers with strong credit, began 2001 at 9.50 percent and decreased 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 percent. During 2002, the prime rate remained at 4.75 percent until the fourth quarter when the rate decreased 50 basis points to 4.25 percent. During 2003, the prime rate remained at 4.25 percent until the end of the second quarter, when the rate decreased 25 basis points to 4.00 percent. During 2004, the prime rate increased 100 basis points to 5.00 percent and to date in 2005 has increased another 175 basis points to 6.75 percent. The federal funds rate, which is the cost of immediately available overnight funds, decreased in a similar manner. It began 2001 at 6.50 percent and decreased 475 basis points over the course of the year, and began 2002 at 1.75 percent and decreased 50 basis points in the fourth quarter. During 2003, the federal funds rate remained at 1.25 percent until the end of the second quarter, when the rate decreased 25 basis points to 1.00 percent. During 2004, the federal funds rate increased 100 basis points to 2.00 percent and to date in 2005 has increased another 175 basis points to 3.75 percent. It is anticipated that future interest rate hikes will occur during the balance of 2005.

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, 2004 to September 30, 2005 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, 2004 to September 30, 2005 (1)
($ in thousands)	Volume			Rate			Total
Interest Income
Loans, Net-taxable	$	4,339		$	3,068		$	7,407
Investment Securities
Taxable		69			(210	)		(141	)
Tax-exempt		(84	)		7			(77	)
Total Investment Securities		(15	)		(203	)		(218	)
Interest-Bearing Deposits in other Banks		(39	)		37			(2	)
Funds Sold		23			419			442
Other Interest - Earning Assets		46			3			49
Total Interest Income		4,354			3,324			7,678
Interest Expense
Interest-Bearing Demand and
Savings Deposits		15			203			218
Time Deposits		1,306			3,134			4,440
Other Interest-Bearing Liabilities
Funds Purchased and Securities
Under Agreement to Repurchase		2			9			11
Subordinated Debentures		105			213			318
Other Debt		104			35			139
Total Interest Expense		1,532			3,594			5,126
Net Interest Income	$	2,822		$	(270	)	$	2,552

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

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

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

29

Interest rates play a major part in the net interest income of financial institutions. The repricing of interest earning assets and interest-bearing liabilities can influence the changes in net interest income. The timing of repriced assets and liabilities is Gap management and our Company has established its policy to maintain a Gap ratio in the one-year time horizon of 0.80 to 1.20.

Our exposure to interest rate risk is reviewed on at least a 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 percent of its loan portfolio in adjustable rate loans that reprice with prime rate changes, while the bulk of its other loans mature within 3 years. The liabilities to fund assets are primarily in short term certificate of deposits that mature within one year. This balance sheet composition has allowed the Company to be relatively constant with its net interest margin the past several years, though the unprecedented 475 basis point decrease by U.S. Federal Reserve in 2001, 50 basis point decrease in 2002 and 25 basis point decrease in 2003 resulted in significant net interest margin pressure. Net interest margin remained flat at 3.82 percent for nine months ended September 30, 2005 compared to 3.82 percent for the same period a year ago. We anticipate slight compression or a flat margin for the balance of 2005 given the Federal Reserve’s present increased interest rate forecast for the balance of 2005.

Taxable-equivalent net interest income for nine months ended September 30, 2005 increased $2.55 million, or 10.22 percent 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 increasing average interest rates. The average volume of earning assets during nine months ended September 30, 2005 increased almost $89 million compared to the same period a year ago while over the same period the net interest margin remained flat at 3.82 percent. Growth in average earning assets during 2005 and 2004 was primarily in loans.

The average volume of loans increased $89.6 million in nine months ended September 30, 2005 compared to the same period a year ago. The average yield on loans increased 51 basis points in nine months ended September 30, 2005 compared to the same period a year ago. Funding for this growth was primarily provided by deposit growth. The average volume of deposits increased $79.3 million in nine months ended September 30, 2005 compared to the same period a year ago. Interest-bearing deposits made up 95.3 percent of the growth in average deposits in nine months ended September 30, 2005. Accordingly, the ratio of average interest-bearing deposits to total average deposits was 92.3 percent in nine months ended September 30, 2005 compared to 92.02 percent in the same period a year ago. This deposit mix, combined with a general increase in market rates, had the effect of (i) increasing the average cost of total deposits by 55 basis points in nine months ended September 30, 2005 compared to the same period a year ago and, (ii) mitigating a portion of the impact of increasing 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 3.59 percent in nine months ended September 30, 2005 compared to 3.63 percent in the same period a year ago. The net interest spread, as well as the net interest margin, will be impacted by future changes in short-term and long-term interest rate levels, as well as the impact from the competitive environment. A discussion of the effects of changing interest rates on net interest income is set forth in Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.

Provision for 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 $2.70 million in nine months ended September 30, 2005 compared to $2.71 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
	2005		2004		2005		2004
Service charges on deposit accounts	$	1,077	$	1,100	$	3,057	$	3,170
Other charges, commissions and fees		186		149		539		413
Other		124		92		659		365
Mortgage banking income		219		281		553		823
Total	$	1,606	$	1,622	$	4,808	$	4,771

Total non-interest income for three months ended September 30, 2005 decreased $16 thousand, or 0.99 percent compared to the same period a year ago. Total interest income for nine months ended September 30, 2005 increased $37 thousand, or 0.78 percent compared to the same period a year ago. Growth in non-interest income over the comparable periods was primarily in other income while mortgage banking fees 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, 2005 decreased $23 thousand, or 2.09 percent, compared to the same period a year ago. Service charges on deposit accounts for nine months ended September 30, 2005 decreased $113 thousand, or 3.56 percent, compared to the same period a year ago. In both periods, the decrease was primarily due to a reduction in overdraft fees, which was mostly related to consumer and commercial demand deposit accounts.

Other Charges, Commissions, and Fees. Other commission and fee income for three months ended September 30, 2005 increased $37 thousand, or 24.83 percent, compared to the same year ago period. The increase was primarily due to increased ATM fees of $25 thousand and increased credit life insurance commissions of $8 thousand for three months ended September 30, 2005 compared to the same year ago period. Other commission and fee income for nine months ended September 30, 2005 increased $126 thousand, or 30.51 percent, compared to the same year ago period. The increase was primarily due to increased ATM fees of $106 thousand and increased credit life insurance commissions of $10 thousand for nine months ended September 30, 2005 compared to the same year ago period.

Other Income. Other income for three months ended September 30, 2005 increased $32 thousand, or 34.78 percent, compared to the same year ago period. Deferred compensation income increased $21 thousand and gain on the sale of SBA loans increased $10 thousand to account for the increase in the three month period ended September 30, 2005 compared to the same year ago period. Other income for nine months ended September 30, 2005 increased $294 thousand, or 80.55 percent, compared to the same year ago period. Non-recurring deferred compensation income accounts for $163 thousand of the increase. The non-recurring income results from an accounting entry recording stock received from the demutualization of two insurance companies. Other miscellaneous income accounts increased $32 thousand and gain on the sale of SBA loans increased $42 thousand to account for the other significant increase in other income.

Mortgage Banking Fees. Mortgage banking fees for three months ended September 30, 2005 decreased $62 thousand, or 22.06 percent, compared to the same period a year ago and for the nine months ended September 30, 2005 decreased $270 thousand, or 32.81 percent, compared to the same period a year ago. The decrease in both periods is primarily attributable to a decrease in mortgage loan refinancing activity. The company anticipates mortgage loan refinancing to trend downward in future years as most borrowers have already refinanced to historical low rates.

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Non-Interest Expense

The components of non-interest expense were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2005		2004		2005		2004
Salaries and employee benefits	$	3,580	$	3,189	$	10,454	$	9,433
Occupancy and equipment		994		940		2,819		2,606
Security Losses, net		0		31		0		31
Other		1,990		2,095		5,968		5,694
Total	$	6,564	$	6,255	$	19,241	$	17,764

Total non-interest expense for three months ended September 30, 2005 increased $309 thousand, or 4.94 percent, compared to the same period a year ago. Growth in non-interest expense in three months ended September 30, 2005 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, 2005 increased $1.48 million, or 8.31 percent, compared to the same period a year ago. As with the three month period, growth in non-interest expense for the nine month period ended September 30, 2005 was primarily in salaries, employee benefits, occupancy and equipment expense and other non-interest expenses. 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 employee benefits expense for three months ended September 30, 2005 increased $391 thousand, or 12.26 percent, compared to the same period a year ago. Salaries and employee benefits expense for nine months ended September 30, 2005 increased $1.02 million, or 10.82 percent, compared to the same year ago period. In both periods, increases are due primarily to increases in headcount and merit increases as the Company opened three new offices during 2004, acquired one branch office in 2004 and has opened two new offices in 2005.

Occupancy and Equipment. Net occupancy expense for three months ended September 30, 2005 increased $54 thousand, or 5.74 percent, compared to the same period a year ago. Net occupancy expense for nine months ended September 30, 2005 increased $213 thousand, or 8.17 percent, compared to the same period a year ago. The company experienced increased net occupancy and equipment expense due to new offices opened in 2004 and 2005. The impact of new offices resulted in higher building maintenance, insurance, utilities expense and higher depreciation expense for both periods.

All Other Non-Interest Expense. All other non-interest expense for three months ended September 30, 2005 decreased $105 thousand, or 5.01 percent, compared to the same period a year ago. Losses on sale/writedown of OREO property decreased $187 thousand, software and license fee expense decreased $26 thousand, stationery and supply expense increased $27 thousand, accounting fees increased $16 thousand, director fees increased $26 thousand, ATM fees increased $28 thousand and city and county taxes decreased $50 thousand to primarily account for significant changes from the same period a year ago. All other non-interest expense for the nine months ended September 30, 2005 increased $274 thousand, or 4.81 percent, compared to the same year ago period. Software and license fee expense decreased $68 thousand, stationery and supply expense increased $48 thousand, accounting fees increased $79 thousand, director fees increased $55 thousand, ATM fees increased $36 thousand, other losses from sale/writedown of OREO property decreased $227 thousand, deferred compensation expense increased $151 thousand and mortgage operations expense increased $141 thousand to primarily account for significant changes from the same year ago period.

Security losses, net. Security losses, net decreased $31 thousand for the three months and nine months ended September 30, 2005 compared to the same year ago periods.

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Sources and Uses of Funds

The following table illustrates, during the years presented, the mix of the Company’s funding sources and the assets in which those funds are invested as a percentage of the Company’s average total assets for the period indicated. Average assets totaled $1.014 billion in nine months ended September 30, 2005 compared to $921 million in nine months ended September 30, 2004.

	Nine Months Ended September 30,
	2005				2004
Source of Funds:
Deposits:
Noninterest –Bearing	$	65,982	6.51	%	$	62,214	6.76	%
Interest-Bearing		793,086	78.23			717,551	77.92
Federal Funds Purchased		549	0.06			372	0.04
Long-term Debt and Other Borrowings		84,698	8.35			78,218	8.49
Other Noninterest-Bearing Liabilities		5,155	0.51			4,285	0.46
Equity Capital		64,323	6.34			58,251	6.33
Total	$	1,013,793	100.00	%	$	920,891	100.00	%
Uses of Funds:
Loans	$	798,530	78.77	%	$	709,956	77.10	%
Securities		112,297	11.08			111,881	12.15
Federal Funds Sold		31,365	3.09			28,473	3.09
Interest-Bearing Deposits in Other Banks		2,725	0.27			8,045	0.87
Other Interest-Earning Assets		4,820	0.47			3,142	0.34
Other Noninterest-Earning Assets		64,056	6.32			59,394	6.45
Total	$	1,013,793	100.00	%	$	920,891	100.00	%

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 92.32 percent of total average deposits in nine months ended September 30, 2005 compared to 92.02 percent in the same period a year ago.

The Company primarily invests funds in loans and securities. Loans continue to be the largest component of the Company’s mix of invested assets. Loan demand continues to be strong as total loans were $842 million at September 30, 2005, up 8.09 percent, compared to loans of $779 million at December 31, 2004. 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, 2005 and December 31, 2004:

	September 30, 2005			December 31, 2004
Commercial, Financial and Agricultural	$	59,543		$	44,284
Real Estate
Construction		129,300			100,774
Mortgage, Farmland		40,604			38,245
Mortgage, Other		522,058			500,869
Consumer		72,705			73,685
Other		18,144			20,823
		842,354			778,680
Unearned Interest and Fees		(198	)		(37	)
Allowance for Loan Losses		(10,663	)		(10,012	)
Loans	$	831,493		$	768,631

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The following table presents total loans as of September 30, 2005 according to maturity distribution and/or repricing opportunity on adjustable rate loans:

Maturity and Repricing Opportunity	($ in Thousands)
One Year or Less	$	536,295
After One Year through Three Years		235,014
After Three Years through Five Years		59,879
Over Five Years		11,166
		$842,354

Overview. Loans totaled $842 million at September 30, 2005, up 8.09 percent from December 31, 2004 loans of $779 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 61.98 percent and 64.32 percent of total loans, real estate construction made up 15.35 percent and 12.94 percent, while installment loans to individuals made up 8.63 percent and 9.46 percent of total loans at September 30, 2005 and December 31, 2004, 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 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, 2005 increased 34.46 percent from December 31, 2004 to $59.5 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.

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Industry Concentrations. As of September 30, 2005 and December 31, 2004, there were no concentrations of loans within any single industry in excess of 10 percent 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 eighteen counties in South and Central Georgia and include metropolitan markets in Doughtery, Lowndes, Houston, Chatham and Muscogee counties. As a result, the Company originates and maintains large credit relationships with several commercial customers in the ordinary course of business. The Company considers large credit relationships to be those with commitments equal to or in excess of $5.0 million prior to any portion being sold. Large relationships also include loan participations purchased if the credit relationship with the agent is equal to or in excess of $5.0 million. In addition to the Company’s normal policies and procedures related to the origination of large credits, the Company’s Central Credit Committee must approve all new and renewed credit facilities which are part of large credit relationships. The following table provides additional information on the Company’s large credit relationships outstanding at period end.

	September 30, 2005					December 31, 2004
	Number of Relationships	Period End Balances					Period End Balances
		Committed		Outstanding		Number of Relationships	Committed		Outstanding
Large Credit Relationships:
$10 million and greater	2	$	27,531	$	20,506	1	$	11,264	$	10,461
$5 million to $9.9 million	6	$	34,949	$	29,215	4	$	24,293	$	21,722

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, 2005. 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 Three Years		After Three, but Within Five Years		After Five Years		Total
Loans with fixed interest rates	$	204,627	$	220,839	$	59,860	$	11,166	$	496,492
Loans with floating interest rates		331,668		14,175		19		0		345,862
Total	$	536,295	$	235,014	$	59,879	$	11,166	$	842,354

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.

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Non-Performing Assets and Potential Problem Loans

Non-performing assets and accruing past due loans as of September 30, 2005 and December 31, 2004 were as follows:

	September 30, 2005			December 31, 2004
Loans accounted for on nonaccrual	$	9,145		$	7,856
Loans past due 90 days or more		8			953
Renegotiated loans		0			0
Other real estate foreclosed		2,695			1,127
Total non-performing assets	$	11,848		$	9,936
Non-performing assets as a percentage of:
Total loans and foreclosed assets		1.40	%		1.27	%
Total assets		1.11	%		1.00	%
Accruing past due loans:
30-89 days past due	$	7,768		$	8,302
90 or more days past due		8			953
Total accruing past due loans	$	7,776		$	9,255

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, 2005 increased 19.24 percent from December 31, 2004.

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 the lower of cost or estimated fair value, less estimated selling costs, at the time of foreclosure. Write-downs occurring at foreclosure are charged against the allowance for possible loan losses. On an ongoing basis, properties are appraised as required by market indications and applicable regulations. Write-downs are provided for subsequent declines in value and are included in other non-interest expense along with other expenses related to maintaining the properties.

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

36

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, 2005				December 31, 2004
	Reserve		%*		Reserve		%*
Commercial, Financial and Agricultural	$	3,199	7	%	$	3,004	6	%
Real Estate – Construction		640	15	%		501	13	%
Real Estate – Farmland		533	5	%		501	5	%
Real Estate – Other		3,412	62	%		3,304	64	%
Loans to Individuals		2,133	9	%		2,002	9	%
All other Loans		746	2	%		700	3	%
Total	$	10,663	100	%	$	10,012	100	%

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

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.

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

($ in thousands)	Three Months Ended September 30, 2005			Three Months Ended September 30, 2004
Allowance for Loan Losses at Beginning of Quarter	$	10,119		$	9,677
Charge-Off
Commercial, Financial and Agricultural		181			83
Real Estate		2			113
Consumer		139			244
All Other		44			21
		366			461
Recoveries
Commercial, Financial and Agricultural		10			9
Real Estate		2			2
Consumer		23			21
All Other		6			2
		41			34
Net Charge-Offs		325			427
Provision for Loan Losses		869			864
Allowance for Loan Losses at End of Quarter	$	10,663		$	10,114
Ratio of Net Charge-Offs to Average Loans		0.04	%		0.06	%

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 increased $5 thousand from $864 thousand in three months ended September 30, 2004 to $869 thousand in three months ended September 30, 2005. Provisions remained flat due to stable net charge-offs during third quarter 2005.

Net charge-offs in three months ended September 30, 2005 decreased $102 thousand compared to the same period a year ago. Net charge-offs of 0.04 percent for third quarter 2005 that annualizes to 0.16 percent is below normal for our company. We anticipate annual charge-offs to be in the 0.30 percent to 0.35 percent range.

Management believes the level of the allowance for possible loan losses was adequate as of September 30, 2005. 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.

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

($ in thousands)	Nine Months Ended September 30, 2005			Nine Months Ended September 30, 2004
Allowance for Loan Losses at Beginning of Year	$	10,012		$	8,516
Charge-Off
Commercial, Financial and Agricultural		432			388
Real Estate		568			184
Consumer		1,077			461
All Other		189			216
		2,266			1,249
Recoveries
Commercial, Financial and Agricultural		107			36
Real Estate		14			8
Consumer		59			78
All Other		35			16
		215			138
Net Charge-Offs		2,051			1,111
Provision for Loan Losses		2,702			2,709
Allowance for Loan Losses at End of Quarter	$	10,663		$	10,114
Ratio of Net Charge-Offs to Average Loans		0.25	%		0.15	%

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 $7 thousand from $2.709 million in nine months ended September 30, 2004 to $2.702 million in nine months ended September 30, 2005. Provisions were relatively flat for both periods due to stability in our asset quality.

Net charge-offs in nine months ended September 30, 2005 increased $940 thousand compared to the same period a year ago. The general increase in net charge-offs during the comparable periods is reflective of more stringent credit standards, weaker economic conditions and higher interest rates. Net charge-offs for 2005 will approximate 0.30 – 0.35 percent which compares to 0.27 percent for calendar year 2004.

Management believes the level of the allowance for possible loan losses was adequate as of September 30, 2005. 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.

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Investment Portfolio

The following table presents carrying values of investment securities held by the Company as of September 30, 2005 and December 31, 2004.

($ in thousands)	September 30, 2005		December 31, 2004
U.S. Government Agencies	$	27,955	$	29,054
State, County and Municipal		6,335		6,968
Corporate Obligations		3,046		3,113
Marketable Equity Securities		273		0
Investment Securities		37,609		39,135
Mortgage-Backed Securities		70,381		73,458
Total Investment Securities and Mortgage-Backed Securities	$	107,990	$	112,593

The following table represents maturities and weighted-average yields of investment securities held by the Company as of September 30, 2005. (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	$	1,668	4.26	%	$	22,821	3.70	%	$	3,466	4.91	%	$	—	—	%
Mortgage-Backed Securities		5,837	0.91			60,065	3.73			4,480	4.24			—	—
State, County and Municipal		3,682	4.14			1,276	4.04			1,296	5.94			80	17.16
Corporate Obligations		—	—			3,046	4.37			—	—			—	—
Marketable Equity Securities		—	—			—	—			—	—			273	—
Total Investment Portfolio	$	11,187	2.47	%	$	87,208	3.75	%	$	9,242	4.73	%	$	353	3.89	%

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

At September 30, 2005, there were no holdings of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10 percent of the Company’s shareholders’ equity.

The average yield of the securities portfolio was 3.30 percent in nine months ended September 30, 2005 compared to 3.57 percent in the same period a year ago. The decrease in the average yield over the comparable periods primarily resulted from amortization on mortgage-backed securities due to prepayments received. 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 by design to utilize proceeds to fund loans.

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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, 2005 and September 30, 2004.

	September 30, 2005				September 30, 2004
($ in thousands)	Average Amount		Average Rate		Average Amount		Average Rate
Noninterest-Bearing Demand Deposits	$	65,982			$	62,214
Interest-Bearing Demand and Savings Deposits		198,183	1.24	%		196,427	1.11	%
Time Deposits		594,903	3.07	%		521,124	2.36	%
Total Deposits	$	859,068	2.41	%	$	779,765	1.86	%

The following table presents the maturities of the Company’s time deposits as of September 30, 2005.

($ in thousands)	Time Deposits $100,000 or Greater		Time Deposits Less Than $100,000		Total
Months to Maturity
3 or Less	$	66,274	$	70,458	$	136,732
Over 3 through 12 Months		164,555		230,133		394,688
Over 12 Months through 36 Months		36,794		42,835		79,629
Over 36 Months		13,062		10,787		23,849
	$	280,685	$	354,213	$	634,898

Average deposits increased $79.3 million to $859.1 million at September 30, 2005 from $779.8 million at September 30, 2004. The increase included $3.8 million, or 4.75 percent, related to noninterest-bearing deposits. Accordingly the ratio of average noninterest-bearing deposits to total average deposits was 7.68 percent for nine months ended September 30, 2005 compared to 7.98 percent for nine months ended September 30, 2004. The general increase in market rates, had the effect of (i) increasing the average cost of total deposits by 55 basis points in nine months ended September 30, 2005 compared to the same period a year ago; and (ii) mitigating a portion of the impact of increasing yields on earning assets on the Company’s net interest income.

Total average interest-bearing deposits increased $75.5 million, or 10.53 percent in nine months ended September 30, 2005 compared to the same period a year ago. The growth in average deposits at September 30, 2005 compared to September 30, 2004 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.

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, 2005. 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.

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	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		1,725		56		—				1,781
Federal Home Loan Bank advances		15,500		18,500		1,000		34,000		69,000
Operating leases		132		177		101		152		562
Deposits with stated maturity dates		531,420		79,629		23,825		24		634,898
		548,777		98,362		24,926		53,250		725,315
Other commitments:
Loan commitments		102,714		—		—		—		102,714
Standby letters of credit		2,062		—		—		—		2,062
Performance letters of credit		468		—		—		—		468
Construction Contracts		1,474		—		—		—		1,474
		106,718		—		—		—		106,718
Total contractual obligations and Other commitments	$	655,495	$	98,362	$	24,926	$	53,250	$	832,033

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, 2005 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, 2005 are included in the table above.

Capital and Liquidity

At September 30, 2005, shareholders’ equity totaled $66.9 million compared to $61.8 million at December 31, 2004. In addition to net income of $6.7 million, other significant changes in shareholders’ equity during nine months ended September 30, 2005 included $1.5 million of dividends paid and an increase of $145 thousand resulting from the amortization of the stock grant plan. The accumulated other comprehensive income component of shareholders’ equity totaled ($764) thousand at September 30, 2005 compared to ($597) thousand at December 31, 2004. This fluctuation was mostly related to the after-tax effect of changes in the fair value of securities available for sale. Under regulatory requirements, the unrealized gain or loss on securities available for sale does not increase or reduce regulatory capital and is not included in the calculation of risk-based capital and leverage ratios. Regulatory agencies for banks and bank holding companies utilize capital guidelines designed to measure Tier 1 and total capital and take into consideration the risk inherent in both on-balance sheet and off-balance sheet items. Tier 1 capital consists of common stock and qualifying preferred stockholders’ equity less goodwill. Tier 2 capital consists of certain convertible, subordinated and other qualifying debt and the allowance for loan losses up to 1.25 percent of risk-weighted assets. The Company has no Tier 2 capital other than the allowance for loan losses and gain on marketable equity securities.

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Using the capital requirements presently in effect, the Tier 1 ratio as of September 30, 2005 was 9.93 percent and total Tier 1 and 2 risk-based capital was 11.19 percent. Both of these measures compare favorably with the regulatory minimum of 4 percent for Tier 1 and 8 percent for total risk-based capital. The Company’s Tier 1 leverage ratio as of September 30, 2005 was 8.07 percent, which exceeds the required ratio standard of 4 percent.

The Company, primarily through the actions of its subsidiary banks, engages in liquidity management to ensure adequate cash flow for deposit withdrawals, credit commitments and repayments of borrowed funds. Needs are met through loan repayments, net interest and fee income and the sale or maturity of existing assets. In addition, liquidity is continuously provided through the acquisition of new deposits, the renewal of maturing deposits and external borrowings.

Management monitors deposit flow and evaluates alternate pricing structures to retain and grow deposits. To the extent needed to fund loan demand, traditional local deposit funding sources are supplemented by the use of FHLB borrowings, brokered deposits and other wholesale deposit sources outside the immediate market area. Internal policies have been updated to monitor the use of various core and non-core funding sources, and to balance ready access with risk and cost. Through various asset/liability management strategies, a balance is maintained among goals of liquidity, safety and earnings potential. Internal policies that are consistent with regulatory liquidity guidelines are monitored and enforced by the banks.

The investment portfolio provides a ready means to raise cash without loss if liquidity needs arise. As of September 30, 2005, the Company held $108 million in bonds (excluding FHLB stock), at current market value in the available for sale portfolio. At December 31, 2004, the available for sale bond portfolio totaled $112.6 million. Only marketable investment grade bonds are purchased. Although most of the banks’ bond portfolios are encumbered as pledges to secure various public funds deposits, repurchase agreements, and for other purposes, management can restructure and free up investment securities for a sale if required to meet liquidity needs.

Management continually monitors the relationship of loans to deposits as it primarily determines the Company’s liquidity posture. Colony had ratios of loans to deposits of 93.5 percent as of September 30, 2005 and 91.6 percent at December 31, 2004. Management employs alternative funding sources when deposit balances will not meet loan demands. The ratios of loans to all funding sources (excluding Subordinated Debentures) at September 30, 2005 and December 31, 2004 were 86.7 percent and 85.4 percent, respectively. Management continues to emphasize programs to generate local core deposits as our Company’s primary funding sources. The stability of the banks’ core deposit base is an important factor in Colony’s liquidity position. A heavy percentage of the deposit base is comprised of accounts of individuals and small business with comprehensive banking relationships and limited volatility. At September 30, 2005 and December 31, 2004, the banks had $280.7 million and $203.9 million in certificates of deposit of $100,000 or more. These larger deposits represented 33.6 percent and 26.1 percent of respective total deposits. Management seeks to monitor and control the use of these larger certificates, which tend to be more volatile in nature, to ensure an adequate supply of funds as needed. Relative interest costs to attract local core relationships are compared to market rates of interest on various external deposit sources to help minimize the Company’s overall cost of funds.

Local market deposit sources proved insufficient to fund the strong loan growth trends at Colony over the past several years. The Company supplemented deposit sources with brokered deposits. As of September 30, 2005, the Company had $53.1 million, or 6.4 percent of total deposits, in brokered certificates of deposit attracted by external third parties. Additionally, the banks use external wholesale or Internet services to obtain out-of-market certificates of deposit at competitive interest rates when funding is needed.

To plan for contingent sources of funding not satisfied by both local and out-of-market deposit balances, Colony and its subsidiaries have established multiple borrowing sources to augment their funds management. The Company has borrowing capacity through membership of the Federal Home Loan Bank program. The banks have also established overnight borrowing for Federal Funds Purchased through various correspondent banks. Management believes the various funding sources discussed above are adequate to meet the Company’s liquidity needs in the future without any material adverse impact on operating results.

For nine months ended September 30, 2005, average capital was $64.3 million, representing 6.34 percent of average assets for the year. This compares to 6.33 percent for nine months ended September 30, 2004 and 6.29 percent for calendar year 2004.

The Company paid cash dividends of $0.21 per common share during the first three quarters of 2005, and a cash dividend of $0.186 per common share during the first three quarters of 2004, respectively. This equates to a dividend payout ratio of 22.58 percent for first three quarters of 2005 compared to 22.14 percent for the same period a year ago.

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.

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

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

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

Impact of Inflation and Changing Prices

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

Regulatory and Economic Policies

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

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

Recently Issued Accounting Pronouncements

See Note 1 – Summary of Significant Accounting Policies, under the section headed Changes in Accounting Principles and Effects of New Accounting Pronouncements included in the Notes to Consolidated Financial Statements.

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Quantitative and Qualitative Disclosures About Market Risk

AVERAGE BALANCE SHEETS

	Nine Months Ended September 30, 2005							Nine Months Ended September 30, 2004
($ in thousands)	Average Balances			Income/ Expense		Yields/ Rates		Average Balances			Income/ Expense		Yields/ Rates
Assets
Interest-Earning Assets
Loans, Net of Unearned Interest and fees Taxable (1)	$	808,906		$	42,269	6.97	%	$	719,340		$	34,862	6.46	%
Investment Securities
Taxable		106,223			2,545	3.19	%		103,578			2,686	3.46	%
Tax-Exempt (2)		6,074			235	5.16	%		8,303			312	5.01	%
Total Investment Securities		112,297			2,780	3.30	%		111,881			2,998	3.57	%
Interest-Bearing Deposits in Other Banks		2,725			57	2.79	%		8,045			59	0.98	%
Federal Funds Sold		31,365			669	2.84	%		28,473			227	1.06	%
Interest-Bearing Other Assets		4,820			136	3.76	%		3,142			87	3.69	%
Total Interest-Earning Assets		960,113		$	45,911	6.38	%		870,881		$	38,233	5.85	%
Non-interest-Earning Assets
Cash and Cash Equivalents		20,236							18,503
Allowance for Loan Losses		(10,376	)						(9,384	)
Other Assets		43,820							40,891
Total Noninterest-Earning Assets		53,680							50,010
Total Assets	$	1,013,793						$	920,891
Liabilities and Stockholders’ Equity
Interest-Bearing Liabilities
Interest-Bearing Deposits
Interest-Bearing Demand and Savings	$	198,183		$	1,850	1.24	%	$	196,427		$	1,632	1.11	%
Other Time		594,903			13,681	3.07	%		521,124			9,241	2.36	%
Total Interest-Bearing Deposits		793,086			15,531	2.61	%		717,551			10,873	2.02	%
Other Interest-Bearing Liabilities
Other Borrowed Money		65,624			1,914	3.89	%		61,988			1,775	3.82	%
Subordinated Debentures		19,074			918	6.42	%		16,230			600	4.93	%
Federal Funds Purchased and Securities
Sold Under Agreement to Repurchase		549			15	3.64	%		372			4	1.43	%
Total Other Interest-Bearing Liabilities		85,247			2,847	4.45	%		78,590			2,379	4.04	%
Total Interest-Bearing Liabilities		878,333		$	18,378	2.79	%		796,141		$	13,252	2.22	%
Noninterest-Bearing Liabilities and Stockholders’ Equity
Demand Deposits		65,982							62,214
Other Liabilities		5,155							4,285
Stockholders’ Equity		64,323							58,251
Total Noninterest-Bearing Liabilities and Stockholders’ Equity		135,460							124,750
Total Liabilities and Stockholders’ Equity	$	1,013,793						$	920,891
Interest Rate Spread						3.59	%						3.63	%
Net Interest Income				$	27,533						$	24,981
Net Interest Margin						3.82	%						3.82	%

(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 $90 and $99 for nine month period ended September 30, 2005 and 2004 respectively, are included in tax-exempt interest on loans.

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(2) Taxable-equivalent adjustments totaling $80 and $106 for nine month period ended September 30, 2005 and 2004, respectively, are included in tax-exempt interest on investment securities. The adjustments are based on a federal tax rate of 34 percent with appropriate reductions for the effect of disallowed interest expense incurred in carrying tax-exempt obligations.

Colony Bankcorp, Inc. and Subsidiary

Interest Rate Sensitivity

The following table is an analysis of the Company’s interest rate-sensitivity position at September 30, 2005. 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	$	4,233		$	0		$	4,233		$	0		$	0		$	4,233
Federal Funds Sold		43,204			0			43,204			0			0			43,204
Investment Securities		15,893			3,146			19,039			76,945			12,006			107,990
Loans, Net of Unearned Income		364,513			171,584			536,097			294,893			11,166			842,156
Other Interest-bearing Assets		5,102			0			5,102			0			0			5,102
Total Interest-earning assets		432,945			174,730			607,675			371,838			23,172			1,002,685
INTEREST-BEARING LIABILITIES:
Interest-bearing Demand Deposits (1)		161,333			0			161,333			0			0			161,333
Savings (1)		38,119			0			38,119			0			0			38,119
Time Deposits		136,732			394,688			531,420			103,454			24			634,898
Other Borrowings (2)		15,781			3,000			18,781			18,000			34,000			70,781
Subordinated Debentures		19,074			0			19,074			0			0			19,074
Total Interest-bearing liabilities		371,039			397,688			768,727			121,454			34,024			924,205
Interest rate-sensitivity gap		61,906			(222,958	)		(161,052	)		250,384			(10,852	)		78,480
Cumulative interest-sensitivity gap		61,906			(161,052	)		(161,052	)		89,332			78,480
Interest rate-sensivitiy gap as a percentage of interest-earning assets		6.17	%		(22.24	)%		(16.06	)%		24.97	%		(1.08	)%
Cumulative interest rate-sensitivity as as a percentage of interest-earning assets		6.17	%		(16.06	)%		(16.06	)%		8.91	%		7.83	%

(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 ($161) million, or (16.06) percent of total assets at September 30, 2005. In theory, this would indicate that at September 30, 2005, $161 million more in liabilities than assets would reprice if there were a change in interest rates over the next 365 days. Thus, if interest rates were to increase, the gap would indicate a resulting decrease in net interest margin. However, changes in the mix of earning assets or supporting liabilities can either increase or decrease the net interest margin without affecting interest rate sensitivity. In addition, the interest rate spread between an asset and our

46

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. Net interest margin has remained flat at 3.82 percent for nine months ended September 30, 2005 and 2004.

Gap analysis has certain limitations. Measuring the volume of repricing or maturing assets and liabilities does not always measure the full impact on the portfolio value of equity or net interest income. Gap analysis does not account for rate caps on products; dynamic changes such as increasing prepay speeds as interest rates decrease, basis risk, or the benefit of non-rate funding sources. The majority of our loan portfolio reprices quickly and completely following changes in market rates, while non-term deposit rates in general move slowly and usually incorporate only a fraction of the change in rates. Products categorized as non-rate sensitive, such as our noninterest-bearing demand deposits, in the gap analysis behave like long term fixed rate funding sources. Both of these factors tend to make our actual behavior more asset sensitive than is indicated in the gap analysis. In fact, we experience higher net interest income when rates rise, opposite what is indicated by the gap analysis. In fact, during the recent period of declines in interest rates, our net interest margin has declined. Therefore, management uses gap analysis, net interest margin analysis and market value of portfolio equity as our primary interest rate risk management tools.

Return on Assets and Stockholders’ Equity

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

	Three Months Ended September 30						Nine Months Ended September 30
	2005			2004			2005			2004
Return on Assets		0.87	%		0.86	%		0.88	%		0.87	%
Return on Equity		13.60	%		13.82	%		13.83	%		13.71	%
Dividend Payout		22.50	%		22.07	%		22.58	%		22.14	%
Avg. Equity to Avg. Assets		6.41	%		6.23	%		6.34	%		6.33	%
Dividends Declared	$	0.072		$	0.064		$	0.21		$	0.186

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. The Company completed construction of its main office in Valdosta/Lowndes County that opened during second quarter 2005. Real estate has been purchased for a future office in Thomasville/Thomas County. The Company completed renovation of its Savannah office during third quarter 2005 and opened its first full-service branch in the Savannah/Chatham County market. The Company awarded the bid on its first full-service branch in Columbus/Muscogee County that should be completed in first quarter 2006. The Company has begun construction on a second office in Warner Robins that should be completed during fourth quarter 2005. Entry into the MSA markets – Savannah, Columbus, Warner Robins, and Macon – will require multi-branch offices and the company is presently looking for available real estate to purchase in those markets.

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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. In September, 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 2,005 shareholders as of September 30, 2005. “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 43-45 of this report for disclosures

ITEM 4 – CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer, James D. Minix, and the Principal Financial and Accounting Officer, Terry L. Hester, of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Principal Financial and Accounting Officer concluded that our disclosure controls and procedures are effective.

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PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

Not applicable

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

Not applicable

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

Not applicable

ITEM 5 – OTHER INFORMATION

None

ITEM 6 – EXHIBITS

3.1 Articles of Incorporation

-filed as Exhibit 3(a) to the Registrant’s Registration Statement on Form 10 (File No. 0-18486), filed with the Commission on April 25, 1990 and incorporated herein by reference

3.2 Bylaws, as Amended

-filed as Exhibit 3(b) to the Registrant’s Registration Statement on Form 10 (File No. 0-18486), filed with the Commission on April 25, 1990 and incorporated herein by reference

4.1 Instruments Defining the Rights of Security Holders

-incorporated herein by reference to page 1 of the Company’s Definitive Proxy Statement for Annual Meeting of Stockholders to be held on April 27, 2004, filed with the Securities and Exchange Commission on March 3, 2004 (File No. 000-12436)

10.1 Deferred Compensation Plan and Sample Director Agreement

-filed as Exhibit 10(a) to the Registrant’s Registration Statement on Form 10 (File No. 0-18486), filed with the Commission on April 25, 1990 and incorporated herein by reference

10.2 Profit-Sharing Plan Dated January 1, 1979

-filed as Exhibit 10(b) to the Registrant’s Registration Statement on Form 10 (File No. 0-18486), filed with the Commission on April 25, 1990 and incorporated herein by reference

10.3 1999 Restricted Stock Grant Plan and Restricted Stock Grant Agreement

-filed as Exhibit 10(c) the Registrant’s Annual Report on Form 10-K (File No. 000-12436), filed with the Commission on March 30, 2001 and incorporated herein by reference

10.4 2004 Restricted Stock Grant Plan and Restricted Stock Grant Agreement

- filed as Exhibit C to the Registrant’s Definitive Proxy Statement for Annual Meeting of Shareholders held on April 27, 2004, filed with the Securities and Exchange Commission on March 3, 2004 (File No. 000-12436) and incorporated herein by reference

49

10.5 Lease Agreement – Mobile Home Tracts, LLC c/o Stafford Properties, Inc. and Colony Bank Worth

- filed as Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10Q (File No. 000-12436), filed with Securities and Exchange Commission on November 5, 2004 and incorporated herein by reference

11.1 Statement of Computation of Earnings Per Share

31.1 Certificate of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2 Certificate of Chief Financial Officer Pursuant to Section 302 of Sarbanes – Oxley Act of 2002

32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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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.

	/s/ James D. Minix
Date: November 7, 2005	James D. Minix,
	Chief Executive Officer
	/s/ Terry L. Hester
Date: November 7, 2005	Terry L. Hester, Executive Vice President and
	Chief Financial Officer

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EX-11.1

EXHIBIT 11.1

STATEMENT OF COMPUTATION OF EARNINGS PER SHARE

	Nine Months Ended September 30, 2005			Three Months Ended September 30, 2005
	Shares	Earnings Per Share		Shares	Earnings Per Share
	(in Thousands)			(in Thousands)
Basic Weighted Average Shares Outstanding	7,144	$	0.93	7,144	$	0.32
Diluted
Average Shares Outstanding	7,144			7,144
Common Stock Equivalents	30			28
	7,174	$	0.93	7,172	$	0.31
	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	7,130	$	0.84	7,135	$	0.29
Diluted
Average Shares Outstanding	7,130			7,135
Common Stock Equivalents	24			24
	7,154	$	0.84	7,159	$	0.29

All per share data has been adjusted to reflect a 5-for-4 stock split effected as a 25% stock dividend on May 16, 2005.

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EX-31.1

EXHIBIT 31.1

CERTIFICATION

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

1. I have reviewed this Form 10-Q of Colony Bankcorp, Inc:

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this 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

d) 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 the registrant’s board of directors (or persons performing the equivalent functions):

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 control over financial reporting.

November 7, 2005

/s/ James D. Minix

James D. Minix

Chief Executive Officer

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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 Form 10-Q of Colony Bankcorp, Inc:

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this 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

d) 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 the registrant’s board of directors (or persons performing the equivalent functions):

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 control over financial reporting.

November 7, 2005

/s/ Terry L. Hester

Terry L. Hester, Executive Vice President and

Chief Financial Officer

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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 ended September 30, 2005 as filed with the Securities and Exchange Commission on the Date hereof (the Report), James D. Minix, 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 7, 2005

/s/ James D. Minix

James D. Minix

Chief Executive Officer

November 7, 2005

/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.

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