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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, 2002

COMMISSION FILE NUMBER 0-12436

COLONY BANKCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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 o

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER’S CLASSES OF COMMON STOCK, AS OF THE CLOSE OF THE PERIOD COVERED BY THIS REPORT.

PART 1 – FINANCIAL INFORMATION

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.; COLONY BANK QUITMAN, FSB AND COLONY BANKCORP STATUTORY TRUST I.

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, 2002 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS TO BE EXPECTED FOR THE FULL YEAR.

COLONY BANKCORP, INC. AND QUITMAN BANCORP, INC. ENTERED INTO AN AGREEMENT AND PLAN OF MERGER DATED AS OF OCTOBER 22, 2001, PURSUANT TO WHICH QUITMAN WAS MERGED WITH AND INTO COLONY WITH COLONY BANKCORP, INC. SURVIVING THE MERGER AND QUITMAN’S WHOLLY-OWNED SUBSIDIARY, QUITMAN FEDERAL SAVINGS BANK, BECOMING A WHOLLY-OWNED SUBSIDIARY OF COLONY CONTEMPORANEOUS WITH THE CONSUMMATION OF THE MERGER. THE MERGER WAS CONSUMMATED AND BECAME EFFECTIVE AS OF MARCH 29, 2002. THE BUSINESS COMBINATION WAS ACCOUNTED FOR BY THE PURCHASE METHOD OF ACCOUNTING AND THE RESULTS OF OPERATIONS OF QUITMAN FEDERAL SAVINGS BANK SINCE THE DATE OF ACQUISTION ARE INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS.

COLONY BANKCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(DOLLARS IN THOUSANDS)

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

COLONY BANKCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
(DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of these statements.

COLONY BANKCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
(DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of these statements.

COLONY BANKCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
(DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of these statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  Summary of Significant Accounting Policies

Basis of presentation

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

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

In certain instances, amounts reported in prior years’ consolidated financial statements have been reclassified to conform to statement presentations selected for 2002. Such reclassifications had no effect on previously reported stockholders’ equity or net income.

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

Description of Business

The Banks provide a full range of retail and commercial banking services for consumers and small to medium size businesses primarily in South Georgia. Lending and investing activities are funded primarily by deposits gathered through its retail branch office network. Lending is concentrated in agricultural, commercial and real estate loans to local borrowers. The Banks have a high concentration of agricultural and real estate loans; however, these loans are well collateralized and in management’s opinion, do not pose an adverse credit risk. In addition, the balance of the loan portfolio is sufficiently diversified to avoid significant concentration of credit risk. Although the Banks have a diversified loan portfolio, a substantial portion of borrowers’ ability to honor their contracts is dependent upon the viability of the real estate economic sector.

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

Accounting Policies

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

Investment Securities

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

Securities available for sale are reported at estimated fair value. Unrealized gains and losses on securities available for sale are excluded from earnings and reported, net of deferred taxes, in accumulated other comprehensive income, a component of stockholders’ equity. Gains and losses from sales of securities available for sale and 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.

(1)  Summary of Significant Accounting Policies (Continued)

Federal Home Loan Bank Stock

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

Loans Held for Sale

Loans held for sale consist primarily of mortgage loans in the process of being sold to a third party investor and are carried at the lower of cost or fair value. The method used to determine the lower of cost or fair value is the individual loan method.

Loans

Loans that the Company has the ability and intent to hold for the foreseeable future or until maturity are recorded at their principal amount outstanding, net of unearned interest and fees. Interest income on loans is recognized using the effective interest method.

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

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

Allowance for Loan Losses

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

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

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

Premises and Equipment

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

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

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.

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.

(1)  Summary of Significant Accounting Policies (Continued)

Income Taxes

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

Other Real Estate

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

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, such as unrealized gains and losses on securities available for sale, represent equity changes from economic events of the period other than transactions with owners and are not reported in the consolidated statement of income but as a separate component of the equity section of the consolidated balance sheets. Such items are considered components of other comprehensive income. Statement of Financial Accounting Standards 130 requires the presentation in the financial statements of net income and all items of other comprehensive income as total comprehensive income.

Changes in Accounting Principles and Effects of New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative’s gain or loss to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133, which delays the original effective date of SFAS No. 133 until fiscal year beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities an Amendment of FASB Statement No. 133, which addresses a limited number of issues causing implementation difficulties for certain entities that apply Statement 133. Management does not anticipate that the derivative statements will have a material effect, if any, on the financial position and result of operations of Colony.

During the second quarter of 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-5, Accounting for Start-up Costs. SOP 98-5 provides guidance on the financial reporting of start-up costs and organization costs and requires start-up costs to be expended as incurred. The adoption of the Statement had no impact on Colony’s financial position or results of operations.

On July 20, 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. Theses statements make significant changes to the accounting for business combinations, goodwill and intangible assets. SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations with limited exceptions for combinations initiated prior to July 1, 2001. In addition, it further clarifies the criteria for recognition of intangible assets separately from goodwill. This statement is effective for business combinations completed after June 30, 2001.

SFAS No. 142 discontinues the practice of amortizing goodwill and indefinite-lived intangible assets and initiates and annual review for impairment. Impairment would be examined more frequently if certain indicators are encountered. Intangible assets with a determinable useful life will continue to be amortized over that period. The Banks are required to adopt the provisions of SFAS No. 142, effective January 1, 2002. It is anticipated that the adoption of SFAS No. 142 will not have a material effect on the Banks’ financial statements.

(1)  Summary of Significant Accounting Policies (Continued)

Restricted Stock – Unearned Compensation

In 1999, the board of directors of Colony Bankcorp, Inc. adopted a restricted stock grant plan which awards certain executive officers common shares of the Company. The maximum number of shares which may be subject to restricted stock awards is 44,350. During 2000 - 2002, 17,500 shares were issued. The shares are recorded at fair market value (on the date granted) as a separate component of stockholder’s equity. The cost of these shares is being amortized against earnings using the straight-line method over 3 years (the restriction period).

(2)  Cash and Balances Due from Depository Institutions

Components of cash and balances due from depository institutions at September 30, 2002 and December 31, 2001 are as follows:

(3)  Investment Securities

Investment securities as of September 30, 2002 are summarized as follows:

The amortized cost and fair value of investment securities as of September 30, 2002, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers have the right to call or prepay obligations with or without call or prepayment penalties.

(3)  Investment Securities (Continued)

Investment securities as of December 31, 2001 are summarized as follows:

Proceeds from sales of investments available for sale were $23,635 during the first three quarters of 2002 and $13,670 during the first three quarters of 2001. Gross realized gains totaled $1,027 during the first three quarters of 2002 and $78 during the first three quarters of 2001. Gross realized losses totaled $32 during the first three quarters of 2002 and $14 during the first three quarters of 2001.

Investment securities having a carry value approximating $48,663 and $40,711 as of September 30, 2002 and December 31, 2001, respectively, were pledged to secure public deposits and for other purposes.

(4)  Loans

The composition of loans as of September 30, 2002 and December 31, 2001 was as follows:

Nonaccrual loans are loans for which principal and interest are doubtful of collection in accordance with original loan terms and for which accruals of interest have been discontinued due to payment delinquency. Nonaccrual loans totaled $7,322 and $8,205 as of September 30, 2002 and December 31, 2001, respectively. On September 30, 2002, the Company had 90 day past due loans with principal balances of $542 and restructured loans with principal balances of $36 compared to 90 day past due loans with principal balances of $332 and restructured loans with principal balances of $585 on December 31, 2001.

(5)  Allowance for Loan Losses

Transactions in the allowance for loan losses are summarized below for nine months ended Septemer 30, 2002 and September 30, 2001 as follows:

(6)  Premises and Equipment

Premises and equipment are comprised of the following as of September 30, 2002 and December 31, 2001:

Depreciation charged to operations totaled $1,114 and $1,048 for September 30, 2002 and September 30, 2001 respectively.

Certain Company facilities and equipment are leased under various operating leases. Rental expense approximated $114 and $113 for nine months ended September 30, 2002 and 2001.

(7)  Income Taxes

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

(8)  Deposits

Components of interest-bearing deposits as of September 30, 2002 and December 31, 2001 are as follows:

The aggregate amount of short-term jumbo certificates of deposit, each with a minimum denomination of one hundred thousand, was approximately $136,234 and $101,267 as of September 30, 2002 and December 31, 2001, respectively.

As of September 30, 2002 and December 31, 2001, the scheduled maturities of certificates of deposits are as follows:

Borrowed money at September 30, 2002 and December 31, 2001 is summarized as follows:

Advances from the Federal Home Loan Bank (FHLB) have maturities ranging from 2002 to 2011 and interest rates ranging from 2.00 percent to 6.18 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, 2002, the Company had available line of credit commitments totaling $63,277, of which $19,077 was available.

First Port City note payable was renewed on January 29, 2000 for $675. Annual principal payments of $96 are due with interest paid quarterly at The Wall Street Prime minus one half percent. The debt is secured by commercial real estate in downtown Fitzgerald, which includes the parent company’s facilities. Any unpaid balance is due January 29, 2003.

The Banker’s Bank note payable was renewed on January 23, 2002 into a credit line up to $1,110 at a rate of the Wall Street Prime minus one half percent. Payments are due monthly in the amount of $21 with final maturity of January 7, 2007. The debt is secured by all non-rolling fixed assets of Colony Management Services, Inc. and the guaranty of Colony Bankcorp, Inc. At September 30, 2002 no draws are available on the line of credit.

Advances under the line of credit with First Port City have an interest rate of the Wall Street Prime. Interest payments are due quarterly with the principal balance due on June 30, 2002. All of the outstanding stock of Colony Bank of Fitzgerald is pledged as collateral for the line of credit. At June 30, 2002 the line of credit had been paid out with proceeds realized from the trust preferred securities offering. The line of credit is no longer in force at September 30, 2002.

The Trust Preferred Securities debt originated on March 26, 2002 in the amount of $9,000 with a maturity date of March 26, 2032. The initial rate of interest was 5.59% and adjusts quarterly to the effective 3 month Libor rate plus 360 basis points. Interest payments are scheduled quarterly with principal due at maturity, though the Company has the option at the end of five years to pay partially or in full the principal balance. The present rate of interest at September 30, 2002 was 5.40%.

(9)  Borrowed Money (Continued)

The aggregate stated maturities of borrowed money at September 30, 2002 are as follows:

(10)  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 $384 for 2001, $369 for 2000 and $328 for 1999.

(11)  Commitments and Contingencies

In the normal course of business, certain commitments and contingencies are incurred which are not reflected in the consolidated financial statements. Commitments under standby letters of credit to U.S. addresses approximate $2,179 as of September 30, 2002 and $1,426 as of December 31, 2001. Unfulfilled loan commitments as of September 30, 2002 and December 31, 2001 approximated $50,547 and $46,871 respectively. No losses are anticipated as a result of commitments and contingencies.

(12)  Regulatory Capital Matters

The amount of dividends payable to the parent company from the subsidiary banks is limited by various banking regulatory agencies. The amount of cash dividends available from subsidiaries for payment in 2002 without prior approval from the banking regulatory agencies approximates $2,433. Upon approval by regulatory authorities, the banks may pay cash dividends to the parent company in excess of regulatory limitations.

The Company is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and, possibly, additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance sheet items as calculated under regulatory 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, 2002, the Company meets all capital adequacy requirements to which it is subject and is classified as well capitalized under the regulatory framework for prompt corrective action. In the opinion of management, there are no conditions or events since prior notification of capital adequacy from the regulators that have changed the institution’s category.

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

The parent company’s balance sheets as of September 30, 2002 and December 31, 2001 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, 2002 AND DECEMBER 31, 2001

(13)  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, 2002 AND SEPTEMBER 30, 2001
(UNAUDITED)

(13)  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, 2002 AND SEPTEMBER 30, 2001
(UNAUDITED)

(14)  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.

(15)  Stock Grant Plan

On February 16, 1999, a restricted stock grant plan was approved by the Board. The plan was adopted for the purpose of establishing incentives designed to recognize, reward and retain executive employees whose performance, contribution and skills are critical to the Company. The plan period commences February 16, 1999 and ends February 15, 2009 with the maximum number of shares subject to restricted stock awards being 22,175 shares (44,350 shares after the two-for-one stock split effective March 31, 1999). During 2000 – 2002, the Company has issued an aggregate total of 17,500 shares pursuant to the stock grant plan which leaves 26,850 available shares that can be issued over the remaining life of the plan.

(16)  Proforma Financial Statement – Business Combination

Colony Bankcorp, Inc, and Quitman Bancorp, Inc. entered into an agreement and plan of merger dated as of October 22, 2001, pursuant to which Quitman was merged with and into Colony with Colony Bankcorp, Inc. surviving the merger and Quitman’s wholly-owned subsidiary, Quitman Federal Savings Bank, becoming a wholly-owned subsidiary of Colony contemporaneous with the consummation of the merger. The merger was consummated and became effective as of March 29, 2002. The business combination was accounted for by the purchase method of accounting and the results of operations of Quitman Federal Savings Bank since the date of acquisition are included in the Consolidated Financial Statements.

The proforma information below discloses results of operations for the current period and the corresponding period in the preceeding year as though the companies had combined at the beginning of the period being reported on:

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

Liquidity and Capital Resources

Liquidity represents the ability to provide adequate sources of funds for funding loan commitments and investment activities, as well as the ability to provide sufficient funds to cover deposit withdrawals, payment of debt and financing of operations. Converting assets to cash for these funds is primarily with proceeds from collections on loans and maturities of investment securities or by attracting and obtaining new deposits. For the nine months ended September 30, 2002, the Company was successful in meeting its liquidity needs by increasing deposits 20.32 percent to $635,318,000 from deposits of $528,017,000 on December 31, 2001. Of this increase, $60,196,000 or 56.10 percent resulted from the purchase of Quitman Federal Savings Bank in 2002. Also, the Company met its liquidity needs by increasing other borrowed money 15.88 percent to $54,671,000 from $47,180,000 on December 31, 2001. Of this increase, $3,000,000 or 40.05 percent resulted from the Quitman purchase . 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.

Liquidity is monitored on a regular basis by management. The Company’s liquidity position remained satisfactory for the nine-month period ended September 30, 2002. Average liquid assets (cash and amounts due from banks, interest-bearing deposits in other banks, funds due and securities) represented 23.93 percent of average deposits for the nine months ended September 30, 2002 as compared to 22.90 percent of average deposits for the same period in 2001 and 23.18 percent for calendar year 2001. Average loans represented 88.91 percent of average deposits for the nine months ended September 30, 2002 as compared to 89.94 percent for the same period in 2001 and 89.80 percent for calendar year 2001. Average interest-bearing deposits were 83.19 percent of average earning assets for the nine months ended September 30, 2002 as compared to 83.29 percent for the same period in 2001 and 83.12 percent for calendar year 2001.

The Company satisfies most of its capital requirements through retained earnings. During the first three months of 2002, retained earnings provided $1,086,000 of increase in equity. Additionally, equity had a decrease of $273,000 resulting from the change during the quarter in unrealized gains on securities available for sale, net of taxes, an increase of $18,000 resulting from the stock grant plan, a decrease of $537,000 resulting from treasury shares acquired through the company’s stock repurchase plan and an increase of $4,944,000 as a result of the acquisition of Quitman Federal Savings Bank. Thus, total equity increased by a net amount of $5,238,000. During the second quarter of 2002, retained earnings provided $1,263,000 of increase in equity. Additionally, equity had an increase of $1,000,000 resulting from the change during the quarter in unrealized gains on securities available for sale, net of taxes and an increase of $18,000 resulting from the stock grant plan. Thus, total equity increased by a net amount of $2,281,000 in the three-month period ended June 30, 2002. During the third quarter of 2002, retained earnings provided $1,199,000 of increase in equity. Additionally, equity had a decrease of $311,000 resulting from the change during the quarter in unrealized gains on securities available for sale, net of taxes and an increase of $19,000 resulting from the stock grant plan. Thus, total equity increased by a net amount of $907,000 in the three-month period ended September 30, 2002 and increased by a net amount of $8,426,000 in the nine-month period ended September 30, 2002.

During the first three months of 2001, retained earnings provided $994,000 of increase in equity. Additionally, equity had an increase of $765,000 resulting from the change during the year in unrealized gains on securities available for sale, net of taxes and an increase of $10,000 resulting from the stock grant plan. Thus, total equity increased by a net amount of $1,769,000 for the three-month period ended March 31, 2001. During the second quarter of 2001, retained earnings provided $955,000 of increase in equity. Additionally, equity had an increase of $65,000 resulting from the change during the quarter in unrealized gains on securities available for sale, net of taxes and an increase of $10,000 resulting from the stock grant plan. Thus, total equity increased by a net amount of $1,030,000 in the three-month period ended June 30, 2001. During the third quarter of 2001, retained earnings provided $894,000 of increase in equity. Additionally, equity had an increase of $784,000 resulting from the change during the quarter in unrealized gains on securities available for sale, net of taxes and an increase of $10,000 resulting from the stock grant plan. Thus, total equity increased by a net amount of $1,688,000 in the three-month period ended September 30, 2001 and increased by a net amount of $4,487,000 in the nine-month period ended September 30, 2001. Total equity increased by a net amount of $1,761,000 for calendar year 2001.

As of September 30, 2002, the Company’s capital totaled approximately $50,397,000 and there was not any outstanding commitment for capital expenditures. The branch facility in Warner Robins/Houston County was completed during the third quarter with total expenditures approximating $1,200,000. The company has purchased land for a third location in Dougherty/Lee County, however no contracts have been signed for construction of the facility at this time. It is anticipated that the project will approximate $1,200,000 with anticipated opening during the third quarter of 2003.

The Federal Reserve Board and the FDIC have issued risk-based capital guidelines for U. S. banking organizations. The objective of these efforts was to provide a more uniform framework that is sensitive to differences in risk assets among banking organizations. The guidelines define a two-tier capital framework. 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 term debt and the allowance for loan losses up to 1.25 percent of risk-weighted assets. The Company has no Tier 2 capital other than the allowance for loan losses.

Using the capital requirements presently in effect, the Tier 1 ratio as of September 30, 2002 was 10.34 percent and total Tier 1 and 2 risk-based capital was 11.59 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 was 7.93 percent as of September 30, 2002 which exceeds the required ratio standard of 4 percent.

For the nine months ended September 30, 2002, average capital was $46,952,000 representing 6.82 percent of average assets for the year. This compares to 7.69 percent in the nine month period ended September 30, 2001 and 7.75 percent for calendar year 2001.

The Company paid quarterly dividends of $0.06, $0.07 and $0.07, for the first three quarters of 2002, respectively or $0.20 per share in the first three quarters of 2002 compared to quarterly dividends of $0.06, $0.06 and $0.06, for the first three quarters of 2001, respectively or $0.18 per share in the first three quarters of 2001. The dividend payout ratio, defined as dividends per share divided by net income per share, was 20.00 percent for nine months ended September 30, 2002 as compared to 21.95 percent for the same period in 2001.

As of September 30, 2002, management was not aware of any recommendations by regulatory authorities which if they were to be implemented, would have a material effect on the Company’s liquidity, capital resources or results of operations. However, it is possible that examinations by regulatory authorities in the future could precipitate additional loss charge-offs that could materially impact the Company’s liquidity, capital resources and results of operations.

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

Net income for the three months ended September 30, 2002 was $1,520,000 as compared to $1,160,000 for the three months ended September 30, 2001, or an increase of 31.03 percent. Of this $360,000 increase, $240,000 or 66.67 percent is attributable to Quitman Federal. The increase is the result of an increase in net interest income of $1,371,000, an increase in other noninterest income of $301,000 and an increase in gain on sale of securities of $488,000. An increase in noninterest expense of $1,073,000, an increase in income tax expense of $190,000 and an increase in provision for loan losses of $537,000 offset the increases during the quarter. On a fully diluted share basis, net income increased to $0.33 per share for the three months ended September 30, 2002 from $0.26 for the same period in 2001, or an increase of 26.92 percent.

Net income for the nine months ended September 30, 2002 was $4,462,000 as compared to $3,642,000 for the nine months ended September 30, 2001, or an increase of 22.52 percent. Of this $820,000 increase, $450,000 or 54.88 percent is attributable to Quitman Federal. The increase is the result of an increase in net interest income of $2,928,000, an increase in noninterest income of $608,000 and an increase in gain on sale of securities of $931,000. An increase in noninterest expense of $2,235,000, an increase in income tax expense of $385,000 and an increase in provision for loan losses of $1,027,000 offset the increases during the first nine months of the year. On a fully diluted share basis, net income increased to $1.00 per share for the nine months ended September 30, 2002 from $0.82 for the same period in 2001, or an increase of 21.95 percent.

Net Interest Margin

The company’s net interest margin decreased by 2 basis points to 3.81 percent in third quarter 2002 as compared to 3.83 percent in third quarter 2001. The net interest margin compression the past several quarters was primarily attributable to U. S. Federal Reserve lowering interest rates an unprecedented 475 basis points during 2001; however, the Company realized margin improvement in the second quarter 2002 and third quarter 2002 and should see stable or continued improvement the balance of the year given the Federal Reserve’s current neutral bias toward interest rates in 2002. Net interest income increased 26.78 percent to $6,491,000 in third quarter 2002 from $5,120,000 in the same period a year ago on an increase in average earning assets to $689,197,000 in third quarter 2002 from $541,939,000 in third quarter 2001. Net interest margin decreased by 18 basis points to 3.72 percent for the nine months ended

September 30, 2002 as compared to 3.90 percent for the same period in 2001. Net interest income increased 19.54 percent to $17,911,000 in the nine-month period ended September 30, 2002 from $14,983,000 in the same period a year ago. Average earning assets increased to $650,597,000 in the nine-month period ended September 30, 2002 from $518,562,000 for the same period a year ago. Average loans increased by $99,957,000 or 23.73 percent, average funds sold increased by $9,890,000 or 68.67 percent, average investment securities increased by $16,792,000 or 22.19 percent, average interest-bearing deposits in other banks increased by $4,120,000 or 78.63 percent and average interest-bearing other assets increased $1,276,000 or 66.32 percent resulting in a net increase in average earning assets of $132,035,000 or 25.46 percent. Of the $132,035,000 increase in average assets for first three quarters of 2002 compared to the same period in 2001, Quitman Federal Savings acquired in March 2002 is attributable for $66,185,000 or 50.13 percent.

The net increase in average assets was funded by a net increase in average deposits of 23.63 percent to $586,292,000 in the nine-month period ended September 30, 2002 from $468,423,000 in the same period a year ago and a net increase in average debt and funds purchased of 42.01 percent to $50,903,000 in nine-month period ended September 30, 2002 from $35,844,000 in the same period a year ago. Of the average deposit increase, Quitman Federal is attributable for $59,454,000 or 50.44 percent. Average interest-bearing deposits increased by 25.31 percent to $541,243,000 in the nine-month period ended September 30, 2002 from $431,917,000 in the same period a year ago while average noninterest-bearing deposits increased 23.40 percent to $45,049,000 in the nine-months ended September 30, 2002 from $36,506,000 in the same period a year ago. Average noninterest-bearing deposits represented 7.68 percent of average total deposits in the nine-month period ended September 30, 2002 as compared to 7.79 percent in the same period a year ago.

Interest expense decreased for the three months ended September 30, 2002 by $1,089,000 compared to the same period in 2001 and decreased by $3,088,000 in the nine-month period ended September 30, 2002 compared to the same period in 2001. The decrease is primarily attributable to the U. S. Federal Reserve lowering interest rates an unprecedented 475 basis points during 2001. The combination of the increase in average earning assets and the decrease in the net interest margin resulted in an increase of net interest income of $1,371,000 for the three months ended September 30, 2002 compared to the same period a year ago and an increase of net interest income of $2,928,000 in the nine-month period ended September 30, 2002 compared to the same period a year ago.

Provision for Loan Losses

The allowance for loan losses represents a reserve for potential losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated periodically based on a review of all significant loans, with a particular emphasis on nonaccruing, past due and other loans that management believes require attention.

The provision for loan losses is a charge to earnings in the current period to replenish the allowance for loan losses and maintain it at a level management has determined to be adequate. The provision for loan losses was $990,000 for the three months ended September 30, 2002 as compared to $453,000 for the three months ended September 30, 2001 representing an increase of $537,000 or 118.54 percent. The provision for loan losses was $2,139,000 in the nine-month period ended September 30, 2002 as compared to $1,112,000 in the same period a year ago, representing an increase of $1,027,000 or 92.36 percent. The company’s provision for loan losses in the third quarter allows the company’s reserve for loan loss level to keep pace with the rapid loan growth that the company has experienced. Net loan charge-offs represented 82.32 percent of the provision for loan losses in the third quarter of 2002 as compared to 54.75 percent in the third quarter of 2001. Net loan charge-offs represented 68.91 percent of the provision for loan losses for the nine-month period ended September 30, 2002 compared to 61.15 percent for the same period a year ago. Net loan charge-offs for the three months ended September 30, 2002 represented 0.15 percent of average loans outstanding as compared to 0.06 percent in the same period a year ago, while net loan charge-offs for the nine-month period ended September 30, 2002 was 0.28 percent compared to 0.16 percent in the same year ago period. The leveling off of loan charge-offs resulted from management’s effort the past several years to improve credit quality and to eliminate weak and marginal credits. As of September 30, 2002, the allowance for loan losses was 1.27 percent of total loans outstanding as compared to an allowance for loan losses of 1.34 percent of total loans outstanding as of September 30, 2001. The loan loss reserve of 1.27 percent of total loans outstanding provided coverage of 92.10 percent of nonperforming loans and 79.81 percent of nonperforming assets as of September 30, 2002 compared to 71.92 percent and 61.88 percent, respectively as of September 30, 2001 and compared to 69.10 percent and 58.84 percent, respectively as of December 31, 2001. The determination of the reserve rests upon management’s judgment about factors affecting loan quality and assumptions about the economy. Management considers the September 30, 2002 allowance for loan losses adequate to cover potential losses in the loan portfolio.

Noninterest Income

Noninterest income consists primarily of service charges on deposit accounts. Service charges on deposit accounts totaled $890,000 in third quarter 2002 as compared to $754,000 in third quarter 2001 or an increase of 18.04 percent. This increase is attributable to the increase in noninterest-bearing and interest-bearing deposit accounts and the acquisition of Quitman Federal in March 2002. All other

noninterest income increased to $401,000 in third quarter 2002 from $236,000 in third quarter 2001, or an increase of 69.92 percent. Most of the increase is attributable to additional fee income generated by the mortgage company. With a significant rally in the bond market during the third quarter, the company initiated balance sheet restructuring with its investment portfolio that resulted in gross gains of $488,000 compared to $0 in the same period a year ago. Thus, total noninterest income for third quarter 2002 was $1,779,000 compared to $990,000 in third quarter 2001, or an increase of 79.70 percent and was $4,563,000 in nine-month period ended September 30, 2002 compared to $3,024,000 in the same period a year ago, or an increase of 50.89 percent. Excluding the gain on sale of securities, noninterest income increased 30.40 percent for the three month period ended September 30, 2002 and by 20.54 percent for the nine month period ended September 30, 2002 compared to the same year ago periods.

Noninterest Expense

Noninterest expense increased by 27.52 percent to $4,972,000 in third quarter 2002 from $3,899,000 in third quarter 2001 and increased by 19.64 percent to $13,612,000 in nine-month period ended September 30, 2002 compared to $11,377,000 for the same year ago period. Salaries and employee benefits increased 29.33 percent to $2,697,000 in third quarter 2002 from $2,087,000 in third quarter 2001 primarily due to increased staffing with two new branches opened in 2001 and the acquisition of Quitman Federal and increased 19.09 percent to $7,442,000 in nine-month period ended September 30, 2002 from $6,249,000 in the same period a year ago. Occupancy and equipment expense decreased by 4.17 percent to $690,000 in third quarter 2002 from $720,000 in third quarter 2001 and increased 6.31 percent to $2,172,000 in the nine-month period ended September 30, 2002 from $2,043,000 in the same period a year ago. All other noninterest expense increased 45.15 percent to $1,585,000 in third quarter 2002 from $1,092,000 a year ago and increased 29.59 percent to $3,998,000 in the nine-month period ended September 30, 2002 from $3,085,000 in the same year ago period. Other increases in noninterest expense are primarily attributable to expenses incurred in opening two new offices during 2001 and the acquisition of Quitman Federal.

Income Tax Expense

Income before taxes increased by $550,000 to $2,308,000 in third quarter 2002 from $1,758,000 in third quarter 2001 with significant changes being an increase in net interest income of $1,371,000 in third quarter 2002 as compared to third quarter 2001, an increase in noninterest expense, net of noninterest income of $284,000 in third quarter 2002 as compared to third quarter 2001 and an increase in provision for loan losses of $537,000 in third quarter 2002 as compared to third quarter 2001. Income tax expense increased 31.77 percent to $788,000 in third quarter 2002 from $598,000 in third quarter 2001. Income tax expense as a percentage of income before taxes was 34.14 percent in third quarter 2002 compared to 34.02 percent in third quarter 2001 or an increase of 0.35 percent while income tax expense as a percentage of income before taxes was 33.63 percent in nine-month period ended September 30, 2002 as compared to 34.00 percent for the same period a year ago, or a decrease of 1.09 percent.

Quantitative and Qualitative Disclosures About Market Risk

AVERAGE BALANCE SHEETS