COLONY BANKCORP INC - 10-K Annual Report

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 ¨

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 126-2). Yes x No ¨

State the aggregate market value of the voting stock held by nonaffiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of June 30, 2004: $97,150,504, based on stock price of $22.16.

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 5,748,068 shares of $1.00 par value common stock as of March 7, 2005.

Portions of the information required by Part III of this Annual Report are incorporated by reference from the Registrant’s definitive Proxy Statement to be filed with Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report.

Colony Bankcorp, Inc. (the Company or Colony) is a Georgia business corporation which was incorporated on November 8, 1982. The Company was organized for the purpose of operating as a bank holding company under the Federal Bank Holding Company Act of 1956, as amended, and the bank holding company laws of Georgia (Georgia Laws 1976, p. 168, et. seq.). On July 22, 1983, the Company, after obtaining the requisite regulatory approvals, acquired 100 percent of the issued and outstanding common stock of Colony Bank of Fitzgerald (formerly The Bank of Fitzgerald), Fitzgerald, Georgia, through the merger of the Bank with a subsidiary of the Company which was created for the purpose of organizing the Bank into a one-bank holding company. Since that time, Colony Bank of Fitzgerald has operated as a wholly-owned subsidiary of the Company.

On April 30, 1984, Colony, with the prior approval of the Federal Reserve Bank of Atlanta and the Georgia Department of Banking and Finance, acquired 100 percent of the issued and outstanding common stock of Colony Bank Wilcox (formerly Community Bank of Wilcox and Pitts Banking Company), Pitts, Wilcox County, Georgia. As part of that transaction, Colony issued an additional 17,872 shares of its $10.00 par value common stock, all of which was exchanged with the holders of shares of common stock of Pitts Banking Company for 100 percent of the 250 issued and outstanding shares of common stock of Pitts Banking Company. Since the date of acquisition, the Bank has operated as a wholly-owned subsidiary of the Company.

On November 1, 1984, after obtaining the requisite regulatory approvals, Colony acquired 100 percent of the issued and outstanding common stock of Colony Bank Ashburn (formerly Ashburn Bank), Ashburn, Turner County, Georgia, for a combination of cash and interest-bearing promissory notes. Since the date of acquisition, Colony Bank Ashburn has operated as a wholly-owned subsidiary of the Company.

On September 30, 1985, after obtaining the requisite regulatory approvals, the Company acquired 100 percent of the issued and outstanding common stock of Colony Bank of Dodge County (formerly The Bank of Dodge County), Chester, Dodge County, Georgia. The stock was acquired in exchange for the issuance of 3,500 shares of common stock of Colony. Since the date of its acquisition, Colony Bank of Dodge County has operated as a wholly-owned subsidiary of the Company.

Effective July 31, 1991, the Company acquired all of the outstanding common stock of Colony Bank Worth (formerly Worth Federal Savings and Loan Association and Bank of Worth) in exchange for cash and 7,661 of the Company’s common stock for an aggregate purchase price of approximately $718,000. Since the date of its acquisition, Colony Bank Worth has operated as a wholly-owned subsidiary of the Company.

On November 8, 1996, Colony organized Colony Management Services, Inc. to provide support services to each subsidiary. Services provided include loan and compliance review, internal audit and data processing.

On November 30, 1996, the Company acquired Broxton State Bank (name subsequently changed to Colony Bank Southeast) in a business combination accounted for as a pooling of interests. Broxton State Bank became a wholly-owned subsidiary of the Company through the exchange of 157,735 shares of the Company’s common stock for all of the outstanding stock of Broxton State Bank.

On March 2, 2000, Colony Bank Ashburn purchased the capital stock of Georgia First Mortgage Company in a business combination accounted for as a purchase. The purchase price of $346,725 was the fair value of the net assets of Georgia First Mortgage at the date of purchase. Georgia First Mortgage is primarily engaged in residential real estate mortgage lending in the state of Georgia.

On March 26, 2002 and December 19, 2002, Colony formed Colony Bankcorp, Inc. Statutory Trust I and Colony Bankcorp, Inc. Statutory Trust II, respectively. Both were formed to establish special purpose entities to issue trust preferred securities.

On March 29, 2002, Colony purchased 100 percent of the outstanding voting stock of Quitman Bancorp, Inc., 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 (name subsequently changed to Colony Bank Quitman) becoming a wholly-owned subsidiary of Colony. The aggregate acquisition price was $7,446,163, which included cash and 367,093 shares of the Company’s common stock.

On March 19, 2004, Colony Bank Ashburn purchased Flag Bank-Thomaston office in a business combination accounted for as a purchase. Since the date of acquisition, the Thomaston office has operated as a branch office of Colony Bank Ashburn.

On June 17, 2004, Colony formed Colony Bankcorp, Inc. Statutory Trust III for the purpose of establishing a special purpose entity to issue trust preferred securities.

The Company conducts all of its operations through its bank subsidiaries. A brief description of each Bank’s history and business operations is discussed below.

Colony Bank of Fitzgerald is a state banking institution chartered under the laws of Georgia on November 10, 1975. Since opening on April 15, 1976, the Bank has continued a general banking business and presently serves its customers from three locations, the main office in Fitzgerald, Georgia at 302 South Main Street, a full-service branch located on Highway 129 South and a full-service branch at 1290 Houston Lake Road, in Warner Robins, Georgia.

The Bank operates a full-service banking business and engages in a broad range of commercial banking activities, including accepting customary types of demand and time deposits; making individual, consumer, commercial and installment loans; money transfers; safe deposit services; and making investments in United States Government and municipal securities. The Bank does not offer trust services other than acting as custodian of individual retirement accounts.

The data processing work of the Bank is processed by Colony Management Services, Inc., a wholly-owned subsidiary of Colony Bankcorp, Inc.

Colony Bank of Fitzgerald acts as an agent for Visa Card and MasterCard through The Bankers Bank which allows merchants to accept Visa Card and MasterCard and deposit the charge tickets in their accounts with the Bank.

The Bank also offers its customers a variety of checking and savings accounts. The installment loan department makes both direct consumer loans and also purchases retail installment contracts from local automobile dealers and other sellers of consumer goods.

The Bank serves the residents of Fitzgerald and surrounding areas of Ben Hill County which has a population of approximately 16,000 people. Manufacturing facilities located in Ben Hill County employ many people and are the most significant part of the local economy. Ben Hill County also has a large agricultural industry producing timber and row crops. Major row crops are peanuts, tobacco, soybeans and corn.

The Bank now serves Houston County with the opening of its branch in Warner Robins, Georgia. The Houston County market has an estimated population of 89,000. Robins Air Force base, located in Houston County, is a major employer in the area which has survived national base closure mandates and expanded in size in recent years.

A history of the Bank’s financial position for fiscal years ended 2004, 2003 and 2002 is as follows:

The Bank’s main offices are housed in a building located in Fitzgerald, Georgia. The main offices, which are owned by the Bank, consist of approximately 13,000 square feet, three drive-in windows and an adjacent parking lot. Banking operations also are conducted from the southside branch which is located at South Dixie Highway, Fitzgerald, Georgia. This branch is owned by the Bank and has been in continuous operation since it opened in December 1977. The branch is a single story building with approximately 850 square feet and is operated with three drive-in windows.

In August 2002, the Bank moved from its temporary facilities (opened July 2001) in Warner Robins, Georgia to a new building located at 1290 Houston Lake Road. The 5,500 square foot building has four inside teller windows, four drive-in windows and an ATM machine.

The Bank is building its second office in Warner Robins, Georgia. The new office will be approximately 5,000 square feet and is scheduled for completion in the third quarter of 2005.

The banking business in Ben Hill County and Houston County is highly competitive. The Bank competes primarily with five other commercial banks and one credit union operating in Ben Hill County. In Houston County the Bank competes with eight commercial banks and four credit unions. Additionally, the Bank competes to a lesser extent with insurance companies and governmental agencies. The banking industry is also experiencing increasing competition for deposits from less traditional sources such as money market and mutual funds. The Bank also offers “NOW” accounts, individual retirement accounts, simplified pension plans, KEOGH plans and custodial accounts for minors.

As of December 31, 2004, the Bank had correspondent relationships with two other banks. The Bank’s principal correspondent is The Bankers Bank located in Atlanta, Georgia. These correspondent banks provide certain services to the Bank such as investing its excess funds, processing checks and other items, buying and selling federal funds, handling money fund transfers and exchanges, shipping coins and currency, providing security and safekeeping of funds and other valuable items, handling loan participations and furnishing management investment advice on the Bank’s securities portfolio.

Colony Bank Ashburn was chartered as a state commercial bank in 1900 and currently operates under the Financial Institutions Code of Georgia. The Bank’s deposits are insured up to $100,000 per account by the Federal Deposit Insurance Corporation. The Bank conducts business at the offices located at 515 East Washington and 416 East Washington in Ashburn, Turner County, Georgia, 137 Robert B. Lee Drive, in Leesburg, Georgia, 2609 Ledo Road in Lee County, Georgia, 1031 24^th Ave., E., in Cordele, Georgia, 206 North Church Street, in Thomaston, Georgia, 716 Prulema Road, in Albany, Georgia and 6298 Veterans Parkway, in Columbus, Georgia . The offices in Leesburg and Cordele operate under the name Colony Bank. The Bank’s business largely consists of (1) the acceptance of demand, savings and time deposits; (2) the making of loans to consumers, businesses and other institutions; (3) investment of excess funds and sale of federal funds, U.S. Treasury obligations and state, county and municipal bonds; and (4) internet online banking. The Bank’s mortgage lending services are through Georgia First Mortgage and it does not offer trust services. It acts as an agent for Visa Card and MasterCard through The Bankers Bank.

A history of the Bank’s financial position for fiscal years ended 2004, 2003 and 2002 is as follows:

The Bank’s main office is located at 515 East Washington Street in Ashburn and consists of a building of approximately 13,000 square feet of office and banking space with an adjacent parking lot. A branch facility is located across the street from the main office and consists of a single story building with approximately 850 square feet and is operated with three drive-in windows.

The Bank has a Lee County office which opened in October 1998. This full-service facility, located within the city limits of Leesburg, consists of a two-story brick building of approximately 5,000 square feet and includes three drive-in lanes. In 2001, a second Lee County facility located at 2609 Ledo Road opened. The facility is a 5,500 square foot facility with four drive-in windows and five inside teller windows. The Bank has a third Lee/Dougherty County office which opened in March 2004. This full service facility located within the city limits of Albany consists of approximately 5,000 square feet, with four drive-in-lanes and one automated teller machine. As a result of the purchase of Georgia First Mortgage Company, the Bank has a mortgage lending office at 616 North Westover Blvd., Albany, Dougherty County, Georgia.

The Bank opened a branch office in Cordele, Crisp County, Georgia on October 4, 1999. The full-service branch facility consists of approximately 5,500 square feet, with four drive-in lanes and one automated teller machine.

In March 2004, the Bank acquired Flag Bank-Thomaston office in Thomaston, Upson County, Georgia. The full service branch facility consists of approximately 18,000 square feet, with four drive-in-lanes and one automated teller machine.

In September 2004, the Bank opened a loan production office in Columbus, Muscogee County, Georgia. This leased office consists of approximately 2,000 square feet.

All occupied premises, with the exception of Georgia First Mortgage located in Albany and the Columbus location, are owned by the Bank.

The banking business is highly competitive. The Bank competes in Turner County primarily with Community National Bank which operates out of one facility in Ashburn, Georgia. The Bank competes with five commercial banks in Crisp County, four in Lee County, three in Upson County and nine in Muscogee County. The Bank also competes with other financial institutions, including credit unions and finance companies and, to a lesser extent, with insurance companies and certain governmental agencies. The banking industry is also experiencing increased competition for deposits from less traditional sources such as money market and mutual funds.

Colony Bank Ashburn has correspondent relationships with the following banks: The Bankers Bank in Atlanta, Georgia; SunTrust Bank, N.A. in Atlanta, Georgia; Colony Bank of Fitzgerald in Fitzgerald, Georgia; AMSouth Bank of Alabama in Birmingham, Alabama; and the Federal Home Loan Bank in Atlanta, Georgia. The correspondent relationships facilitate the transactions of business by means of loans, letters of credit, acceptances, collections, exchange services and data processing. As compensation for these services, the Bank maintains balances with its correspondents in noninterest-bearing accounts.

The Bank was chartered on June 2, 1906 under the name “Pitts Banking Company.” The name of the Bank subsequently was changed to Community Bank of Wilcox on June 1, 1991 and then to Colony Bank Wilcox in 2000. The Bank currently operates under the Financial Institutions Code of Georgia. The Bank’s deposits are insured up to $100,000 per account by the Federal Deposit Insurance Corporation. The Bank conducts business at locations in Pitts and Rochelle in Wilcox County, Georgia. The Bank’s business consists of: (1) the acceptance of demand, savings and time deposits; (2) the making of loans to consumers, businesses and other institutions; (3) investment of excess funds and sale of federal funds, U.S. Treasury obligations and state, county and municipal bonds; and (4) certain other miscellaneous financial services usually handled for customers by commercial banks. The Bank does little mortgage lending and it does not offer trust services.

A history of the Bank’s financial position for fiscal years ended 2004, 2003 and 2002 is as follows:

The Bank operates out of two locations at 105 South Eighth Street, Pitts, Georgia and at Highway 280, Rochelle, Georgia, both of which are in Wilcox County. The Pitts office consists of a building of approximately 2,200 square feet of usable office and banking space which it owns. The facility contains one drive-in window and three teller windows. The Rochelle office, which opened in August 1989, consists of a building of approximately 5,000 square feet of usable office and banking space, which is owned by the Company.

The banking business is highly competitive. The Bank competes in Wilcox County primarily with four commercial banks. In addition, the Bank competes with other financial institutions, including credit unions and finance companies and, to a lesser extent, insurance companies and certain governmental agencies. The banking industry is also experiencing increased competition for deposits from less traditional sources such as money market and mutual funds.

The Bank has correspondent relationships with the following banks: The Bankers Bank in Atlanta, Georgia; Federal Home Loan Bank, in Atlanta, Georgia; AMSouth Bank of Alabama in Birmingham, Alabama; and SunTrust Bank, N.A., in Atlanta, Georgia. The correspondent relationships facilitate the transactions of business by means of loans, letters of credit, acceptances, collections, exchange services and data processing. As compensation for these services, the Bank maintains balances with its correspondents in noninterest-bearing accounts.

The Bank was chartered on June 14, 1966 under the name “Bank of Chester.” The name of the Bank subsequently was changed to The Bank of Dodge County on April 15, 1983 and then to Colony Bank of Dodge County in 2000. The Bank currently operates under the Financial Institutions Code of Georgia. The Bank’s deposits are insured up to $100,000 per account by the Federal Deposit Insurance Corporation. The Bank’s business consists of: (1) the acceptance of demand, savings and time deposits; (2) the making of loans to consumers, businesses and other institutions; (3) investment of excess funds in the sale of federal funds, U.S. Treasury obligations and state, county and municipal bonds; and (4) certain other miscellaneous financial services usually handled for customers by commercial banks. The Bank does little mortgage lending and it does not offer trust services.

A history of the Bank’s financial position for fiscal years ended 2004, 2003 and 2002 is as follows:

The Bank’s main office is located at 5510 Oak Street in Eastman, Dodge County, Georgia and consists of a building of approximately 11,000 square feet of office and banking space with an adjacent parking lot and is operated with three drive-in windows. The branch facility is located in Chester, Dodge County, Georgia and consists of a building with approximately 2,700 square feet of office and banking space and an adjacent parking lot. A second branch was opened during 2000 in Soperton, Treutlen County, Georgia at 310 Main Street. The branch has approximately 1,600 square feet of banking and office space with three walk-up teller units and two drive-in windows. The Bank owns all of the premises which it occupies.

The banking business is highly competitive. The Bank competes in the Dodge County area with two other banks. In addition, the Bank competes with other financial institutions, including credit unions and finance companies and, to a lesser extent, insurance companies and certain governmental agencies. The banking industry is also experiencing increased competition for deposits from less traditional sources such as money market and mutual funds.

The Bank has correspondent relationships with the following banks: The Bankers Bank in Atlanta, Georgia; The Federal Home Loan Bank in Atlanta, Georgia; and SunTrust Bank, N.A., in Atlanta, Georgia. The correspondent relationships facilitate the transactions of business by means of loans, letters of credit, acceptances, collections, exchange services and data processing. As compensation for these services, the Bank maintains balances with its correspondents in noninterest-bearing accounts.

Colony Bank Worth operated as a savings and loan stock association until it was acquired by the Company on July 31, 1991, at which time the association changed its name to Bank of Worth (subsequently named Colony Bank Worth) and became a state-chartered commercial bank. The Bank conducts business at its offices located at 402 West Franklin Street, Sylvester, Worth County, Georgia, 605 West Second Street and 1909 Highway 82 West, Tifton, Tift County, Georgia and 621 East By-Pass, NE, Moultrie, Colquitt County, Georgia. The Bank’s business consists of: (1) the acceptance of demand, savings and time deposits; (2) the making of loans to consumers, businesses and other institutions; (3) investment of excess funds and sale of federal funds, U.S. Treasury obligations and state, county and municipal bonds; and (4) certain other miscellaneous financial services usually handled for customers by commercial banks. The Bank’s deposits are insured up to $100,000 per account by the Federal Deposit Insurance Corporation. The Bank’s loan portfolio is heavily concentrated in mortgage loans due to the fact that it was previously a savings and loan. The Bank does not offer trust services. It acts as an agent for Visa Card and MasterCard through The Bankers Bank.

A history of the Bank’s financial position for fiscal years ended 2004, 2003 and 2002 is as follows:

The Bank’s main office is housed in a building located in Sylvester, Georgia. The building, which is owned by the Bank, consists of approximately 13,000 square feet, a drive-in window and an adjacent parking lot. On June 15, 1998, the Bank opened a branch office at 605 West Second Street, Tifton, Georgia. The office is a single story building of approximately 2,300 square feet with one attached drive-in window. A second branch office opened in 2000 in Moultrie, Colquitt County, Georgia. This branch building of approximately 5,000 square feet includes three walk-up teller units and four drive-in windows. During 2002, the Bank purchased real estate in the Thomas County market for a future office. In August 2004, the Bank opened a second office in Tifton, Tift County, Georgia. The office is located at 1909 Highway 82 West and consists of approximately 2,800 square feet. The office has four drive-in windows and an ATM machine. All occupied offices, with the exception of the two Tifton locations, are owned by the Bank.

The banking business in Worth County, Tift County and Colquitt County is highly competitive. The Bank competes primarily with two other commercial banks operating in Worth County, six other commercial banks in Tift County and six other commercial banks in Colquitt County. Additionally, the Bank competes with credit unions of employers located in the area and, to a lesser extent, insurance companies and governmental agencies. The banking industry is also experiencing increasing competition for deposits from less traditional sources such as money market and mutual funds.

As of December 31, 2004, the Bank had correspondent relationships with five other banks. The Bank’s principal correspondent is The Bankers Bank located in Atlanta, Georgia. These correspondent banks provide certain services to the Bank such as investing its excess funds, processing checks and other items, buying and selling federal funds, handling money fund transfers and exchanges, shipping coins and currency, providing security and safekeeping of funds and other valuable items, handling loan participations and furnishing management investment advice on the Bank’s securities portfolio.

Colony Bank Southeast, formerly Broxton State Bank, was chartered under the laws of Georgia on August 4, 1966 and opened for business on September 1, 1966, having absorbed “Citizens Bank,” a private, unincorporated bank.

The Bank is a full-service bank offering a wide variety of banking services targeted at all sectors of the Bank’s primary market area. The Bank offers customary types of demand, savings, time and individual retirement accounts; installment, commercial and real estate loans; home mortgages and personal lines-of-credit; Visa and Master Card services through its correspondent, The Bankers Bank; safe deposit and night depository services; cashier’s checks, money orders, traveler’s checks, wire transfers and various other services that can be tailored to the customer’s needs. The Bank does not offer trust services at this time. The Bank serves the residents of Coffee County, Georgia, which has a population of approximately 32,000.

In March 2004, the Bank opened a loan production office in Savannah, Chatham County, Georgia. The Bank is renovating an approximately 7,000 square foot facility for a full service branch. The branch is expected to open in July 2005.

A history of the Bank’s financial position for fiscal years ended 2004, 2003 and 2002 is as follows:

The Bank operates one banking office located at 401 North Alabama Street, Broxton, Georgia which consists of approximately 5,000 square feet of space. The building is equipped with four alarm-equipped vaults, one for safe-deposit boxes and cash storage, one for night depository service and two for record storage. The building has two drive-in systems, one commercial drawer and one pneumatic tube system. Colony Bank Southeast opened a branch office in Douglas, Georgia on July 6, 1998. The two-story brick building located at 625 West Ward Street consists of approximately 8,300 square feet and provides four drive-in lanes for customer convenience. A second Douglas office was opened on September 8, 1999 and consists of approximately 1,200 square feet with three drive-in lanes and one automated teller machine. A loan production office was opened in Savannah, Chatham County, Georgia in March 2004. The office consists of approximately 2,200 square feet. All occupied premises are owned by the Bank, with the exception of the branch located at 1351 A SE Bowens Mill Road, Douglas, Georgia and the loan production office located in Savannah, Georgia.

The banking business in Coffee County is highly competitive. Colony Bank Southeast competes with nine other banks and one credit union in Douglas, Georgia. As a result of the opening of a loan production office in Savannah, the Bank now competes with eighteen other banks in Chatham County. The banking industry is also experiencing increased competition for deposits from less traditional sources such as money market and mutual funds.

The Bank has correspondent relationships with the following banks: SunTrust Bank, Atlanta, Georgia; The Bankers Bank, Atlanta, Georgia; the Federal Home Loan Bank in Atlanta, Georgia and Columbus Bank & Trust, Columbus, Georgia. The correspondent relationships facilitate the transactions of business by means of loans, letters-of-credit, acceptances, collections, exchange services and data processing. As compensation for these services, the Bank maintains balances with its correspondents in noninterest-bearing accounts.

Colony Bank Quitman, FSB was chartered as a federal savings association in 1936. The Bank operates under the oversight of the Office of Thrift Supervision. The Federal Deposit Insurance Corporation insures the Bank’s deposits up to $100,000 per depositor. The Bank conducts business at offices located at 602 East Screven Street in Quitman, Brooks County, Georgia and 2910-N North Ashley Street, Valdosta, Lowndes County, Georgia. The Bank’s business largely consists of (1) the acceptance of demand, savings and time deposits; (2) the making of loans to consumers, businesses and other institutions; and (3) investment of excess funds through the sale of federal funds and purchase of U.S. government agency obligations and state, county and municipal bonds. The Bank is primarily a portfolio lender with a major focus on residential real estate lending. The Bank acts as an agent for Visa Card and Mastercard through The Bankers Bank.

A history of the Bank’s financial position for calendar years ended 2004, 2003 and 2002 is as follows:

The Bank’s main office is located at 602 East Screven Street in Quitman and consists of a building of approximately 6,720 square feet of office and banking space. The building has additional expansion room upstairs. The attached drive-through facility consists of three drive-through lanes plus an automated teller machine lane. The building has four inside teller windows. In March 2003, the Bank opened its first branch. The new facility, located at 2190-N North Ashley Street in Valdosta, Georgia, is a 2,200 square foot building with two drive-through lanes, three inside teller windows and a walk-up automated teller machine. The Bank owns the Quitman location and leases the Valdosta location. The Bank is building a second office in Valdosta, Lowndes County, Georgia that will consist of approximately 5,000 square feet. Completion of the project is scheduled for April 2005.

The banking business is highly competitive. In Brooks County, the Bank competes with two banks and one savings and loan association. In Lowndes County, the Bank competes with ten banks, one savings and loan association and two federal credit unions. The Bank also competes to a lesser extent with finance companies, insurance companies and certain governmental agencies. The banking industry is also experiencing increased competition for deposits from less traditional sources such as money market and mutual funds.

Colony Bank Quitman, FSB has correspondent relationships with the following banks: The Bankers Bank in Atlanta, Georgia; Colony Bank of Fitzgerald in Fitzgerald, Georgia; Compass Bank in Birmingham, Alabama; and the Federal Home Loan Bank in Atlanta, Georgia. The correspondent relationships facilitate the transactions of business by means of loans, collections, investment services, exchange services and data processing. As compensation for these services, the Bank maintains balances with its correspondents in noninterest-bearing accounts and pays some service charges.

As of December 31, 2004, Colony Bankcorp, Inc. and its subsidiaries employed 281 full-time employees and 29 part-time employees. Colony considers its relationship with its employees to be excellent.

The subsidiary banks have noncontributory profit-sharing plans covering all employees subject to certain minimum age and service requirements. All Banks made contributions for all eligible employees in 2003. In addition, Colony Bankcorp, Inc. and its subsidiaries maintain a comprehensive employee benefit program providing, among other benefits, hospitalization, major medical insurance and life insurance. Management considers these benefits to be competitive with those offered by other financial institutions in South Georgia. Colony’s employees are not represented by any collective bargaining group.

Colony is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (BHCA). As a bank holding company registered with the Federal Reserve under the BHCA and the Georgia Department of Banking and Finance (the Georgia Department) under the Financial Institutions Code of Georgia, it is subject to supervision, examination and reporting by the Federal Reserve and the Georgia Department. Its activities are limited to banking, managing or controlling banks, furnishing services to or performing services for its subsidiaries, or engaging in any other activity that the Federal Reserve determines to be so closely related to banking, or managing or controlling banks, as to be a proper incident to these activities.

Colony is required to file with the Federal Reserve and the Georgia Department periodic reports and any additional information as they may require. The Federal Reserve and Georgia Department will also regularly examine the Company and may examine the Banks or other subsidiaries.

A bank holding company may acquire direct or indirect ownership or control of voting shares of any company that is engaged directly or indirectly in banking, or managing or controlling banks, or performing services for its authorized subsidiaries. A bank holding company may also engage in or acquire an interest in a company that engages in activities that the Federal Reserve has determined by regulation or order to be so closely related to banking as to be a proper incident to these activities. The Federal Reserve normally requires some form of notice or application to engage in or acquire companies engaged in such activities. Under the BHCA, Colony will generally be prohibited from engaging in or acquiring direct or indirect control of more than 5 percent of the voting shares of any company engaged in activities other than those referred to above.

The BHCA permits a bank holding company located in one state to lawfully acquire a bank located in any other state, subject to deposit percentage, aging requirements and other restrictions. The Riegle-Neal Interstate Banking and Branching Efficiency Act also generally provides that national and state chartered banks may, subject to applicable state law, branch interstate through acquisitions of banks in other states.

In November 1999, Congress enacted the Gramm-Leach-Bliley Act, which made substantial revisions to the statutory restrictions separating banking activities from other financial activities. Under the Gramm-Leach-Bliley Act, bank holding companies that are well capitalized, well managed and meet other conditions can elect to become “financial holding companies.” As financial holding companies, they and their subsidiaries are permitted to acquire or engage in activities that were not previously allowed bank holding companies, such as insurance underwriting, securities underwriting and distribution, travel agency activities, broad insurance agency activities, merchant banking and other activities that the Federal Reserve determines to be financial in nature or complementary to these activities. Financial holding companies continue to be subject to the overall oversight and supervision of the Federal Reserve, but the Gramm-Leach-Bliley Act applies the concept of functional regulation to the activities conducted by subsidiaries. For example, insurance activities would be subject to supervision and regulation by state insurance authorities. While Colony has not elected to become a financial holding company in order to exercise the broader activity powers provided by the Gramm-Leach-Bliley Act, it may elect to do so in the future.

As a general proposition, other companies seeking to acquire control of a bank holding company would require the approval of the Federal Reserve under the BHCA. In addition, individuals or groups of individuals seeking to acquire control of a bank holding company would need to file a prior notice with the Federal Reserve (which the Federal Reserve may disapprove under certain circumstances) under the Change in Bank Control Act. Control is conclusively presumed to exist if an individual or company acquires 25 percent or more of any class of voting securities of the bank holding company. Control may exist under the Change in Bank Control Act if the individual or company acquires 10 percent or more of any class of voting securities of the bank holding company.

Federal Reserve policy requires a bank holding company to act as a source of financial strength and to take measures to preserve and protect bank subsidiaries in situations where additional investments in a troubled bank may not otherwise be warranted, In addition, if a bank holding company has more than one bank or thrift subsidiary, each of the bank holding company’s subsidiary depository institutions is responsible for any losses to the FDIC as a result of an affiliated depository institution’s failure. As a result, a bank holding company may be required to loan money to its subsidiaries in the form of capital notes or other instruments that qualify as capital of the subsidiary bank under regulatory rules. However, any loans from the bank holding company to those subsidiary banks will likely be unsecured and subordinated to that bank’s depositors and perhaps to other creditors of that bank.

The Banks are commercial banks chartered under the laws of the State of Georgia, and as such are subject to supervision, regulation and examination by the Georgia Department. The Banks are members of the FDIC, and their deposits are insured by the FDIC’s Bank Insurance Fund up to the amount permitted by law. The FDIC and the Georgia Department routinely examine the Banks and monitor and regulate all of the Banks’ operations, including such things as adequacy of reserves, quality and documentation of loans, payments of dividends, capital adequacy, adequacy of systems and controls, credit underwriting and asset liability management, compliance with laws and establishment of branches. Interest and other charges collected or contracted for by the Banks are subject to state usury laws and certain federal laws concerning interest rates. The Banks file periodic reports with the FDIC and the Georgia Department.

The Company is a legal entity separate and distinct from the Banks. Various legal limitations restrict the Banks from lending or otherwise supplying funds to the Company and other nonbank subsidiaries of the Company, all of which are deemed to be “affiliates” of the Banks for the purposes of these restrictions. The Company and the Banks are subject to Section 23A of the Federal Reserve Act. Section 23A defines “covered transactions,” which include extensions of credit, and limits a bank’s covered transactions with any affiliate to 10 percent of such bank’s capital and surplus and with all affiliates to 20 percent of such bank’s capital and surplus. All covered and exempt transactions between a bank and its affiliates must be on terms and conditions consistent with safe and sound banking practices, and banks and their subsidiaries are prohibited from purchasing low-quality assets from the bank’s affiliates. Finally, Section 23 A requires that all of a bank’s extensions of credit to an affiliate be appropriately secured by acceptable collateral, generally United States government or agency securities. The Company and the Banks are also subject to Section 23B of the Federal Reserve Act, which generally limits covered and other transactions between a bank and its affiliates to terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the bank as prevailing at the time for transactions with unaffiliated companies.

The Company is a legal entity separate and distinct from the Banks. The principal source of the Company’s cash flow, including cash flow to pay dividends to its stockholders, is dividends that the Banks pay to it. Statutory and regulatory limitations apply to the Banks’ payment of dividends to the Company as well as to the Company’s payment of dividends to its stockholders.

A variety of federal and state laws and regulations affect the ability of the Banks and the Company to pay dividends. A depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. The federal banking agencies may prevent the payment of a dividend if they determine that the payment would be unsafe and unsound banking practice. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. In addition, regulations promulgated by the Georgia Department limit the Bank’s payment of dividends.

Georgia First Mortgage is licensed and regulated as a “mortgage banker” by the Georgia Department. It is also qualified as a Fannie Mae and Freddie Mac seller/servicer and must meet the requirements of such corporations and of the various private parties with which it conducts business, including warehouse lenders and those private entities to which it sells mortgage loans.

Federal law gives the Federal Reserve and FDIC substantial powers to enforce compliance with laws, rules and regulations. Banks or individuals may be ordered to cease and desist from violations of law or other unsafe or unsound practices. The agencies have the power to impose civil money penalties against individuals or institutions of up to $1,000,000 per day for certain egregious violations. Persons who are affiliated with depository institutions can be removed from any office held in that institution and banned from participating in the affairs of any financial institution. The banking regulators have not hesitated to use the enforcement authorities provided in federal law.

The federal bank regulatory authorities have adopted capital guidelines for banks and bank holding companies. In general, the authorities measure the amount of capital an institution holds against its assets. There are three major capital tests: (i) the Total Capital ratio (the total of Tier 1 Capital and Tier 2 Capital measured against risk-adjusted assets), (ii) the Tier 1 Capital ratio (Tier 1 Capital measured against risk-adjusted assets) and (iii) the leverage ratio (Tier 1 Capital measured against average (i.e., nonrisk-weighted) assets).

Tier 1 Capital consists of common equity, retained earnings and a limited amount of qualifying preferred stock, less goodwill and certain core deposit intangibles. Tier 2 Capital consists of nonqualifying preferred stock, qualifying subordinated, perpetual and/or mandatory convertible debt, term subordinated debt and intermediate term preferred stock and up to 45 percent of the pretax unrealized holding gains on available-for-sale equity securities with readily determinable market values that are prudently valued, and a limited amount of any loan loss allowance.

In measuring the adequacy of capital, assets are generally weighted for risk. Certain assets, such as cash and U.S. government securities, have a zero risk weighting. Others, such as commercial and consumer loans, have a 100 percent risk weighting. Risk weightings are also assigned for off-balance sheet items such as loan commitments. The various are multiplied by the appropriate risk-weighting to determine risk- adjusted assets for the capital calculations. For the leverage ratio mentioned above, average assets are not risk- weighted.

The federal banking agencies must take “prompt corrective action” in respect of depository institutions that do not meet minimum capital requirements. There are five tiers for financial institutions: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” Under these regulations, a bank will be:

Federal law generally prohibits a depository institution from making any capital distribution, including the payment of a dividend or paying any management fee to its holding company if the depository institution would be undercapitalized as a result. Undercapitalized depository institutions may not accept brokered deposits absent a waiver from the FDIC, are subject to growth limitations and are required to submit a capital restoration plan for approval. For a capital restoration plan to be acceptable, the depository institution’s parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company is limited to the lesser of 5 percent of the depository institution’s total assets at the time it became undercapitalized, and the amount necessary to bring the institution into compliance with applicable capital standards. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. If the controlling holding company fails to fulfill its obligations under this law and files, or has filed against it, a petition under the federal Bankruptcy Code, the FDIC claim related to the holding company’s obligations would be entitled to a priority in such bankruptcy proceeding over third party creditors of the bank holding company.

Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator.

At December 31, 2004, the Company exceeded the minimum Tier 1, risk-based and leverage ratios and qualified as “well capitalized” under current Federal Reserve Board criteria. The table below sets forth certain capital information for the Company as of December 31, 2004. Consider the following brief summary rather than the preceeding and the table: As of December 31, 2004, Colony had Tier 1 Capital and Total Capital of approximately 10.10 percent and 11.35 percent, respectively, of risk-weighted assets. As of December 31, 2004, Colony had a leverage ratio of Tier 1 Capital to total average assets of approximately 7.88 percent.

The guidelines also provide that institutions experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Higher capital may be required in individual cases, depending upon a bank or bank holding company’s risk profile. All bank holding companies and banks are expected to hold capital commensurate with the level and nature of their risks, including the volume and severity of their problem loans. Lastly, the Federal Reserve’s guidelines indicate that the Federal Reserve will continue to consider a “Tangible Tier 1 Leverage Ratio,” calculated by deducting all intangibles, in evaluating proposals for expansion or new activity.

The Banks’ deposits are insured by the FDIC and thus the Banks are subject to FDIC deposit insurance assessments. The FDIC utilizes a risk-based insurance premium scheme to determine the assessment rates for insured depository institutions. Each financial institution is assigned to one of three capital groups: well capitalized, adequately, capitalized or undercapitalized.

Each financial institution is further assigned to one of three subgroups within a capital group, on the basis of supervisory evaluations by the institution’s primary federal and, if applicable, state regulators and other information relevant to the institution’s financial condition and the risk posed to the insurance fund. The actual assessment rate applicable to a particular institution will, therefore, depend in part upon the risk assessment classification assigned to the institution by the FDIC. The FDIC is presently considering whether to charge deposit insurance premiums based upon management weaknesses and whether the Banks’ underwriting practices, concentrations of risk, and growth are undisciplined or outside industry norms.

The deposit insurance assessment rates currently range from zero basis points on deposits (for a financial institution in the highest category) to 27 basis points on deposits (for an institution in the lowest category), but may rate as high as 31 basis points. In addition, the FDIC collects The Financing Corporation (FICO) deposit assessments on assessable deposits at the same rate. FICO assessments are set quarterly, and in 2003 ranged from 1.52 to 1.68 basis points. The FICO assessment rate for the Banks for the first quarter of 2004 is 1.54 basis points of assessable deposits.

The Banks are subject to the provisions of the Community Reinvestment Act of 1977, as amended (the CRA), and the federal banking agencies’ related regulations. Under the CRA, all banks and thrifts have a continuing and affirmative obligation, consistent with safe and sound operation, to help meet the credit needs for their entire communities, including low- and moderate-income neighborhoods. The CRA requires a depository institution’s primary federal regulator, in connection with its examination of the institution or its evaluation of certain regulatory applications, to assess the institution’s record in assessing and meeting the credit needs of the community served by that institution, including low- and moderate-income neighborhoods. The regulatory agency’s assessment of the institution’s record is made available to the public.

Current CRA regulations rate institutions based on their actual performance in meeting community credit needs. Following its most recent CRA examination on August 1, 2001, the Banks received a “satisfactory” rating.

Interest and other charges collected or contracted for by the Banks are subject to state usury laws and certain federal laws concerning interest rates. The Banks’ loan operations are also subject to federal laws and regulations applicable to credit transactions, such as those:

The deposit operations of the Banks are also subject to laws and regulations that:

Banking is a business that depends on interest rate differentials. In general, the difference between the interest paid by a bank on its deposits and its other borrowings, and the interest received by a bank on its loans and securities holdings, constitutes the major portion of a bank’s earnings. Thus, Colony’s earnings and growth and that of the Banks will be subject to the influence of economic conditions, generally both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve. The Federal Reserve regulates the supply of money through various means, including open market dealings in United States government securities, the discount rate at which banks may borrow from the Federal Reserve, and the reserve requirements on deposits.

The monetary policies of the Federal Reserve historically have had a significant effect on the operating results of commercial banks and mortgage banking operations and will continue to do so in the future. The Company cannot predict the conditions in the national and international economies and money markets, the actions and changes in policy by monetary and fiscal authorities, or their effect on the Banks.

In the wake of the tragic events of September 11^th, on October 26, 2001, the President signed the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001. Under the USA PATRIOT Act, financial institutions are subject to prohibitions against specified financial transactions and account relationships as well as enhanced due diligence and “know your customer” standards in their dealings with foreign financial institutions and foreign customers. For example, the enhanced due diligence policies, procedures and controls generally require financial institutions to take reasonable steps to:

The USA PATRIOT Act requires financial institutions to establish anti-money laundering programs. The USA PATRIOT Act sets forth minimum standards for these programs, including:

In addition, the USA PATRIOT Act authorizes the Secretary of the Treasury to adopt rules increasing the cooperation and information sharing between financial institutions, regulators and law enforcement authorities regarding individuals, entities and organizations engaged in, or reasonably suspected based on credible evidence of engaging in, terrorist acts or money laundering activities. Any financial institution complying with these rules will not be deemed to have violated the privacy provisions of the Gramm-Leach-Bliley Act, as discussed above.

The principal properties of the Registrant consist of the properties of the Banks. For a description of the properties of the Banks, see “Item 1 – Business of the Company and Subsidiary Banks” included elsewhere in this Annual Report.

The Company and its subsidiaries may become parties to various legal proceedings arising from the normal course of business. As of December 31, 2004, there are no material pending legal proceedings to which Colony or its subsidiaries are a party or of which any of its property is the subject.

No matters were submitted to a vote of the Registrant’s stockholders during the fourth quarter of 2004.

Effective April 2, 1998, Colony Bankcorp, Inc. common stock is quoted on the NASDAQ National Market under the symbol “CBAN.” Prior to this date, there was no public market for the common stock of the registrant.

The following table sets forth the high, low and close sale prices per share of the common stock as reported on the NASDAQ National Market, and the dividends declared per share for the periods indicated.

The Registrant paid cash dividends on its common stock of $1,807,583 or $0.3150 per share and $1,554,688 or $0.2705 per share in 2004 and 2003, respectively. The Company’s board of directors approved a reduction in the par value of common stock on February 16, 1999. Par value was reduced from $10 to $1 per share.

As of December 31, 2004, the Company had approximately 1,628 stockholders of record.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements contained in this Annual 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:

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.

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.

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, 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 his 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 No. 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.

The following discussion and analysis presents the more significant factors affecting the Company’s financial condition as of December 31, 2004 and 2003, and results of operations for each of the years in the three-year period ended December 31, 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.

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

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.

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 $8.07 million, or $1.41 diluted per common share in 2004 compared to $6.82 million, or $1.19 diluted per common share in 2003 and $5.75 million, or $1.03 diluted per common share in 2002.

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

Income from operations for 2004 increased $1.25 million, or 18.38 percent, compared to 2003. The increase was primarily the result of a $5.54 million increase in net interest income and a decrease of $0.59 million in provision for possible loan losses. The impact of these items was partly offset by a $3.41 million increase in noninterest expense, a decrease of $0.70 million in noninterest income and an increase of $0.77 million in income tax expense. Income from operations for 2003 increased $1.06 million, or 18.50 percent, compared to 2002. The increase was primarily the result of a $4.41 million increase in net interest income and a $0.51 million increase in noninterest income. The impact of these items was partly offset by a $2.06 million increase in noninterest expense, an increase of $1.24 million in the provision for possible loan losses and a $0.55 million increase in income tax expense.

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

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 57.49 percent of total revenue during 2004 and 52.30 percent during 2003.

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 the last half of 2004, the Federal Reserve moved rates up 125 basis points; thus the prime rate increased to 5.25 percent as of December 31, 2004. The federal funds rate, which is the cost of immediately available overnight funds, decreased in a similar manner. It began 2001 at 6.50 percent and decreased 475 basis points over the course of the year, and it 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 the last half of 2004, the Federal Reserve Board increased the Federal Fund rate by 125 basis points to 2.25 percent. It is anticipated that future interest rate hikes will occur during 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.

The rate/volume analysis presented hereafter illustrates the change from year to year 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.

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

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

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

Our exposure to interest rate risk is reviewed on at least a semiannual 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. The Company has engaged SunTrust Bank to run an asset/liability model for interest rate risk analysis beginning in 2005. We are generally focusing our investment activities on securities with terms or average lives in the 2-5 year range.

The Company maintains about 39 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 certificates of deposit that mature within one year. This balance sheet composition has allowed the Company to be relatively constant with its net interest margin the past several years, though the unprecedented 475 basis point decrease by U.S. Federal Reserve in 2001, 50 basis point decrease in 2002 and 25 basis point decrease in 2003 resulted in significant net interest margin pressure. Net interest margin increased to 3.81 percent for 2004 compared to 3.65 percent for 2003 and 3.57 percent for 2002. We anticipate continued improvement or stability in the net interest margin for 2005 given the Federal Reserve’s present increased interest rates forecast for 2005.

Taxable-equivalent net interest income for 2004 increased $5.53 million, or 19.54 percent, compared to 2003, while taxable-equivalent net interest income for 2003 increased by $4.39 million, or 18.36 percent, compared to 2002. The fluctuation between the comparable periods resulted from the positive impact of growth in the average volume of earning assets and a slight positive impact from the declining average interest rates. The average volume of earning assets during 2004 increased almost $113.4 million compared to 2003 while over the same period the net interest margin increased by 16 basis points from 3.65 percent to 3.81 percent. Similarly, the average volume of earning assets during 2003 increased $104.8 million compared to 2002 while over the same period the net interest margin increased 8 basis points from 3.57 percent to 3.65 percent. Growth in average earning assets during 2004 and 2003 was primarily in loans. The increase in the net interest margin in 2004 was primarily the result of increased earning assets and loan/deposit pricing by the Company.

The average volume of loans increased $104.7 million in 2004 compared to 2003 and increased $94.9 million in 2003 compared to 2002. The average yield on loans decreased 33 basis points in 2004 compared to 2003 and 77 basis points in 2003 compared to 2002. Funding for this growth was primarily provided by deposit growth. The average volume of deposits increased $106.9 million in 2004 compared to 2003 and increased $84.8 million in 2003 compared to 2002. Interest-bearing deposits made up 90.0 percent of the growth in average deposits in 2004 and 91.5 percent of the growth in average deposits in 2003. Accordingly, the ratio of average interest-bearing deposits to total average deposits was 92.0 percent in 2004, 92.3 percent in 2003 and 92.5 percent in 2002. This deposit mix, combined with a general decline in interest rates, had the effect of (i) reducing the average cost of total deposits by 34 basis points in 2004 compared to 2003 and 99 basis points in 2003 compared to 2002; and (ii) mitigating a portion of the impact of declining yields on earning assets on the Company’s net interest income.

The Company’s net interest spread, which represents the difference between the average rate earned on earning assets and the average rate paid on interest-bearing liabilities, was 3.61 percent in 2004 compared to 3.42 percent in 2003 and 3.26 percent in 2002. 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 Interest Rate Sensitivity included elsewhere in this report.

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 $3.47 million in 2004 compared to $4.06 million in 2003 and $2.82 million in 2002. See the section captioned “Allowance for Possible Loan Losses” elsewhere in this discussion for further analysis of the provision for possible loan losses.

Total noninterest income for 2004 decreased $705 thousand, or 9.89 percent, compared to 2003 while total noninterest income for 2003 increased $507 thousand, or 7.66 percent, compared to 2002. Growth in noninterest income over the comparable periods was primarily in deposit service charges while mortgage banking income and gain on the sale of securities were significantly less in 2004 as compared to 2003. Changes in these items and the other components of noninterest income are discussed in more detail below.

Service Charges on Deposit Accounts. Service charges on deposit accounts for 2004 increased $412 thousand, or 10.78 percent, compared to 2003. The increase was primarily due to a $344 thousand increase in overdraft fees, which were mostly related to consumer accounts. The increase in overdraft fees was primarily due to the increased volume in consumer and commercial accounts.

Services charges on deposit accounts for 2003 increased $570 thousand, or 17.53 percent, compared to 2002. The increase was primarily due to a $530 thousand increase in overdraft fees, which was mostly related to consumer accounts. The increase in overdraft fees was primarily due to increased volume in consumer and commercial accounts.

Mortgage Banking Income. Mortgage banking income for 2004 decreased $1.01 million, or 50.75 percent, compared to 2003. The decrease was primarily due to decreased mortgage loan activity during 2004 as most home loan borrowers have already refinanced prior to 2004 due to historical low interest rates. The Company anticipates further reduction in mortgage banking income during 2005.

Mortgage banking income for 2003 increased $470 thousand or 30.76 percent, compared to 2002. The increase was primarily due to increased mortgage loan activity during 2003 that was primarily attributable to the favorable interest rate environment. Much of the increased activity was refinancing which the Company anticipates trending downward in future years as most borrowers have already refinanced to historical low rates.

All Other Noninterest Income. The aggregate of all other noninterest income accounts decreased $103 thousand, or 7.86 percent, compared to 2003. The decrease was primarily due to the decreased gain (loss) on sale of securities as 2004 gains realized were $0 compared to gains realized in 2003 of $369 thousand, or a decrease of $369 thousand. This decrease was offset by ATM income in 2004 of $387 thousand compared to $243 thousand in 2003, an increase of $144 thousand and gain on the sale of SBA loans in 2004 of $132 thousand compared to $0 gains in 2003, or an increase of $132 thousand.

The aggregate of all other noninterest accounts decreased $533 thousand, or 28.92 percent, compared to 2002. The decrease was primarily due to the decreased gain on the sale of securities as 2003 gains realized were $369 thousand compared to $995 thousand during 2002, or a decrease of $626 thousand. This decrease was offset by $97 thousand incentive fee received for conversion to another check printing company.

Total noninterest expense for 2004 increased $3.41 million, or 16.33 percent compared to 2003 while total noninterest expense for 2003 increased $2.06 million, or 10.96 percent, compared to 2002. Growth in noninterest expense in 2004 and 2003 was primarily in salaries, employee benefits, occupancy and equipment expense and other noninterest expenses. These items and the changes in the various components of noninterest expense are discussed in more detail below.

Salaries and Employee Benefits. Salaries and benefits expense for 2004 increased $1.41 million, or 12.60 percent, compared to 2003. The increase is primarily related to increases in headcount, merit increase, denovo branching and the acquisition of Flag-Thomaston office during 2004. Salaries and benefits expense for 2003 increased $1.02 million, or 10.03 percent, compared to 2002. This increase is primarily related to increases in head count, merit increases, denovo branching and increases in commissions paid in connection with increased revenues associated with Georgia First Mortgage.

Occupancy and Equipment. Net occupancy expense for 2004 increased $342 thousand, or 10.72 percent, compared to 2003. The Company experienced increased net occupancy and equipment expense for 2004 resulting from four additional offices opened during 2004 and the acquisition of Flag-Thomaston office during 2004. The impact of new offices opened and acquired during 2004 resulted in higher building maintenance, insurance and utilities cost, higher depreciation on building and equipment and higher lease expense. Net occupancy expense for 2003 increased $162 thousand, or 5.35 percent, compared to 2002. The Company experienced increased net occupancy and equipment expense for 2003 resulting from one additional office opened during 2003 and additional leasing of office space in mid-2002. The impact of a new office and additional office space leased resulted in higher building maintenance, insurance and utilities costs, higher depreciation on building and equipment and higher lease expense.

All Other Noninterest Expense. All other noninterest expense for 2004 increased $1.66 million, or 25.52 percent compared to 2003. The increase is primarily due to additional overhead associated with new offices opened along with increased loss on the sale of other real estate and repossession and foreclosure expense. Noninterest expense with significant increases over 2003 include loss on the sale of other real estate increasing $419 thousand, repossession and foreclosure expense increasing $156 thousand, telephone and data line expense increasing $131 thousand, city and county and state taxes increasing $122 thousand, software and license fee expense increasing $110 thousand, legal and professional services increasing $98 thousand and director fees increasing $71 thousand to account for additional increases for 2004 compared to 2003.

All other noninterest expense for 2003 increased $878 thousand, or 15.65 percent, compared to 2002. The increase is primarily due to additional overhead associated with new offices opened. Noninterest expense with significant increases over 2002 include legal and professional fees expense increasing $160 thousand, director fee expense increasing $48 thousand, other losses for litigation contingency fund expense increasing $100 thousand, city, county and state tax expense increasing $65 thousand, stationery and supply expense increasing $65 thousand, and software and license fee expense increasing $59 thousand to account for additional increases for 2003 compared to 2002.

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 $938 million in 2004 compared to $817 million in 2003 and $708 million in 2002.

Deposits continue to be the Company’s primary source of funding. Over the comparable periods, the relative mix of deposits continues to be high in interest-bearing deposits. Interest-bearing deposits totaled 92.02 percent of total average deposits in 2004 compared to 92.34 percent in 2003 and 92.47 percent in 2002.

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 $779 million at December 31, 2004, up 19.1 percent, compared to loans of $654 million at December 31, 2003, while total loans at December 31, 2003 were up 14.3 percent compared to loans of $572 million at December 31, 2002. See additional discussion regarding the Company’s loan portfolio in the section captioned “Loans” in the table that follows. The majority of funds provided by deposit growth have been invested in loans.

The following table presents the composition of the Company’s loan portfolio as of December 31 for the past five years.

The following table presents total loans as of December 31, 2004 according to maturity distribution and/or repricing opportunity on adjustable rate loans.

Overview. Loans totaled $778.7 million at December 31, 2004, up 19.03 percent from December 31, 2003 loans of $654.2 million. The majority of the Company’s loan portfolio is comprised of the real estate loans-other, real estate construction and installment loans to individuals. Real estate-other, which is primarily 1-4 family residential properties and nonfarm nonresidential properties, made up 64.32 percent and 65.45 percent of total loans, real estate construction made up 12.94 percent and 8.62 percent while installment loans to individuals made up 9.46 percent and 11.16 percent of total loans at December 31, 2004 and December 31, 2003, respectively. Real estate loans-other include both commercial and consumer balances.

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

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

The Company extends loans to builders and developers that are secured by nonowner-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 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 borrowers to help 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 December 31, 2004 decreased 0.69 percent from December 31, 2003 to $44.3 million. The Company’s commercial and industrial loans are a diverse group of loans to small, medium and large businesses. The purpose of these loans varies from supporting seasonal working capital needs to term financing of equipment. While some short-term loans may be made on an unsecured basis, most are secured by the assets being financed with collateral margins that are consistent with the Company’s loan policy guidelines.

Industry Concentrations. As of December 31, 2004 and December 31, 2003, 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 which 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 December 31, 2004 and December 31, 2003.

Maturities and Sensitivities of Loans to Changes in Interest Rates. The following table presents the maturity distribution of the Company’s loans at December 31, 2004. The table also presents the portion of loans that have fixed interest rates or variable interest rates that fluctuate over the life of the loans in accordance with changes in an interest rate index such as the prime rate.

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.

Nonperforming assets include nonaccrual loans, loans past due 90 days or more, restructured loans and foreclosed real estate. Nonperforming assets at December 31, 2004 decreased 2.74 percent from December 31, 2003. The Company closed on the sale of a 1-4 residential subdivision and golf course development that was put in other real estate in 2003 for approximately $2 million. Due to current market conditions, the Company realized a loss on sale of this property during 2004 of $594 thousand.

Generally, loans are placed on nonaccrual 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 nonaccrual 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 nonaccrual 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 nonaccrual does not preclude the ultimate collection of loan principal or interest.

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

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

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 No. 118, and allowance allocations determined in accordance with SFAS No. 5, Accounting for Contingencies. The level of the allowance reflects management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including the performance of the Company’s loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

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

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

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

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

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

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

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

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

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 $0.59 million from $4.06 million in 2003 to $3.47 million in 2004. Lower provisions were made during 2004 due to the overall general improvement in the loan portfolio and the improvement in the ratio of net charge-offs to average loans. Nonperforming assets as a percentage of total loans and foreclosed assets improved to 1.27 percent at December 31, 2004 compared to 1.56 percent a year ago. During 2003, the provision for possible loan losses increased $1.24 million from the $2.82 million recorded in 2002. The provision for possible loan losses was higher in 2003 primarily due to the prevailing weak economic conditions and increased loan volume.

Net charge-offs in 2004 decreased $935 thousand compared to 2003 while net charge-offs in 2003 increased $841 thousand compared to 2002. The general decrease in net charge-offs during 2004 is reflective of the more stringent credit standards and generally improving economy. Commercial and industrial loan charge-offs in 2003 were significantly impacted by the deterioration of one large credit. That one commercial credit accounted for approximately 25 percent of total charge-offs for 2003.

Management believes the level of the allowance for possible loan losses was adequate as of December 31, 2004. Should any of the factors considered by management in evaluating the adequacy of the allowance for possible loan losses change, the Company’s estimate of probable loan losses could also change, which could affect the level of future provisions for possible loan losses.

The following table presents carrying values of investment securities held by the Company as of December 31, 2004, 2003 and 2002.

The following table represents expected maturities and weighted-average yields of investment securities held by the Company as of December 31, 2004. (Mortgage backed securities are based on the average life at the projected speed, while Agencies, State and Political Subdivisions and Corporate Obligations reflect anticipated calls being exercised.)

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 December 31, 2004, 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 stockholders’ equity.

The average yield of the securities portfolio was 3.57 percent in 2004 compared to 3.39 percent in 2003 and 5.06 percent in 2002. The slight increase in the average yield from 2003 to 2004 primarily resulted from investment of new funds at higher rates due to Federal Reserve’s 125 basis point hike during the last half of 2004. The decline in the average yield from 2002 to 2003 primarily resulted from the investment of new funds received from deposit growth at lower current yields and the reinvestment of proceeds from the early repayment of mortgage-backed securities in similar investments, also at lower current yields. The early repayment of mortgage-backed securities primarily resulted from borrower refinancing due to lower market interest rates. The overall growth in the securities portfolio over the comparable periods was primarily funded by deposit growth.

The following table presents the average balances of deposits by type and weighted-average rates paid thereon during the years presented.

The following table presents the average amount outstanding and the average rate paid on deposits by the Company for the years 2004, 2003 and 2002.

The following table presents the maturities of the Company’s other time deposits as of December 31, 2004.

Average deposits increased $106.9 million in 2004 compared to 2003 and $84.8 million in 2003 compared to 2002. The increase in 2004 included $10.7 million or 10.0 percent, related to noninterest-bearing deposits while the increase in 2003 included $7.3 million, or 8.6 percent related to noninterest-bearing deposits. Accordingly, the ratio of average noninterest-bearing deposits to total average deposits was 8.00 percent in 2004 from 7.7 percent in 2003 and 7.5 percent in 2002. The general decline in market rates had the effect of (i) reducing the average cost of interest-bearing deposits by 36 basis points in 2004 compared to 2003 and 108 basis points in 2003 compared to 2002, and (ii) mitigating a portion of the impact of declining yields on earning assets on the Company’s net interest income.

Total average interest-bearing deposits increased $96.2 million, or 15.12 percent in 2004 compared to 2003 and increased $77.6 million, or 13.9 percent, in 2003 compared to 2002. The growth in average deposits in 2004 compared to 2003 was primarily in money market deposit accounts and savings and interest-on-checking accounts and other time accounts. With the current 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 December 31, 2004. Payments for borrowings do not include interest. Payments related to leases are based on actual payments specified in the underlying contracts. Loan commitments and standby letters of credit are presented at contractual amounts; however, since many of these commitments are expected to expire unused or only partially used, the total amounts of these commitments do not necessarily reflect future cash requirements.

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 December 31, 2004 are included in the previous table.

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 December 31, 2004 are included in the table above.

At December 31, 2004, stockholders’ equity totaled $61.8 million compared to $56.0 million at December 31, 2003. In addition to net income of $8.1 million, other significant changes in stockholders’ equity during 2004 included $1.8 million of dividends paid and an increase of $144 thousand resulting from the stock grant plan. The accumulated other comprehensive income component of stockholders’ equity totaled $(597) thousand at December 31, 2004 compared to $22 thousand at December 31, 2003. This fluctuation was mostly related to the after-tax effect of changes in the fair value of securities available for sale. Under regulatory requirements, the unrealized gain or loss on securities available for sale does not increase or reduce regulatory capital and is not included in the calculation of risk-based capital and leverage ratios. Regulatory agencies for banks and bank holding companies utilize capital guidelines designed to measure Tier 1 and total capital and take into consideration the risk inherent in both on-balance sheet and off-balance sheet items. Tier 1 capital consists of common stock and qualifying preferred stockholders’ equity less goodwill. Tier 2 capital consists of certain convertible, subordinated and other qualifying debt and the allowance for loan losses up to 1.25 percent of risk-weighted assets. The Company has no Tier 2 capital other than the allowance for loan losses.

Using the capital requirements presently in effect, the Tier 1 ratio as of December 31, 2004 was 10.10 percent and total Tier 1 and 2 risk-based capital was 11.35 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 December 31, 2004 was 7.88 percent, which exceeds the required ratio standard of 4 percent.

For 2004, average capital was $59.0 million, representing 6.29 percent of average assets for the year. This compares to 6.59 percent for 2003.

The Company paid a quarterly dividend of $0.075, $0.0775, $0.08 and $0.0825 per common share during the first, second, third and fourth quarters of 2004, respectively, and quarterly dividends of $0.06, $0.068, $0.07 and $0.0725 per common share during the first, second, third and fourth quarters of 2003, respectively. This equates to a dividend payout ratio of 22.34 percent in 2004 and 22.73 percent in 2003.

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

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

Liability liquidity is provided by access to funding sources which include core deposits. Should the need arise, the Company also maintains relationships with the Federal Home Loan Bank and several correspondent banks that can provide funds on short notice.

Since Colony is a holding company and does not conduct operations, its primary sources of liquidity are dividends up streamed from subsidiary banks and borrowings from outside sources.

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

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.

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.

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.

The following table is an analysis of the Company’s interest rate-sensitivity position at December 31, 2004. The interest-bearing rate-sensitivity gap, which is the difference between interest-earning assets and interest-bearing liabilities by repricing period, is based upon maturity or first repricing opportunity, along with a cumulative interest rate-sensitivity gap. It is important to note that the table indicates a position at a specific point in time and may not be reflective of positions at other times during the year or in subsequent periods. Major changes in the gap position can be, and are, made promptly as market outlooks change.

The foregoing table indicates that we had a one-year negative gap of ($163) million, or (17.27) percent of total assets at December 31, 2004. In theory, this would indicate that at December 31, 2004, $163 million more in liabilities than assets would reprice if there were a change in interest rates over the next 365 days. Thus, if interest rates were to decline, the gap would indicate a resulting increase in net interest margin. However, changes in the mix of earning assets or supporting liabilities can either increase or decrease the net interest margin without affecting interest rate sensitivity. In addition, the interest rate spread between an asset and our supporting liability can vary significantly while the timing of repricing of both the assets and our supporting liability can remain the same, thus impacting net interest income. This characteristic is referred to as a basis risk and, generally, relates to the repricing characteristics of short-term funding sources such as certificates of deposit.

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 nonrate 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.

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

Colony is an emerging company in an industry filled with nonregulated competitors and a rapid pace of consolidation. The year brings with it new opportunities for growth in our existing markets, as well as opportunities to expand into new markets through acquisitions and denovo branching. Colony completed the acquisition of Quitman Federal during 2002 and with the Quitman acquisition opened a branch in the Valdosta/Lowndes County market during the first quarter of 2003. The Company has purchased real estate for a second location in Lowndes County that should open in the second quarter 2005. The Company purchased real estate in the Dougherty/Lee Counties market during 2002 and has constructed its third office that opened in early 2004. Additionally, real estate was purchased in the Thomas County market for a future office. Other areas of interest in south and central Georgia include Glynn, Ware and Chatham Counties, with annual retail sales greater than $650 million and a population greater than 35,000. The Company opened a loan production office in Savannah during first quarter 2004 and has purchased real estate for a branch office to open in 2005. In addition, the company opened its second office in Tift County during third quarter 2004. In addition, the Company acquired Flag-Thomaston office on March 19, 2004. The office, with current deposits of approximately $40 million, will allow Colony to compete in Upson County and Muscogee County, Georgia. The Company opened a loan production office in Columbus, Georgia during third quarter 2004. The Company has purchased real estate for a second office in Warner Robins that should open during the last half of 2005.

The information required by this item is located in Item 7 under the heading Interest Rate Sensitivity.

The following consolidated financial statements of the Registrant and its subsidiaries are included on exhibit 99.1 of this Annual Report on Form 10-K:

The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 2004 and 2003:

Changes in and Disagreement with Accountants on Accounting and Financial Disclosure

There was no accounting or disclosure disagreement or reportable event with the former or current auditors that would have required the filing of a report on Form 8-K.

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and the Principal Financial and Accounting Officer, of the design and operation of the disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Principal Financial and Accounting Officer concluded that the disclosure controls and procedures are effective for gathering, analyzing and disclosing the information that the Company is required to disclose in the reports filed under the Securities Exchange Act of 1934, within the time periods specified in the SEC’s rules and forms. The Chief Executive Officer and Principal Financial and Accounting Officer also concluded that the disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the periodic SEC filings. In connection with the new rules, Colony is in the process of further reviewing and documenting the disclosure controls and procedures, including internal controls and procedures for financial reporting, and may from time to time make changes designed to enhance their effectiveness and to ensure that the systems evolve with the business.

There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of this evaluation, and there have been no corrective actions with respect to significant deficiencies or material weaknesses.

Colony’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Colony’s internal control over financial reporting is a process designed under the supervision of the Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Colony’s financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Colony’s management assessed the effectiveness of Colony’s internal control over financial reporting as of December 31, 2004 based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment, management determined that Colony maintained effective internal control over financial reporting as of December 31, 2004.

McNair, McLemore, Middlebrooks & Co., LLC, the independent registered public accounting firm that audited the consolidated financial statements of Colony included in this Annual Report on Form 10-K, has issued an attestation report on management’s assessment of the effectiveness of Colony’s internal control over financial reporting as of December 31, 2004. The report, which expresses unqualified opinions on management’s assessment and on the effectiveness of Colony’s internal control over financial reporting as of December 31, 2004, is included in Item 8 of this Report under the heading “Report of Independent Registered Public Accounting Firm.”

/s/ James D. Minix

James D. Minix

Chief Executive Officer

February 28, 2005

/s/ Terry L. Hester

Terry L. Hester

Chief Financial Officer

February 28, 2005

There were no items required to be reported on Form 8-K during the fourth quarter of 2004 that were not reported on Form 8-K.

Directors, Executive Officers, Promoters and Control Persons, Compliance with Section 16(a) of the Exchange Act

The Colony Bankcorp, Inc. Code of Ethics is attached hereto as Exhibit 14.1 and incorporated herein by reference.

The remaining information required by this item is incorporated by reference to the Company’s definitive Proxy Statements to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report.

The information required by this item is incorporated by reference to the Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report.

The remaining information required by this item is incorporated by reference to the Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report.

The information required by this item is incorporated by reference to the Company’s definitive Proxy Statements to be filed with Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the fiscal year covered by this Annual Report.

All schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or the related notes.

-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.

-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.

-incorporated herein by reference to page 1 of the Company’s Definitive Proxy Statement for Annual Meeting of Stockholders to be held on April 26, 2005, filed with the Securities and Exchange Commission on March 2, 2005 (File No. 000-12436).

-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.

-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.

-filed as Exhibit 10(c) the Registrant’s Annual Report on Form 10-K (File 000-12436), filed with the Commission on March 30, 2001 and incorporated herein by reference.

-filed as Exhibit C to the Registrant’s Definitive Proxy Statement for Annual Meeting of Stockholders 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.

-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.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Colony Bankcorp, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized:

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:


	2004		2003		2002
Total Assets	$	167,196,708	$	149,966,267	$	141,070,576
Total Deposits		139,034,653		121,822,513		117,777,616
Total Stockholders’ Equity		13,282,778		12,260,116		11,982,136
Net Income		1,757,213		1,163,883		1,465,463

Number of Issued and Outstanding Shares		90,000		90,000		90,000
Book Value Per Share	$	147.59	$	136.22	$	133.13
Net Income Per Share		19.52		12.93		16.28


	2004		2003		2002
Total Assets	$	321,026,478	$	275,076,367	$	253,904,346
Total Deposits		284,113,411		239,469,173		221,166,667
Total Stockholders’ Equity		26,146,996		22,836,721		19,965,156
Net Income		2,711,136		2,586,776		2,274,771

Number of Issued and Outstanding Shares		50,000		50,000		50,000
Book Value Per Share	$	522.94	$	456.73	$	399.30
Net Income Per Share		54.22		51.73		45.50


	2004		2003		2002
Total Assets	$	51,540,509	$	51,001,257	$	45,591,373
Total Deposits		45,221,209		45,010,478		40,518,755
Total Stockholders’ Equity		4,191,620		3,873,403		3,431,841
Net Income		649,423		704,416		504,274

Number of Issued and Outstanding Shares		250		250		250
Book Value Per Share	$	16,766.48	$	15,493.61	$	13,727.36
Net Income Per Share		2,597.69		2,817.66		2,017.10


	2004		2003		2002
Total Assets	$	71,491,904	$	70,340,326	$	63,265,468
Total Deposits		63,096,465		62,166,376		54,352,965
Total Stockholders’ Equity		5,201,826		4,744,903		4,418,188
Net Income		724,286		487,661		214,264

Number of Issued and Outstanding Shares		1,750		1,750		1,750
Book Value Per Share	$	2,972.47	$	2,711.37	$	2,524.68
Net Income Per Share		413.88		278.66		122.44


	2004		2003		2002
Total Assets	$	158,577,134	$	139,616,814	$	114,374,681
Total Deposits		138,634,437		122,489,415		99,396,934
Total Stockholders’ Equity		10,803,709		9,517,928		8,503,091
Net Income		1,485,487		1,290,945		800,780

Number of Issued and Outstanding Shares		95,790		95,790		95,790
Book Value Per Share	$	112.79	$	99.36	$	88.77
Net Income Per Share		15.51		13.48		8.36


	From the Acquisition Date of March 29, 2002
	2004		2003		2002
Total Assets	$	109,087,356	$	91,161,264	$	75,647,528
Total Deposits		83,914,582		69,781,854		60,731,151
Total Stockholder’s Equity		9,503,693		8,780,086		8,303,205
Net Income		1,278,613		1,062,749		672,157

Numbers of Issued and Outstanding Shares		100,000		100,000		100,000
Book Value Per Share	$	95.04	$	87.80	$	83.03
Net Income Per Share		12.79		10.63		6.72


	December 31, 2004
	Amount		Percent
Leverage Ratio
Actual	$	77,813	7.88	%
Well-Capitalized Requirement		49,360	5.00
Minimum Required (1)		39,488	4.00
Risk Based Capital:
Tier 1 Capital
Actual		77,813	10.10
Well-Capitalized Requirement		46,215	6.00
Minimum Required		30,810	4.00
Total Capital
Actual		87,446	11.35
Well-Capitalized Requirement		77,025	10.00
Minimum Required		61,620	8.00


	High		Low		Close		Dividends Per Share
Year Ended December 31, 2004

Fourth Quarter	$	35.00	$	24.42	$	34.00	$	0.0825
Third Quarter		25.44		22.00		24.85		0.0800
Second Quarter		22.89		20.60		22.16		0.0775
First Quarter		22.00		19.75		21.50		0.0750

Year Ended December 31, 2003

Fourth Quarter		21.50		17.50		20.20		0.0725
Third Quarter		22.00		16.00		17.79		0.0700
Second Quarter		16.72		13.70		16.00		0.0680
First Quarter		15.99		12.04		14.19		0.0600


	Year Ended December 31,
	2004		2003		2002		2001		2000
	(Dollars in Thousands, except per share data)
Selected Balance Sheet Data
Total Assets	$	997,591	$	868,606	$	781,535	$	621,549	$	519,903
Total Loans		778,643		654,177		571,816		456,052		388,003
Total Deposits		850,329		732,318		664,594		528,017		450,012
Investment Securities		112,593		110,408		90,407		77,433		68,905
Federal Home Loan Bank Stock		4,479		3,000		2,837		2,214		1,610
Stockholders’ Equity		61,763		55,976		51,428		41,971		40,210
Selected Income Statement Data
Interest Income		51,930		46,418		45,592		45,524		41,758
Interest Expense		18,383		18,414		21,997		25,740		22,265

Net Interest Income		33,547		28,004		23,595		19,784		19,493
Provision for Loan Losses		3,469		4,060		2,820		1,854		2,280
Other Income		6,424		7,128		6,622		4,964		3,568
Other Expense		24,271		20,864		18,804		15,584		14,081

Income Before Tax		12,231		10,208		8,593		7,310		6,700
Income Tax Expense		4,162		3,392		2,841		2,444		2,187

Net Income Before Minority Interest and Cumulative Effect		8,069		6,816		5,752		4,866		4,513

Minority Interest		—		—		—		—		—

Net Income Before Cumulative Effect		8,069		6,816		5,752		4,866		4,513
Cumulative Effect		—		—		—		—		—

Net Income	$	8,069	$	6,816	$	5,752	$	4,866	$	4,513

Weighted Average Shares Outstanding (1)		5,705		5,702		5,595		5,479		5,549
Shares Outstanding (1)		5,738		5,728		5,716		5,301		5,550
Intangible Assets	$	3,047	$	691	$	847	$	457	$	511
Dividends Paid		1,808		1,555		1,258		1,055		844
Average Assets		938,283		816,666		707,631		563,945		476,753
Average Stockholders’ Equity		59,037		53,843		47,910		42,697		37,238
Net Charge-Offs		1,973		2,908		2,067		1,356		1,301
Reserve for Loan Losses		10,012		8,516		7,364		6,159		5,661
OREO		1,127		2,724		1,357		1,554		349
Nonperforming Loans		8,809		7,492		7,871		8,713		5,937
Nonperforming Assets		9,936		10,216		9,228		10,267		6,286
Average Assets		887,331		774,984		669,724		530,787		448,657
Noninterest-Bearing Deposits		68,169		64,044		51,533		45,967		38,649


	Changes From 2003 to 2004 (a)									Changes From 2002 to 2003 (a)
($ in thousands)	Volume			Rate			Total			Volume			Rate			Total
Interest Income
Loans, Net-taxable	$	7,131		$	(2,410	)	$	4,721		$	7,197		$	(4,823	)	$	2,374

Investment Securities
Taxable		597			256			853			96			(1,422	)		(1,326	)
Tax-exempt		(22	)		(26	)		(48	)		43			(133	)		(90	)

Total Investment Securities		575			230			805			139			(1,555	)		(1,416	)

Interest-Bearing Deposits in Other Banks		(79	)		2			(77	)		65			(77	)		(12	)

Funds Sold		(24	)		84			60			47			(171	)		(124	)

Other Interest-Earning Assets		11			(24	)		(13	)		12			(29	)		(17	)

Total Interest Income		7,614			(2,118	)		5,496			7,460			(6,655	)		805

Interest-Expense
Interest-Bearing Demand and Savings Deposits		331			(346	)		(15	)		590			(1,506	)		(916	)
Time Deposits		2,010			(2,286	)		(276	)		2,002			(5,203	)		(3,201	)

Total Interest Expense On Deposits		2,341			(2,632	)		(291	)		2,592			(6,709	)		(4,117	)

Other Interest-Bearing Liabilities
Funds Purchased and Securities Under Agreement to Repurchase		3			1			4			(1	)		(1	)		(2	)
Subordinated Debentures		142			10			152			437			(167	)		270
Other Debt		252			(148	)		104			468			(201	)		267

Total Interest Expense (Benefit)		2,738			(2,769	)		(31	)		3,496			(7,078	)		(3,582	)

Net Interest Income	$	4,876		$	651		$	5,527		$	3,964		$	423		$	4,387


Maturity and Repricing Opportunity	($ in thousands)
One Year or Less	$	502,992
After One Year through Three Years		192,566
After Three Years through Five Years		70,929
Over Five Years		12,193

	$	778,680


	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	$	205,517	$	187,564	$	69,726	$	12,193	$	475,000
Loans with Floating Interest Rates		297,475		5,002		1,203		—		303,680

	$	502,992	$	192,566	$	70,929	$	12,193	$	778,680


	Within 1 Year				After 1 Year But Within 5 Years				After 5 Years But Within 10 Years				After 10 Years
	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
U.S. Government Agencies	$	3,522	3.97	%	$	24,552	3.71	%	$	489	5.24	%	$	491	5.64	%
Mortgage Backed Securities		16,268	(1.63	)		53,631	3.39			3,559	4.32			—	—
Obligations of States and Political Subdivisions		3,120	3.19			2,458	4.41			987	5.85			403	8.40
Corporate Obligations		—	—			3,113	3.68			—	—			—	—

	$	22,910	(1.11	)%	$	83,754	3.53	%	$	5,035	4.70	%	$	894	6.88	%


($ in thousands)	Other Time Deposits $100,000 or Greater		Other Time Deposits Less Than $100,000		Total
Months to Maturity
3 or Less	$	62,477	$	81,056	$	143,533
Over 3 through 12		118,254		249,522		367,776
Over 12 Months		23,155		41,514		64,669

	$	203,886	$	372,092	$	575,978


	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		246		204		—		—		450
Federal Home Loan Bank Advances		4,500		5,500		16,000		35,000		61,000
Operating Leases		109		187		132		144		572
Deposits with Stated Maturity Dates		511,309		44,753		19,897		19		575,978

		516,164		50,644		36,029		54,237		657,074

Other Commitments
Loan Commitments		85,094		—		—		—		85,094
Standby Letters of Credit		1,829		—		—		—		1,829
Performance Letters of Credit		329		—		—		—		329

		87,252		—		—		—		87,252

Total Contractual Obligations and Other Commitments	$	603,416	$	50,644	$	36,029	$	54,237	$	744,326


	Year Ended December 31,
	2004			2003			2002			2001			2000
	(Dollars in Thousands, except per share data)
Per Share Data: (1)
Net Income (Diluted)	$	1.41		$	1.19		$	1.03		$	0.89		$	0.81
Book Value		10.76			9.77			9.00			7.92			7.25
Tangible Book Value		10.23			9.65			8.85			7.83			7.15
Dividends		0.315			0.271			0.22			0.192			0.152
Profitability Ratios:
Net Income to Average Assets		0.86	%		0.83	%		0.81	%		0.86	%		0.95	%
Net Income to Average Stockholders’ Equity		13.67			12.66			12.01			11.40			12.12
Net Interest Margin		3.81			3.65			3.57			3.78			4.39
Loan Quality Ratios:
Net Charge-Offs to Total Loans		0.25			0.44			0.36			0.30			0.34
Reserve for Loan Losses to Total Loans and OREO		1.28			1.30			1.29			1.35			1.46
Nonperforming Assets to Total Loans and OREO		1.27			1.56			1.61			2.24			1.62
Reserve for Loan Losses to Nonperforming Loans		113.66			113.67			93.56			70.69			95.35
Reserve for Loan Losses to Total Nonperforming Assets		100.76			83.36			79.80			59.99			90.06
Liquidity Ratios:
Loans to Total Deposits		91.57			89.33			86.04			86.37			86.22
Loans to Average Earning Assets		87.75			84.41			85.38			85.92			86.48
Noninterest-Bearing Deposits to Total Deposits		8.02			8.75			7.75			8.71			8.59
Capital Adequacy Ratios:
Common Stockholders’ Equity to Total Assets		6.19			6.45			6.58			6.75			7.73
Total Stockholders’ Equity to Total Assets		6.19			6.45			6.58			6.75			7.73
Dividend Payout Ratio		22.34			22.73			21.36			21.57			18.77


	Assets and Liabilities Repricing Within
($ in Thousands)	3 Months or Less			4 to 12 Months			1 Year			1 to 5 Years			Over 5 Years			Total

Earning Assets
Interest-Bearing Deposits	$	3,229		$	—		$	3,229		$	—		$	—		$	3,229
Federal Funds Sold		43,997			—			43,997			—			—			43,997
Investment Securities		19,814			2,750			22,564			76,876			13,153			112,593
Loans, Net of Unearned Income		347,227			155,765			502,992			263,459			12,193			778,644
Loans Held for Sale		1,191			—			1,191			—			—			1,191
Other Interest-Bearing Assets		4,479			—			4,479			—			—			4,479

Total Interest-Earning Assets		419,937			158,515			578,452			340,335			25,346			944,133

Interest-Bearing Liabilities
Interest-Bearing Demand Deposits (1)		167,320			—			167,320			—			—			167,320
Savings (1)		38,862			—			38,862			—			—			38,862
Time Deposits		143,533			367,776			511,309			64,650			19			575,978
Other Borrowings (2)		4,950			—			4,950			21,500			35,000			61,450
Subordinated Debentures		19,074			—			19,074			—			—			19,074

Total Interest-Bearing Liabilities		373,739			367,776			741,515			86,150			35,019			862,684

Interest Rate-Sensitivity Gap		46,198			(209,261	)		(163,063	)		254,185			(9,673	)	$	81,449

Cumulative Interest-Sensitivity Gap	$	46,198		$	(163,063	)	$	(163,063	)	$	91,122		$	81,449

Interest Rate-Sensitivity Gap as a Percentage of Interest-Earning Assets		4.89	%		(22.16	)%		(17.27	)%		26.92	%		(1.02	)%

Cumulative Interest Rate-Sensitivity as a Percentage of Interest-Earning Assets		4.89	%		(17.27	)%		(17.27	)%		9.65	%		8.63	%


	Year Ended December 31
	2004		2003		2002
Return on Assets	0.86	%	0.83	%	0.81	%
Return on Equity	13.67		12.66		12.01
Dividend Payout	22.34		22.73		21.36
Equity to Assets	6.19		6.45		6.58


	Three Months Ended
	December 31		September 30			June 30		March 31
	($ in Thousands, Except Per Share Data)
2004
Interest Income	$	13,902	$	13,294		$	12,606	$	12,128
Interest Expense		5,131		4,721			4,311		4,220

Net Interest Income		8,771		8,573			8,295		7,908
Provision for Loan Losses		760		864			865		980
Securities Gains (Losses)		—		(31	)		—		—
Noninterest Income		1,653		1,622			1,604		1,545
Noninterest Expense		6,507		6,224			5,981		5,528

Income Before Income Taxes		3,157		3,076			3,053		2,945
Provision for Income Taxes		1,077		1,019			1,046		1,020

Net Income	$	2,080	$	2,057		$	2,007		1,925

Net Income Per Common Share (1)
Basic	$	.36	$	.36		$	.35	$	.34
Diluted		.36		.36			.35		.34

2003

Interest Income	$	11,789	$	11,647		$	11,581	$	11,434
Interest Expense		4,227		4,427			4,795		4,966

Net Interest Income		7,562		7,220			6,786		6,468
Provision for Loan Losses		1,133		1,455			823		649
Securities Gains (Losses)		—		369			—		—
Noninterest Income		1,600		1,721			1,766		1,554
Noninterest Expense		5,393		5,293			5,200		4,892

Income Before Income Taxes		2,636		2,562			2,529		2,481
Provision for Income Taxes		849		843			864		836

Net Income	$	1,787	$	1,719		$	1,665	$	1,645

Net Income Per Common Share (1)
Basic	$	.31	$	.30		$	.29	$	.29
Diluted		.31		.30			.29		.29


Plan Category	Number of Securities to be Issued Upon Stock Grant, Exercise of Outstanding Options, Warrants and Rights (a)	Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights (b)	Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c)
Equity Compensation Plans Approved By Security Holders
2004 Restricted Stock Grant Plan			114,800
Equity Compensation Plans Not Approved by Security Holders
1999 Restricted Stock Grant Plan			11,812

			126,612


/s/ Terry Coleman		March 15, 2005
Terry Coleman, Director		Date

/s/ L. Morris Downing		March 15, 2005
L. Morris Downing, Director		Date

/s/ Edward J. Harrell		March 15, 2005
Edward J. Harrell, Director		Date

/s/ Charles E. Myler		March 15, 2005
Charles E. Myler, Director		Date


/s/ Walter P. Patten		March 15, 2005
Walter P. Patten, Director		Date

/s/ W. B. Roberts, Jr.		March 15, 2005
W. B. Roberts, Jr., Director		Date

/s/ Al D. Ross		March 15, 2005
Al D. Ross, Director		Date

/s/ R. Sidney Ross		March 15, 2005
R. Sidney Ross, Director		Date

/s/ DeNean Stafford, III		March 15, 2005
DeNean Stafford, III, Director		Date

/s/ B. Gene Waldron		March 15, 2005
B. Gene Waldron, Director		Date