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SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For
the quarterly period ended March 31, 2010.
 or
 o
    
    Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to .
 Commission File No. 0-24172
 Southeastern Bank Financial Corporation
  Georgia
    
    58-2005097(State of Incorporation)
    
    (I.R.S. Employer Identification No.)
 3530 Wheeler Road, Augusta, Georgia 30909
 (Issuers telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(do not check if a smaller reporting company)
 Yes o No þ




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##### 



SOUTHEASTERN BANK FINANCIAL CORPORATION
FORM 10-Q
INDEX
 PagePart IItem 1. Financial Statements (Unaudited)Consolidated Balance Sheets as of March 31, 2010 and
December 31, 2009
    
    
    3Consolidated Statements of Income for the Three
Months ended March 31, 2010 and 2009
    
    
    5Consolidated Statements of Cash Flows for the
Three Months ended March 31, 2010 and 2009
    
    
    7Notes to Consolidated Financial Statements
    
    
    9Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    45Item 4. Controls and Procedures
    
    
    45Part IIOther InformationItem 1. Legal Proceedings
    
    
    46Item 1A. Risk Factors
    
    
    46Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    46Item 3. Defaults Upon Senior Securities
    
    
    46Item 4. Submission of Matters to a Vote of Security Holders
    
    
    46Item 5. Other Information
    
    
    46Item 6. Exhibits
    
    
    47Signature
    
    
    48Exhibit 10.24Exhibit 31.1Exhibit 31.2Exhibit 32.1
  *
    
    No information submitted under this caption  1




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2




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SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
 
   March 31,
    
    
    December 31,2010
    
    
    2009(Unaudited)AssetsCash and due from banks
    
    $
    83,257
    
    
    $
    123,661Federal funds sold
    
    
    7,300
    
    
    
    7,300Interest-bearing deposits in other banks
    
    
    21,687
    
    
    
    17,033Cash and cash equivalents
    
    
    112,244
    
    
    
    147,994Investment securitiesAvailable-for-sale
    
    
    376,353
    
    
    
    306,216Held-to-maturity, at cost (fair values of
$312 and $492, respectively)
    
    
    310
    
    
    
    490Loans held for sale
    
    
    19,736
    
    
    
    19,157Loans
    
    
    919,777
    
    
    
    937,489Less allowance for loan losses
    
    
    23,138
    
    
    
    22,338Loans, net
    
    
    896,639
    
    
    
    915,151Premises and equipment, net
    
    
    31,049
    
    
    
    31,702Accrued interest receivable
    
    
    5,480
    
    
    
    6,091Bank-owned life insurance
    
    
    23,477
    
    
    
    23,248Restricted equity securities
    
    
    6,338
    
    
    
    6,338Other real estate owned
    
    
    5,865
    
    
    
    7,974Prepaid FDIC assessment
    
    
    6,382
    
    
    
    6,886Deferred tax asset
    
    
    9,966
    
    
    
    11,160Other assets
    
    
    3,520
    
    
    
    8,712$
    1,497,359
    
    
    $
    1,491,119
  3




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SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
 
 March 31,
    
    
    December 31,2010
    
    
    2009(Unaudited)Liabilities and Stockholders EquityDepositsNoninterest-bearing
    
    $
    115,490
    
    
    $
    114,780Interest-bearing:NOW accounts
    
    
    247,996
    
    
    
    210,438Savings
    
    
    371,699
    
    
    
    343,740Money management accounts
    
    
    35,311
    
    
    
    44,781Time deposits over $100
    
    
    377,485
    
    
    
    418,751Other time deposits
    
    
    142,916
    
    
    
    148,0441,290,897
    
    
    
    1,280,534Securities sold under repurchase agreements
    
    
    2,130
    
    
    
    3,188Advances from Federal Home Loan Bank
    
    
    72,000
    
    
    
    77,000Other borrowed funds
    
    
    700
    
    
    
    600Accrued interest payable and other liabilities
    
    
    11,085
    
    
    
    13,106Subordinated debentures
    
    
    22,947
    
    
    
    22,947Total liabilities
    
    
    1,399,759
    
    
    
    1,397,375Stockholders equity:Preferred stock, no par value; 10,000,000 shares
authorized; 0 shares outstanding in 2010 and
2009, respectively
    
    
    
    
    
    
    Common stock, $3.00 par value; 10,000,000 shares
authorized; 6,673,352 and 6,672,826 shares issued
and outstanding in 2010 and 2009, respectively
    
    
    20,020
    
    
    
    20,018Additional paid-in capital
    
    
    62,424
    
    
    
    62,360Retained earnings
    
    
    13,947
    
    
    
    12,692Accumulated other comprehensive income (loss), net
    
    
    1,209
    
    
    
    (1,326
    )Total stockholders equity
    
    
    97,600
    
    
    
    93,744$
    1,497,359
    
    
    $
    1,491,119
   4




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SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
 
    Three Months EndedMarch 31,2010
    
    
    2009Interest income:Loans, including fees
    
    $
    13,343
    
    
    $
    13,805Investment securities
    
    
    3,419
    
    
    
    4,074Federal funds sold
    
    
    20
    
    
    
    24Interest-bearing deposits in other banks
    
    
    72
    
    
    
    4Total interest income
    
    
    16,854
    
    
    
    17,907Interest expense:Deposits
    
    
    5,367
    
    
    
    6,801Federal funds purchased and securities sold
under repurchase agreements
    
    
    11
    
    
    
    111Other borrowings
    
    
    954
    
    
    
    896Total interest expense
    
    
    6,332
    
    
    
    7,808Net interest income
    
    
    10,522
    
    
    
    10,099Provision for loan losses
    
    
    3,288
    
    
    
    4,749Net interest income after provision
for loan losses
    
    
    7,234
    
    
    
    5,350Noninterest income:Service charges and fees on deposits
    
    
    1,595
    
    
    
    1,641Gain on sales of loans
    
    
    1,353
    
    
    
    2,237Gain on sale of fixed assets
    
    
    27
    
    
    
    26Investment securities gains (losses), net
    
    
    13
    
    
    
    (164
    )Retail investment income
    
    
    335
    
    
    
    209Trust service fees
    
    
    287
    
    
    
    253Increase in cash surrender value of
bank-owned life insurance
    
    
    229
    
    
    
    180Miscellaneous income
    
    
    161
    
    
    
    163Total noninterest income
    
    
    4,000
    
    
    
    4,545Noninterest expense:Salaries and other personnel expense
    
    
    5,494
    
    
    
    5,658Occupancy expenses
    
    
    1,171
    
    
    
    1,141Other real estate (gains) losses
    
    
    (85
    )
    
    
    112Other operating expenses
    
    
    2,852
    
    
    
    2,922Total noninterest expense
    
    
    9,432
    
    
    
    9,833Income before income taxes
    
    
    1,802
    
    
    
    62Income tax expense
    
    
    547
    
    
    
    6Net income
    
    $
    1,255
    
    
    $
    56
  5




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SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
 
  Three Months EndedMarch 31,2010
    
    
    2009Basic net income per share
    
    $
    0.19
    
    
    $
    0.01Diluted net income per share
    
    $
    0.19
    
    
    $
    0.01Weighted average common shares outstanding
    
    
    6,673,334
    
    
    
    5,987,948Weighted average number of common and
common equivalent shares outstanding
    
    
    6,673,334
    
    
    
    5,998,578
   6




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SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
 
    Three Months EndedMarch 31,2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    1,255
    
    
    $
    56Adjustments to reconcile net income to net cash
provided by operating activitiesDepreciation
    
    
    687
    
    
    
    671Provision for loan losses
    
    
    3,288
    
    
    
    4,749Net investment securities (gains) losses
    
    
    (13
    )
    
    
    164Net amortization of premium (accretion of discount)
on investment securities
    
    
    280
    
    
    
    (161
    )Increase in CSV of bank-owned life insurance
    
    
    (229
    )
    
    
    (180
    )Stock options compensation cost
    
    
    60
    
    
    
    47Gain on disposal of premises and equipment
    
    
    (27
    )
    
    
    (26
    )(Gain) loss on the sale of other real estate
    
    
    (340
    )
    
    
    112Other real estate valuation allowance
    
    
    255
    
    
    
    Gain on sales of loans
    
    
    (1,353
    )
    
    
    (2,237
    )Real estate loans originated for sale
    
    
    (58,601
    )
    
    
    (103,376
    )Proceeds from sales of real estate loans
    
    
    59,374
    
    
    
    103,759Decrease in accrued interest receivable
    
    
    611
    
    
    
    742Decrease (increase) in other assets
    
    
    5,306
    
    
    
    (462
    )Decrease in accrued interest payable and other liabilities
    
    
    (2,021
    )
    
    
    (877
    )Net cash provided by operating activities
    
    
    8,532
    
    
    
    2,981Cash flows from investing activities:Proceeds from sales of available for sale securities
    
    
    
    
    
    
    15,874Proceeds from maturities of available for sale securities
    
    
    26,551
    
    
    
    44,161Proceeds from maturities of held to maturity securities
    
    
    180
    
    
    
    Purchase of available for sale securities
    
    
    (92,835
    )
    
    
    (58,904
    )Purchase of restricted equity securities
    
    
    
    
    
    
    (352
    )Net decrease in loans
    
    
    12,994
    
    
    
    3,078Additions to premises and equipment
    
    
    (37
    )
    
    
    (188
    )Proceeds from sale of other real estate
    
    
    4,424
    
    
    
    1,241Proceeds from sale of premises and equipment
    
    
    30
    
    
    
    250Net cash (used) provided by investing activities
    
    
    (48,693
    )
    
    
    5,160
  7




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SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
 
  Three Months EndedMarch 31,2010
    
    
    2009Cash flows from financing activities:Net increase in deposits
    
    
    10,363
    
    
    
    87,131Net decrease in federal funds purchased and
securities sold under repurchase agreements
    
    
    (1,057
    )
    
    
    (13,789
    )Payments of Federal Home Loan Bank advances
    
    
    (5,000
    )
    
    
    Proceeds from other borrowed funds
    
    
    100
    
    
    
    900Purchase of treasury stock
    
    
    
    
    
    
    (5
    )Payment of cash dividends
    
    
    
    
    
    
    (778
    )Proceeds from Directors stock purchase plan
    
    
    5
    
    
    
    8Net cash provided by financing activities
    
    
    4,411
    
    
    
    73,467Net (decrease) increase in cash and cash equivalents
    
    $
    (35,750
    )
    
    $
    81,608Cash and cash equivalents at beginning of period
    
    
    147,994
    
    
    
    37,768Cash and cash equivalents at end of period
    
    $
    112,244
    
    
    $
    119,376Supplemental disclosures of cash paid during the period for:Interest
    
    $
    6,570
    
    
    $
    8,582Income taxes
    
    $
    21
    
    
    $
    10Supplemental information on noncash investing activities:Loans transferred to other real estate
    
    $
    2,230
    
    
    $
    2,609
   8




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March 31, 2010Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    gains
    
    
    losses
    
    
    fair value(Dollars in thousands)Available for saleMortgage backed securitiesU.S. GSEs MBS  residential*
    
    $
    67,152
    
    
    
    2,565
    
    
    
    (82
    )
    
    
    69,635U.S. GSEs CMO
    
    
    131,060
    
    
    
    1,540
    
    
    
    (551
    )
    
    
    132,049Other CMO
    
    
    7,816
    
    
    
    11
    
    
    
    (268
    )
    
    
    7,559Total MBS
    
    $
    206,028
    
    
    
    4,116
    
    
    
    (901
    )
    
    
    209,243Obligations of U.S.Government agencies
    
    $
    128,686
    
    
    
    127
    
    
    
    (748
    )
    
    
    128,065Obligations of states and
political subdivisions
    
    
    27,095
    
    
    
    394
    
    
    
    (356
    )
    
    
    27,133Corporate bonds
    
    
    12,592
    
    
    
    212
    
    
    
    (897
    )
    
    
    11,907Equity securities
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    5$
    374,405
    
    
    
    4,850
    
    
    
    (2,902
    )
    
    
    376,353Held to maturityObligations of states and
political subdivisions
    
    $
    310
    
    
    
    2
    
    
    
    
    
    
    
    312$
    310
    
    
    
    2
    
    
    
    
    
    
    
    312
 *
    
    Government sponsored entities  10




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##### Table of Contents



December 31, 2009Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    gains
    
    
    losses
    
    
    fair value(Dollars in thousands)Available for saleMortgage backed securitiesU.S. GSEs MBS  residential
    
    $
    86,463
    
    
    
    2,245
    
    
    
    (107
    )
    
    
    88,601U.S. GSEs CMO
    
    
    107,153
    
    
    
    1,116
    
    
    
    (1,427
    )
    
    
    106,842Other CMO
    
    
    8,484
    
    
    
    142
    
    
    
    (399
    )
    
    
    8,227Total MBS
    
    $
    202,100
    
    
    
    3,503
    
    
    
    (1,933
    )
    
    
    203,670Obligations of U.S.
Government agencies
    
    $
    67,290
    
    
    
    43
    
    
    
    (1,003
    )
    
    
    66,330Obligations of states and
political subdivisions
    
    
    26,402
    
    
    
    299
    
    
    
    (521
    )
    
    
    26,180Corporate bonds
    
    
    12,591
    
    
    
    35
    
    
    
    (2,594
    )
    
    
    10,032Equity securities
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4$
    308,387
    
    
    
    3,880
    
    
    
    (6,051
    )
    
    
    306,216Held to maturityObligations of states and
political subdivisions
    
    $
    490
    
    
    
    2
    
    
    
    
    
    
    
    492$
    490
    
    
    
    2
    
    
    
    
    
    
    
    492
  March 31, 2010Amortized
    
    
    Estimatedcost
    
    
    fair value(Dollars in thousands)Available for sale:One year or less
    
    $
    1,055
    
    
    
    1,060After one year through five years
    
    
    12,685
    
    
    
    12,822After five years through ten years
    
    
    53,238
    
    
    
    53,754After ten years
    
    
    307,423
    
    
    
    308,712$
    374,401
    
    
    
    376,348Held to maturity:After one year through five years
    
    $
    310
    
    
    
    312$
    310
    
    
    
    312
  11




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March 31, 2010Less than 12 months
    
    
    12 months or longer
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealizedfair value
    
    
    loss
    
    
    fair value
    
    
    loss
    
    
    fair value
    
    
    loss(Dollars in thousands)Temporarily impairedMortgage backed securitiesU.S. GSEs MBS  residential
    
    $
    4,429
    
    
    
    1
    
    
    
    570
    
    
    
    81
    
    
    
    4,999
    
    
    
    82U.S. GSEs CMO
    
    
    38,512
    
    
    
    551
    
    
    
    
    
    
    
    
    
    
    
    38,512
    
    
    
    551Other CMO
    
    
    
    
    
    
    
    
    
    
    6,376
    
    
    
    268
    
    
    
    6,376
    
    
    
    268Total MBS
    
    $
    42,941
    
    
    
    552
    
    
    
    6,946
    
    
    
    349
    
    
    
    49,887
    
    
    
    901Obligations of U.S.
Government agencies
    
    $
    85,027
    
    
    
    709
    
    
    
    1,582
    
    
    
    39
    
    
    
    86,609
    
    
    
    748Obligations of states and
political subdivisions
    
    
    5,771
    
    
    
    107
    
    
    
    4,507
    
    
    
    249
    
    
    
    10,278
    
    
    
    356Corporate bonds
    
    
    1,100
    
    
    
    150
    
    
    
    6,541
    
    
    
    747
    
    
    
    7,641
    
    
    
    897$
    134,839
    
    
    
    1,518
    
    
    
    19,576
    
    
    
    1,384
    
    
    
    154,415
    
    
    
    2,902
 December 31, 2009Less than 12 months
    
    
    12 months or longer
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealizedfair value
    
    
    loss
    
    
    fair value
    
    
    loss
    
    
    fair value
    
    
    loss(Dollars in thousands)Temporarily impairedMortgage backed securitiesU.S. GSEs MBS  residential
    
    $
    21,444
    
    
    
    107
    
    
    
    
    
    
    
    
    
    
    
    21,444
    
    
    
    107U.S. GSEs CMO
    
    
    61,373
    
    
    
    1,408
    
    
    
    665
    
    
    
    19
    
    
    
    62,038
    
    
    
    1,427Other CMO
    
    
    552
    
    
    
    98
    
    
    
    4,243
    
    
    
    285
    
    
    
    4,795
    
    
    
    383Total MBS
    
    $
    83,369
    
    
    
    1,613
    
    
    
    4,908
    
    
    
    304
    
    
    
    88,277
    
    
    
    1,917Obligations of U.S.
Government agencies
    
    $
    43,528
    
    
    
    1,003
    
    
    
    
    
    
    
    
    
    
    
    43,528
    
    
    
    1,003Obligations of states and
political subdivisions
    
    
    8,644
    
    
    
    220
    
    
    
    4,457
    
    
    
    301
    
    
    
    13,101
    
    
    
    521Corporate bonds
    
    
    733
    
    
    
    267
    
    
    
    6,291
    
    
    
    2,327
    
    
    
    7,024
    
    
    
    2,594$
    136,274
    
    
    
    3,103
    
    
    
    15,656
    
    
    
    2,932
    
    
    
    151,930
    
    
    
    6,035Other-than-temporarily impairedMortgage backed securitiesOther CMO
    
    $
    
    
    
    
    
    
    
    
    748
    
    
    
    16
    
    
    
    748
    
    
    
    16$
    136,274
    
    
    
    3,103
    
    
    
    16,404
    
    
    
    2,948
    
    
    
    152,678
    
    
    
    6,051
   12




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Level 1:
    
    Quoted prices (unadjusted) for identical assets or liabilities in active
markets that the entity has the ability to access as of the measurement date.
 Level 2:
    
    Significant other observable inputs other than Level 1 prices,
such as quoted market prices for similar assets or liabilities,
quoted prices in markets that are not active, or other inputs
that are observable or can be corroborated by observable market
data.
 Level 3:
    
    Significant unobservable inputs that reflect a companys own
assumptions about the assumptions that market participants would
use in pricing an asset or liability.
  Investment Securities
 Mortgage Banking Derivatives
 Loans Held for Sale
  13




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Impaired Loans
 Investments in Tax Credits
 Other Real Estate Owned
 Assets and Liabilities Measured on a Recurring Basis
  Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableMarch 31,
    
    
    Identical Assets
    
    
    Inputs
    
    
    Inputs2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(Dollars in thousands)Available-for-sale securitiesObligations of U.S.
Government agencies
    
    $
    128,065
    
    
    
    31,675
    
    
    
    96,390
    
    
    
    Obligations of states and
political subdivisions
    
    
    27,133
    
    
    
    1,010
    
    
    
    26,123
    
    
    
    Mortgage-backed securitiesU.S. GSEs MBS  residential
    
    
    69,635
    
    
    
    
    
    
    
    69,065
    
    
    
    570U.S. GSEs CMO
    
    
    132,049
    
    
    
    21,911
    
    
    
    110,138
    
    
    
    Other CMO
    
    
    7,559
    
    
    
    
    
    
    
    4,158
    
    
    
    3,401Corporate bonds
    
    
    11,907
    
    
    
    
    
    
    
    
    
    
    
    11,907Equity securities
    
    
    5
    
    
    
    5
    
    
    
    
    
    
    
    Total available-for-sale securities
    
    $
    376,353
    
    
    
    54,601
    
    
    
    305,874
    
    
    
    15,878Tax credits
    
    
    415
    
    
    
    
    
    
    
    
    
    
    
    415Loans held for sale
    
    
    19,736
    
    
    
    
    
    
    
    19,736
    
    
    
    Mortgage banking derivatives
    
    
    28
    
    
    
    
    
    
    
    28
    
    
    
    Total
    
    $
    396,532
    
    
    
    54,601
    
    
    
    325,638
    
    
    
    16,293
  14




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##### Table of Contents



Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    Identical Assets
    
    
    Inputs
    
    
    Inputs2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(Dollars in thousands)Available-for-sale securitiesObligations of U.S.
Government agencies
    
    $
    66,330
    
    
    
    21,663
    
    
    
    44,667
    
    
    
    Obligations of states and
political subdivisions
    
    
    26,180
    
    
    
    
    
    
    
    26,180
    
    
    
    Mortgage-backed securitiesU.S. GSEs MBS  residential
    
    
    88,601
    
    
    
    
    
    
    
    88,601
    
    
    
    U.S. GSEs CMO
    
    
    106,842
    
    
    
    10,510
    
    
    
    96,332
    
    
    
    Other CMO
    
    
    8,227
    
    
    
    
    
    
    
    3,894
    
    
    
    4,333Corporate bonds
    
    
    10,032
    
    
    
    
    
    
    
    
    
    
    
    10,032Equity securities
    
    
    4
    
    
    
    4
    
    
    
    
    
    
    
    Total available-for-sale securities
    
    $
    306,216
    
    
    
    32,177
    
    
    
    259,674
    
    
    
    14,365Tax credits
    
    
    435
    
    
    
    
    
    
    
    
    
    
    
    435Loans held for sale
    
    
    19,157
    
    
    
    
    
    
    
    19,157
    
    
    
    Mortgage banking derivatives
    
    
    182
    
    
    
    
    
    
    
    182
    
    
    
    Total
    
    $
    325,990
    
    
    
    32,177
    
    
    
    279,013
    
    
    
    14,800
  Fair Value Measurements Using Significant Unobservable Inputs(Level 3)Available-for-saleTax credits
    
    
    Securities
    
    
    Total(Dollars in thousands)Beginning balance, January 1, 2010
    
    $
    435
    
    
    
    14,365
    
    
    
    14,800Total gains or losses (realized/unrealized)Included in earningsOther-than-temporary impairment
    
    
    
    
    
    
    
    
    
    
    Amortization of tax credit investment
    
    
    (20
    )
    
    
    
    
    
    
    (20
    )Included in other comprehensive income
    
    
    
    
    
    
    1,513
    
    
    
    1,513Transfers in and/or out of Level 3
    
    
    
    
    
    
    
    
    
    
    Ending balance, March 31, 2010
    
    $
    415
    
    
    
    15,878
    
    
    
    16,293
  15




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##### Table of Contents



Fair Value Measurements Using Significant Unobservable Inputs(Level 3)Available-for-saleTax credits
    
    
    Securities
    
    
    Total(Dollars in thousands)Beginning balance, January 1, 2009
    
    $
    515
    
    
    
    4,130
    
    
    
    4,645Total gains or losses (realized/unrealized)Included in earningsOther-than-temporary impairment
    
    
    
    
    
    
    
    
    
    
    Amortization of tax credit investment
    
    
    (21
    )
    
    
    
    
    
    
    (21
    )Included in other comprehensive income
    
    
    
    
    
    
    1,007
    
    
    
    1,007Transfers in and/or out of Level 3
    
    
    
    
    
    
    6,144
    
    
    
    6,144Ending balance, March 31, 2009
    
    $
    494
    
    
    
    11,281
    
    
    
    11,775
 Assets and Liabilities Measured on a Non-Recurring Basis
  Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableMarch 31,
    
    
    Identical Assets
    
    
    Inputs
    
    
    Inputs2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(Dollars in thousands)Assets:Impaired loans
    
    $
    7,653
    
    
    
    
    
    
    
    
    
    
    
    7,653Other real estate owned
    
    
    5,865
    
    
    
    
    
    
    
    
    
    
    
    5,865
 Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    Identical Assets
    
    
    Inputs
    
    
    Inputs2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(Dollars in thousands)Assets:Impaired loans
    
    $
    9,767
    
    
    
    
    
    
    
    
    
    
    
    9,767Other real estate owned
    
    
    7,974
    
    
    
    
    
    
    
    
    
    
    
    7,974
    16




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##### Table of Contents



17




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##### Table of Contents



(a)
    
    Cash and Cash Equivalents and Federal Funds Sold
  (b)
    
    Investment Securities
  (c)
    
    Loans
  (d)
    
    Deposits
  (e)
    
    Securities Sold Under Repurchase Agreements
  (f)
    
    Other Borrowed Funds
  (g)
    
    Advances from FHLB
   18




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##### Table of Contents



(h)
    
    Subordinated debentures
  (i)
    
    Commitments
   March 31, 2010Carrying
    
    
    Estimatedamount
    
    
    fair value(Dollars in thousands)Financial assets:Cash and cash
equivalents
    
    $
    112,244
    
    
    
    112,244Investment securities
    
    
    376,663
    
    
    
    376,665Loans, net
    
    
    916,375
    
    
    
    921,691Financial liabilities:Deposits with stated maturities
    
    
    520,401
    
    
    
    523,996Deposits without stated maturities
    
    
    770,496
    
    
    
    770,496Securities sold under
repurchase agreements
    
    
    2,130
    
    
    
    2,130Other borrowed funds
    
    
    700
    
    
    
    700Advances from FHLB
    
    
    72,000
    
    
    
    75,870Subordinated debentures
    
    
    22,947
    
    
    
    14,838
  19




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##### Table of Contents



December 31, 2009Carrying
    
    
    Estimatedamount
    
    
    fair value(Dollars in thousands)Financial assets:Cash and cash
equivalents
    
    $
    147,994
    
    
    
    147,994Investment securities
    
    
    306,706
    
    
    
    306,708Loans, net
    
    
    934,308
    
    
    
    943,885Financial liabilities:Deposits with stated maturities
    
    
    566,795
    
    
    
    570,791Deposits without stated maturities
    
    
    713,739
    
    
    
    713,739Securities sold under
repurchase agreements
    
    
    3,188
    
    
    
    3,188Other borrowed funds
    
    
    600
    
    
    
    600Advances from FHLB
    
    
    77,000
    
    
    
    80,670Subordinated debentures
    
    
    22,947
    
    
    
    14,793
      20




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
     21




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##### Table of Contents



Table 1  Selected Financial Data
 March 31,
    
    
    December 31,
    
    
    March 31,2010
    
    
    2009
    
    
    2009(Dollars in thousands)Assets
    
    $
    1,497,359
    
    
    $
    1,491,119
    
    
    $
    1,484,682Loans
    
    
    919,777
    
    
    
    937,489
    
    
    
    997,647Deposits
    
    
    1,290,897
    
    
    
    1,280,534
    
    
    
    1,226,683Annualized return on average total
assets
    
    
    0.34
    %
    
    
    (0.54
    %)
    
    
    0.02
    %Annualized return on average equity
    
    
    5.31
    %
    
    
    (7.92
    %)
    
    
    0.24
    %
   22




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##### Table of Contents



Forward-Looking Statements
   23




---



##### Table of Contents



Critical Accounting Estimates
  Allowance for Loan Losses
     24




---



##### Table of Contents



Fair Value of Financial Instruments
  Other Real Estate Owned
  Investment Securities
   25




---



##### Table of Contents



Results of Operations
        26




---



##### Table of Contents



Table 2  Selected Balance Sheet Data
 March 31,
    
    
    December 31,
    
    
    Variance2010
    
    
    2009
    
    
    Amount
    
    
    %(Dollars in thousands)Cash, due from banks
and interest-bearing deposits
    
    $
    104,944
    
    
    $
    140,694
    
    
    
    ($35,750
    )
    
    
    (25.4
    %)Federal funds sold
    
    
    7,300
    
    
    
    7,300
    
    
    
    0
    
    
    
    0.0
    %Investment securities
    
    
    376,663
    
    
    
    306,706
    
    
    
    69,957
    
    
    
    22.8
    %Loans
    
    
    919,777
    
    
    
    937,489
    
    
    
    (17,712
    )
    
    
    (1.9
    %)Other real estate owned
    
    
    5,865
    
    
    
    7,974
    
    
    
    (2,109
    )
    
    
    (26.4
    %)Assets
    
    
    1,497,359
    
    
    
    1,491,119
    
    
    
    6,240
    
    
    
    0.4
    %Deposits
    
    
    1,290,897
    
    
    
    1,280,534
    
    
    
    10,363
    
    
    
    0.8
    %Securities sold under repurchase
agreements
    
    
    2,130
    
    
    
    3,188
    
    
    
    (1,058
    )
    
    
    (33.2
    %)Advances from Federal Home Loan Bank
    
    
    72,000
    
    
    
    77,000
    
    
    
    (5,000
    )
    
    
    (6.5
    %)Liabilities
    
    
    1,399,759
    
    
    
    1,397,375
    
    
    
    2,384
    
    
    
    0.2
    %Stockholders equity
    
    
    97,600
    
    
    
    93,744
    
    
    
    3,856
    
    
    
    4.1
    %
    27




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##### Table of Contents



Net Interest Income
  Table
3  Average Balances, Income and Expenses, Yields and Rates
 Three Months Ended March 31, 2010
    
    
    Three Months Ended March 31, 2009Annualized
    
    
    
    
    
    
    
    
    
    
    AnnualizedAverage
    
    
    Amount
    
    
    
    
    
    
    Average
    
    
    AmountAverage
    
    
    Yield or
    
    
    Paid or
    
    
    Average
    
    
    Yield or
    
    
    Paid orAmount
    
    
    Rate
    
    
    Earned
    
    
    Amount
    
    
    Rate
    
    
    Earned(Dollars in thousands)Interest-earning assets:Loans
    
    $
    940,030
    
    
    
    5.70
    %
    
    $
    13,343
    
    
    $
    1,000,570
    
    
    
    5.54
    %
    
    $
    13,805Investment securitiesTaxable
    
    
    311,253
    
    
    
    4.10
    %
    
    
    3,187
    
    
    
    277,038
    
    
    
    5.59
    %
    
    
    3,871Tax-exempt
    
    
    21,529
    
    
    
    4.31
    %
    
    
    232
    
    
    
    18,381
    
    
    
    4.42
    %
    
    
    203Federal funds sold
    
    
    7,300
    
    
    
    1.11
    %
    
    
    20
    
    
    
    55,401
    
    
    
    0.18
    %
    
    
    24Interest-bearing deposits in other
banks
    
    
    85,446
    
    
    
    0.34
    %
    
    
    72
    
    
    
    6,029
    
    
    
    0.27
    %
    
    
    4Total interest-earning assets
    
    $
    1,365,558
    
    
    
    4.95
    %
    
    $
    16,854
    
    
    $
    1,357,419
    
    
    
    5.29
    %
    
    $
    17,907Interest-bearing liabilities:Deposits
    
    $
    1,168,891
    
    
    
    1.86
    %
    
    $
    5,367
    
    
    $
    1,077,012
    
    
    
    2.56
    %
    
    $
    6,801Federal funds purchased / securities
sold under repurchase agreements
    
    
    3,058
    
    
    
    1.47
    %
    
    
    11
    
    
    
    55,476
    
    
    
    0.81
    %
    
    
    111Other borrowings
    
    
    100,307
    
    
    
    3.86
    %
    
    
    954
    
    
    
    104,547
    
    
    
    3.48
    %
    
    
    896Total interest-bearing
liabilities
    
    $
    1,272,256
    
    
    
    2.02
    %
    
    $
    6,332
    
    
    $
    1,237,035
    
    
    
    2.56
    %
    
    $
    7,808Net interest margin/income:
    
    
    
    
    
    
    3.07
    %
    
    $
    10,522
    
    
    
    
    
    
    
    2.96
    %
    
    $
    10,099
  28




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##### Table of Contents



Table 4  Rate/Volume Analysis
 Three Months EndedMarch 31, 2010 compared to March 31, 2009Increase (Decrease) due toVolume
    
    
    Rate
    
    
    Combined
    
    
    Total(Dollars in thousands)Interest-earning assets:Loans
    
    
    (835
    )
    
    
    397
    
    
    
    (24
    )
    
    
    (462
    )Investment securitiesTaxable
    
    
    478
    
    
    
    (1,034
    )
    
    
    (128
    )
    
    
    (684
    )Tax-exempt
    
    
    35
    
    
    
    (5
    )
    
    
    (1
    )
    
    
    29Federal funds sold
    
    
    (21
    )
    
    
    128
    
    
    
    (111
    )
    
    
    (4
    )Interest-bearing deposits in other banks
    
    
    53
    
    
    
    1
    
    
    
    14
    
    
    
    68Total interest-earning assets
    
    
    (290
    )
    
    
    (513
    )
    
    
    (250
    )
    
    
    (1,053
    )Interest-bearing liabilities:Deposits
    
    
    580
    
    
    
    (1,856
    )
    
    
    (158
    )
    
    
    (1,434
    )Federal funds purchased / securities
sold under repurchase agreements
    
    
    (105
    )
    
    
    89
    
    
    
    (84
    )
    
    
    (100
    )Other borrowings
    
    
    (36
    )
    
    
    98
    
    
    
    (4
    )
    
    
    58Total interest-bearing liabilities
    
    
    439
    
    
    
    (1,669
    )
    
    
    (246
    )
    
    
    (1,476
    )Net change in net interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    423
  29




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##### Table of Contents



Provision for Loan Losses
  Noninterest Income
 Table 5  Noninterest Income
 Three Months EndedMarch 31,
    
    
    Variance2010
    
    
    2009
    
    
    Amount
    
    
    %(Dollars in thousands)Service charges and fees on deposits
    
    $
    1,595
    
    
    $
    1,641
    
    
    $
    (46
    )
    
    
    (2.8
    %)Gain on sales of loans
    
    
    1,353
    
    
    
    2,237
    
    
    
    (884
    )
    
    
    (39.5
    %)Gain on sale of fixed assets
    
    
    27
    
    
    
    26
    
    
    
    1
    
    
    
    100.0
    %Investment securities gains (losses), net
    
    
    13
    
    
    
    (164
    )
    
    
    177
    
    
    
    (107.9
    %)Retail investment income
    
    
    335
    
    
    
    209
    
    
    
    126
    
    
    
    60.3
    %Trust services fees
    
    
    287
    
    
    
    253
    
    
    
    34
    
    
    
    13.4
    %Increase in cash surrender value of
bank-owned life insurance
    
    
    229
    
    
    
    180
    
    
    
    49
    
    
    
    27.2
    %Miscellaneous income
    
    
    161
    
    
    
    163
    
    
    
    (2
    )
    
    
    (1.2
    %)Total noninterest income
    
    $
    4,000
    
    
    $
    4,545
    
    
    $
    (545
    )
    
    
    (12.0
    %)
   30




---



##### Table of Contents



Noninterest Expense
 Table 6  Noninterest Expense
 Three Months EndedMarch 31,
    
    
    Variance2010
    
    
    2009
    
    
    Amount
    
    
    %(Dollars in thousands)Salaries and other personnel expense
    
    $
    5,494
    
    
    $
    5,658
    
    
    $
    (164
    )
    
    
    (2.9
    %)Occupancy expenses
    
    
    1,171
    
    
    
    1,141
    
    
    
    30
    
    
    
    2.6
    %Marketing & business development
    
    
    293
    
    
    
    347
    
    
    
    (54
    )
    
    
    (15.6
    %)Processing expense
    
    
    366
    
    
    
    492
    
    
    
    (126
    )
    
    
    (25.6
    %)Legal and professional fees
    
    
    432
    
    
    
    360
    
    
    
    72
    
    
    
    20.0
    %Data processing expense
    
    
    345
    
    
    
    304
    
    
    
    41
    
    
    
    13.5
    %FDIC insurance
    
    
    541
    
    
    
    482
    
    
    
    59
    
    
    
    12.2
    %(Gain) loss on sale of other real estate
    
    
    (340
    )
    
    
    112
    
    
    
    (452
    )
    
    
    (403.6
    %)Other real estate valuation allowance
    
    
    255
    
    
    
    
    
    
    
    255
    
    
    
    N/AOther operating expenses
    
    
    875
    
    
    
    937
    
    
    
    (62
    )
    
    
    (6.6
    %)Total noninterest expense
    
    $
    9,432
    
    
    $
    9,833
    
    
    $
    (401
    )
    
    
    (4.1
    %)
 Salaries and other personnel expenses:
  Occupancy expenses:
  Other operating expenses:
   31




---



##### Table of Contents



Income Taxes
     32




---



##### Table of Contents



Loans
  Table 7  Loan Portfolio Composition
 March 31, 2010
    
    
    December 31, 2009Amount
    
    
    %
    
    
    Amount
    
    
    %(Dollars in thousands)Commercial financial and agricultural
    
    $
    108,798
    
    
    
    11.83
    %
    
    $
    102,160
    
    
    
    10.90
    %Real estateCommercial
    
    
    328,740
    
    
    
    35.74
    %
    
    
    322,864
    
    
    
    34.44
    %Residential
    
    
    221,608
    
    
    
    24.09
    %
    
    
    219,217
    
    
    
    23.38
    %Acquisition, development and construction
    
    
    238,961
    
    
    
    25.98
    %
    
    
    270,062
    
    
    
    28.81
    %Total real estate
    
    
    789,309
    
    
    
    85.81
    %
    
    
    812,143
    
    
    
    86.63
    %ConsumerDirect
    
    
    19,231
    
    
    
    2.09
    %
    
    
    20,507
    
    
    
    2.19
    %Indirect
    
    
    1,609
    
    
    
    0.18
    %
    
    
    1,898
    
    
    
    0.20
    %Revolving
    
    
    847
    
    
    
    0.09
    %
    
    
    836
    
    
    
    0.09
    %Total consumer
    
    
    21,687
    
    
    
    2.36
    %
    
    
    23,241
    
    
    
    2.48
    %Deferred loan origination fees
    
    
    (17
    )
    
    
    (0.00
    %)
    
    
    (55
    )
    
    
    (0.01
    %)Total
    
    $
    919,777
    
    
    
    100.00
    %
    
    $
    937,489
    
    
    
    100.00
    %
     33




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##### Table of Contents



March 31, 2010ReservesBalance
    
    
    Original
    
    
    Advanced
    
    
    Remaining(Dollars in thousands)Loan 1
    
    $
    4,247
    
    
    
    179
    
    
    
    179
    
    
    
    Loan 2
    
    
    10,104
    
    
    
    300
    
    
    
    182
    
    
    
    118Loan 3
    
    
    2,564
    
    
    
    255
    
    
    
    255
    
    
    
    Loan 4
    
    
    455
    
    
    
    30
    
    
    
    30
    
    
    
    Loan 5
    
    
    164
    
    
    
    10
    
    
    
    10
    
    
    
    Loan 6
    
    
    1,133
    
    
    
    81
    
    
    
    81
    
    
    
    
 December 31, 2009ReservesBalance
    
    
    Original
    
    
    Advanced
    
    
    Remaining(Dollars in thousands)Loan 1
    
    $
    4,278
    
    
    
    179
    
    
    
    179
    
    
    
    Loan 2
    
    
    9,666
    
    
    
    300
    
    
    
    77
    
    
    
    223Loan 3
    
    
    2,598
    
    
    
    255
    
    
    
    255
    
    
    
    Loan 4
    
    
    455
    
    
    
    30
    
    
    
    30
    
    
    
    Loan 5
    
    
    166
    
    
    
    10
    
    
    
    10
    
    
    
    Loan 6
    
    
    1,133
    
    
    
    81
    
    
    
    81
    
    
    
    
   34




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##### Table of Contents



Loan Review and Classification Process
     35




---



##### Table of Contents



Nonperforming Assets
    36




---



##### Table of Contents



Table 8  Non-Performing Assets
 March 31, 2010
    
    
    December 31, 2009
    
    
    March 31, 2009(Dollars in thousands)Nonaccrual loans:Commercial financial and agricultural
    
    $
    782
    
    
    $
    616
    
    
    $
    192Real Estate:Commercial
    
    
    9,314
    
    
    
    2,932
    
    
    
    4,894Residential
    
    
    4,120
    
    
    
    4,623
    
    
    
    5,545Acquisition, development and construction
    
    
    17,113
    
    
    
    23,755
    
    
    
    34,882Consumer:Direct
    
    
    536
    
    
    
    331
    
    
    
    367Revolving
    
    
    
    
    
    
    
    
    
    
    Total Nonaccrual loans
    
    
    31,865
    
    
    
    32,257
    
    
    
    45,880Restructured loans (1)
    
    
    
    
    
    
    
    
    
    
    Other real estate owned
    
    
    5,865
    
    
    
    7,974
    
    
    
    6,990Total Non-performing assets
    
    $
    37,730
    
    
    $
    40,231
    
    
    $
    52,870Loans past due 90 days or more
and still accruing interest
    
    $
    
    
    
    $
    
    
    
    $
    Non-performing assets to total assets
    
    
    2.52
    %
    
    
    2.70
    %
    
    
    3.56
    %Non-performing assets to total loans and OREO
    
    
    4.08
    %
    
    
    4.26
    %
    
    
    5.37
    %Allowance for loan loss to total non-performing loans
    
    
    72.61
    %
    
    
    69.25
    %
    
    
    33.10
    %
 (1)
    
    Restructured loans on nonaccrual status at period end are included under nonaccrual loans in
the table.   37




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##### Table of Contents



Table 9  Other Real Estate Owned
 2010
    
    
    2009(Dollars in thousands)Beginning balance, January 1
    
    $
    7,974
    
    
    
    5,734Additions
    
    
    2,230
    
    
    
    2,609Valuation allowance
    
    
    (255
    )
    
    
    Sales
    
    
    (4,424
    )
    
    
    (1,241
    )Gain (loss) on sale of OREO
    
    
    340
    
    
    
    (112
    )Ending balance, March 31
    
    $
    5,865
    
    
    
    6,990
  2010
    
    
    2009(Dollars in thousands)Other Real Estate:Single family developed lots
    
    $
    1,651
    
    
    $
    2,181Single family undeveloped land
    
    
    
    
    
    
    2,6491-4 Family residential
    
    
    284
    
    
    
    960Commercial real estate
    
    
    1,299
    
    
    
    1,200Condominums
    
    
    2,886
    
    
    
    6,120
    
    
    
    6,990Valuation allowance
    
    
    (255
    )
    
    
    $
    5,865
    
    
    $
    6,990
  38




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##### Table of Contents



Nonaccrual
    
    
    
    
    
    
    
    
    
    
    
    Appraisal
    
    AppraisedBalance
    
    
    Originated
    
    
    Date
    
    Trigger
    
    Collateral
    
    Allowance
    
    
    Method
    
    Date
    
    Value(Dollars in thousands)Commercial Real Estate
    
    $
    1,625
    
    
    
    04/08/08
    
    
    03/30/10
    
    delinquency
    
    land
    
    
    
    
    
    collateral value
    
    02/08
    
    $
    4,547ADC Loan  CSRA
    
    
    1,495
    
    
    
    12/16/05-02/19/10
    
    
    11/09-2/10
    
    delinquency
    
    lots & land
    
    
    
    
    
    collateral value
    
    03/10
    
    
    1,7611-4 Family Residential
    
    
    561
    
    
    
    10/22/07-09/04/08
    
    
    11/30/09
    
    delinquency
    
    houses & lots
    
    
    
    
    
    collateral value
    
    03/10
    
    
    1,173ADC Loan  Georgia Loan Participation
    
    
    979
    
    
    
    12/06/06
    
    
    09/17/08
    
    delinquency
    
    lots
    
    
    
    
    
    collateral value
    
    12/09
    
    
    2,000ADC Loan  Georgia Loan Participation
    
    
    921
    
    
    
    04/13/06
    
    
    09/17/08
    
    delinquency
    
    lots
    
    
    
    
    
    collateral value
    
    03/09
    
    
    1,330ADC Loan  CSRA
    
    
    1,084
    
    
    
    08/17/07-05/02/08
    
    
    12/30/09
    
    delinquency
    
    lots
    
    
    
    
    
    collateral value
    
    12/09
    
    
    1,220ADC Loan  CSRA
    
    
    3,425
    
    
    
    08/25/06
    
    
    08/17/09
    
    delinquency
    
    lots
    
    
    
    
    
    collateral value
    
    09/09
    
    
    6,333Commercial Real Estate
    
    
    3,919
    
    
    
    12/19/08
    
    
    01/15/10
    
    delinquency
    
    golf course
    
    
    
    
    
    collateral value
    
    03/10
    
    
    8,100ADC Loan  CSRA
    
    
    3,468
    
    
    
    01/02/07-03/01/10
    
    
    1/10-3/10
    
    delinquency
    
    homes, lots & land
    
    
    800
    
    
    collateral value
    
    03/10
    
    
    2,002ADC Loan  Athens, Georgia
    
    
    2,570
    
    
    
    08/18/06-01/10/07
    
    
    01/28/09
    
    delinquency
    
    land & townhomes
    
    
    
    
    
    collateral value
    
    02/09
    
    
    3,526$
    20,047Other, net
    
    
    11,818Nonaccrual
loans at March 31, 2010
    
    $
    31,865
 Allowance for Loan Losses
     39




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##### Table of Contents



Table 10  Acquisition Development and Construction Loans
 March 31,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)CSRA  primary market areaPeriod-end loans
    
    
    178,681
    
    
    
    195,394Impaired loans
    
    
    9,312
    
    
    
    11,278Classified/watch rated loans
    
    
    24,300
    
    
    
    27,237Charge-offs % (annualized)
    
    
    0.79
    %
    
    
    0.44
    %Specific reserve allowance / Impaired loans
    
    
    9.00
    %
    
    
    10.29
    %General reserve allowance / Loans not impaired %
    
    
    2.54
    %
    
    
    2.10
    %Allowance / Charge-offs
    
    
    3.64
    
    
    
    6.94Savannah, GeorgiaPeriod-end loans
    
    
    16,047
    
    
    
    19,666Impaired loans
    
    
    505
    
    
    
    1,300Classified/watch rated loans
    
    
    4,086
    
    
    
    4,064Charge-offs % (annualized)
    
    
    5.06
    %
    
    
    11.21
    %Specific reserve allowance / Impaired loans
    
    
    0.00
    %
    
    
    8.62
    %General reserve allowance / Loans not impaired %
    
    
    3.49
    %
    
    
    3.42
    %Allowance / Charge-offs
    
    
    0.67
    
    
    
    0.34Athens, GeorgiaPeriod-end loans
    
    
    14,571
    
    
    
    20,031Impaired loans
    
    
    4,296
    
    
    
    8,457Classified/watch rated loans
    
    
    1,691
    
    
    
    2,742Charge-offs % (annualized)
    
    
    0.19
    %
    
    
    47.59
    %Specific reserve allowance / Impaired loans
    
    
    0.00
    %
    
    
    0.00
    %General reserve allowance / Loans not impaired %
    
    
    10.36
    %
    
    
    10.68
    %Allowance / Charge-offs
    
    
    38.04
    
    
    
    0.13ADC Participations  GeorgiaPeriod-end loans
    
    
    8,400
    
    
    
    9,893Impaired loans
    
    
    1,900
    
    
    
    3,393Classified/watch rated loans
    
    
    6,500
    
    
    
    6,500Charge-offs % (annualized)
    
    
    52.33
    %
    
    
    47.41
    %Specific reserve allowance / Impaired loans
    
    
    0.00
    %
    
    
    20.81
    %General reserve allowance / Loans not impaired %
    
    
    9.51
    %
    
    
    9.50
    %Allowance / Charge-offs
    
    
    0.14
    
    
    
    0.28ADC Participations  FloridaPeriod-end loans
    
    
    3,633
    
    
    
    4,034Impaired loans
    
    
    633
    
    
    
    1,034Classified/watch rated loans
    
    
    3,000
    
    
    
    Charge-offs % (annualized)
    
    
    21.47
    %
    
    
    10.26
    %Specific reserve allowance / Impaired loans
    
    
    0.00
    %
    
    
    0.00
    %General reserve allowance / Loans not impaired %
    
    
    11.00
    %
    
    
    10.00
    %Allowance / Charge-offs
    
    
    0.42
    
    
    
    0.72
  40




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##### Table of Contents



Table 11  Allowance for Loan Losses
 March 31,2010
    
    
    2009(Dollars in thousands)Total loans outstanding at end of period,
net of unearned income
    
    $
    919,777
    
    
    $
    976,838Average loans outstanding, net of
unearned income
    
    $
    920,584
    
    
    $
    980,688Balance of allowance for loan losses at
beginning of year
    
    $
    22,338
    
    
    $
    14,742Charge-offs:Commercial, financial and agricultural
    
    
    126
    
    
    
    204Real estate  commercial
    
    
    66Real estate  acquisition, development
and construction
    
    
    2,214
    
    
    
    3,806Real estate  residential mortgage
    
    
    423
    
    
    
    249Consumer
    
    
    194
    
    
    
    207Total charge-offs
    
    
    3,023
    
    
    
    4,466Recoveries of previous loan losses:Commercial, financial and agricultural
    
    
    72
    
    
    
    89Real estate  commercial
    
    
    5Real estate  acquisition, development
and construction
    
    
    356
    
    
    
    1Real estate  residential mortgage
    
    
    31
    
    
    
    1Consumer
    
    
    71
    
    
    
    70Total recoveries
    
    
    535
    
    
    
    161Net loan losses
    
    
    2,488
    
    
    
    4,305Provision for loan losses
    
    
    3,288
    
    
    
    4,749Balance of allowance for loan losses at
end of period
    
    $
    23,138
    
    
    $
    15,186Allowance for loan losses to period end
loans
    
    
    2.52
    %
    
    
    1.55
    %Annualized net charge-offs to average loans
    
    
    1.10
    %
    
    
    1.78
    %
  41




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##### Table of Contents



Liquidity and Capital Resources
    42




---



##### Table of Contents



Table 12  Regulatory Capital Requirements
March 31, 2010
 Required for capitalActual
    
    
    adequacy purposes
    
    
    ExcessAmount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)Southeastern Bank Financial CorporationRisk-based capital:Tier 1 capital
    
    $
    115,755
    
    
    
    11.39
    %
    
    
    40,663
    
    
    
    4.00
    %
    
    
    75,092
    
    
    
    7.39
    %Total capital
    
    
    130,949
    
    
    
    12.88
    %
    
    
    81,327
    
    
    
    8.00
    %
    
    
    49,622
    
    
    
    4.88
    %Tier 1 leverage ratio
    
    
    115,755
    
    
    
    7.76
    %
    
    
    59,657
    
    
    
    4.00
    %
    
    
    56,098
    
    
    
    3.76
    %Georgia Bank & Trust CompanyRisk-based capital:Tier 1 capital
    
    $
    101,100
    
    
    
    11.31
    %
    
    
    35,743
    
    
    
    4.00
    %
    
    
    65,357
    
    
    
    7.31
    %Total capital
    
    
    112,394
    
    
    
    12.58
    %
    
    
    71,486
    
    
    
    8.00
    %
    
    
    40,908
    
    
    
    4.58
    %Tier 1 leverage ratio
    
    
    101,100
    
    
    
    7.62
    %
    
    
    59,695
    
    
    
    4.50
    %
    
    
    41,405
    
    
    
    3.12
    %Southern Bank & TrustRisk-based capital:Tier 1 capital
    
    $
    14,275
    
    
    
    11.70
    %
    
    
    4,879
    
    
    
    4.00
    %
    
    
    9,396
    
    
    
    7.70
    %Total capital
    
    
    15,804
    
    
    
    12.96
    %
    
    
    9,757
    
    
    
    8.00
    %
    
    
    6,047
    
    
    
    4.96
    %Tier 1 leverage ratio
    
    
    14,275
    
    
    
    8.44
    %
    
    
    6,768
    
    
    
    4.00
    %
    
    
    7,507
    
    
    
    4.44
    %
   Commitments and Contractual Obligations
   43




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##### Table of Contents



Table 13  Commitments and Contractual Obligations
 Less than
    
    
    1 - 3
    
    
    3 - 5
    
    
    More than1 Year
    
    
    Years
    
    
    Years
    
    
    5 Years(Dollars in thousands)Lines of credit
    
    $
    144,950
    
    
    
    
    
    
    
    
    
    
    
    Lease agreements
    
    
    338
    
    
    
    394
    
    
    
    70
    
    
    
    53Deposits
    
    
    1,087,227
    
    
    
    188,866
    
    
    
    13,318
    
    
    
    1,486Securities sold under
repurchase agreements
    
    
    2,130
    
    
    
    
    
    
    
    
    
    
    
    FHLB advances
    
    
    12,000
    
    
    
    8,000
    
    
    
    13,000
    
    
    
    39,000Other borrowings
    
    
    700
    
    
    
    
    
    
    
    
    
    
    
    Subordinated debentures
    
    
    
    
    
    
    
    
    
    
    2,947
    
    
    
    20,000Total commitments and
contractual obligations
    
    $
    1,247,345
    
    
    $
    197,260
    
    
    $
    29,335
    
    
    $
    60,539
   44




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##### Table of Contents



Effects of Inflation and Changing Prices
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
   45




---



##### Table of Contents



Part II
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Issuer Purchases of Equity Securities
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
   46




---



##### Table of Contents



Item 5. Other Information
  
 Item 6. Exhibits
 10.24
    
    
    Second Amendment dated February 11, 2010 to the Supplemental
Executive Retirement Benefits Agreement between the Bank and
Darrell R. Rains.31.1
    
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  47




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##### Table of Contents



SOUTHEASTERN BANK FINANCIAL CORPORATIONDate: April 30, 2010
    By:
    /s/ Darrell R. RainsDarrell R. RainsGroup Vice President, Chief Financial Officer 
(Duly Authorized Officer of Registrant and Principal Financial Officer)  48