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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 September 30, 2009.
 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 þ
    
    Non-accelerated filer o

    
    Smaller reporting company o(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 September 30, 2009 and December 31, 2008
    
    
    3Consolidated Statements of Income for the Three and Nine Months ended September 30, 2009 and 2008
    
    
    5Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2009 and 2008
    
    
    7Notes to Consolidated Financial Statements
    
    
    9Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    50Item 4. Controls and Procedures
    
    
    50Part IIOther InformationItem 1. Legal Proceedings
    
    
    51Item 1A. Risk Factors
    
    
    51Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    51Item 3. Defaults Upon Senior Securities
    
    
    *Item 4. Submission of Matters to a Vote of Security Holders
    
    
    *Item 5. Other Information
    
    
    *Item 6. Exhibits
    
    
    52Signature
    
    
    53Exhibit 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
 
   September 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)AssetsCash and due from banks
    
    $
    74,172
    
    
    $
    24,860Federal funds sold
    
    
    7,300
    
    
    
    9,780Interest-bearing deposits in other banks
    
    
    18,046
    
    
    
    3,128Cash and cash equivalents
    
    
    99,518
    
    
    
    37,768Investment securitiesAvailable-for-sale
    
    
    313,461
    
    
    
    299,339Held-to-maturity, at cost (fair values of
$491 and $698, respectively)
    
    
    490
    
    
    
    689Loans held for sale
    
    
    20,835
    
    
    
    18,955Loans
    
    
    963,016
    
    
    
    986,831Less allowance for loan losses
    
    
    16,826
    
    
    
    14,742Loans, net
    
    
    946,190
    
    
    
    972,089Premises and equipment, net
    
    
    32,331
    
    
    
    33,960Accrued interest receivable
    
    
    6,369
    
    
    
    7,085Bank-owned life insurance
    
    
    23,017
    
    
    
    17,368Restricted equity securities
    
    
    6,338
    
    
    
    6,571Other real estate owned
    
    
    15,619
    
    
    
    5,734Other assets
    
    
    11,637
    
    
    
    11,481$
    1,475,805
    
    
    $
    1,411,039
  3




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SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
 
 September 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)Liabilities and Stockholders EquityDepositNoninterest-bearing
    
    $
    116,425
    
    
    $
    111,291Interest-bearing:NOW accounts
    
    
    242,624
    
    
    
    166,561Savings
    
    
    331,408
    
    
    
    247,249Money management accounts
    
    
    42,846
    
    
    
    50,404Time deposits over $100
    
    
    373,029
    
    
    
    385,439Other time deposits
    
    
    152,416
    
    
    
    178,6081,258,748
    
    
    
    1,139,552Federal funds purchased and securities sold
under repurchase agreements
    
    
    860
    
    
    
    62,553Advances from Federal Home Loan Bank
    
    
    77,000
    
    
    
    84,000Other borrowed funds
    
    
    600
    
    
    
    Accrued interest payable and other liabilities
    
    
    10,163
    
    
    
    10,283Subordinated debentures
    
    
    22,947
    
    
    
    20,000Total liabilities
    
    
    1,370,318
    
    
    
    1,316,388Stockholders equity:Preferred stock, no par value; 10,000,000 shares
authorized; 0 shares outstanding in 2009 and
2008, respectively
    
    
    
    
    
    
    Common stock, $3.00 par value; 10,000,000 shares
authorized; 6,672,118 and 5,987,674 shares issued
and outstanding in 2009 and 2008, respectively
    
    
    20,016
    
    
    
    17,963Additional paid-in capital
    
    
    62,306
    
    
    
    55,189Retained earnings
    
    
    22,110
    
    
    
    21,455Accumulated other comprehensive income, net
    
    
    1,055
    
    
    
    44Total stockholders equity
    
    
    105,487
    
    
    
    94,651$
    1,475,805
    
    
    $
    1,411,039
   4




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SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
 
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Interest income:Loans, including fees
    
    $
    14,218
    
    
    $
    15,003
    
    
    $
    42,228
    
    
    $
    46,483Investment securities
    
    
    3,294
    
    
    
    3,345
    
    
    
    10,964
    
    
    
    9,944Federal funds sold
    
    
    22
    
    
    
    188
    
    
    
    62
    
    
    
    375Interest-bearing deposits in other banks
    
    
    68
    
    
    
    7
    
    
    
    90
    
    
    
    18Total interest income
    
    
    17,602
    
    
    
    18,543
    
    
    
    53,344
    
    
    
    56,820Interest expense:Deposits
    
    
    5,658
    
    
    
    7,497
    
    
    
    18,469
    
    
    
    22,539Federal funds purchased and securities sold
under repurchase agreements
    
    
    114
    
    
    
    295
    
    
    
    320
    
    
    
    1,160Other borrowings
    
    
    1,009
    
    
    
    1,009
    
    
    
    2,928
    
    
    
    3,072Total interest expense
    
    
    6,781
    
    
    
    8,801
    
    
    
    21,717
    
    
    
    26,771Net interest income
    
    
    10,821
    
    
    
    9,742
    
    
    
    31,627
    
    
    
    30,049Provision for loan losses
    
    
    4,879
    
    
    
    2,073
    
    
    
    14,741
    
    
    
    4,996Net interest income after provision
for loan losses
    
    
    5,942
    
    
    
    7,669
    
    
    
    16,886
    
    
    
    25,053Noninterest income:Service charges and fees on deposits
    
    
    1,846
    
    
    
    1,955
    
    
    
    5,224
    
    
    
    5,446Gain on sales of loans
    
    
    1,945
    
    
    
    1,529
    
    
    
    6,643
    
    
    
    4,365(Loss) gain on sale of fixed assets
    
    
    
    
    
    
    (1
    )
    
    
    (16
    )
    
    
    7Investment securities gains, net
    
    
    381
    
    
    
    21
    
    
    
    1,693
    
    
    
    88Other-than-temporary impairment losses (less
$263 and $835 for the three and nine months
ended, respectively, recognized in other
comprehensive income, before taxes)
    
    
    (356
    )
    
    
    
    
    
    
    (975
    )
    
    
    Retail investment income
    
    
    326
    
    
    
    277
    
    
    
    854
    
    
    
    841Trust service fees
    
    
    268
    
    
    
    288
    
    
    
    766
    
    
    
    873Increase in cash surrender value of
bank-owned life insurance
    
    
    256
    
    
    
    190
    
    
    
    649
    
    
    
    548Miscellaneous income
    
    
    142
    
    
    
    178
    
    
    
    428
    
    
    
    652Total noninterest income
    
    
    4,808
    
    
    
    4,437
    
    
    
    15,266
    
    
    
    12,820Noninterest expense:Salaries and other personnel expense
    
    
    5,469
    
    
    
    5,202
    
    
    
    16,927
    
    
    
    15,755Occupancy expenses
    
    
    1,213
    
    
    
    1,122
    
    
    
    3,495
    
    
    
    3,153Other operating expenses
    
    
    3,582
    
    
    
    3,041
    
    
    
    10,484
    
    
    
    8,642Total noninterest expense
    
    
    10,264
    
    
    
    9,365
    
    
    
    30,906
    
    
    
    27,550Income before income taxes
    
    
    486
    
    
    
    2,741
    
    
    
    1,246
    
    
    
    10,323Income tax (benefit) expense
    
    
    (254
    )
    
    
    866
    
    
    
    (187
    )
    
    
    3,405Net income
    
    $
    740
    
    
    $
    1,875
    
    
    $
    1,433
    
    
    $
    6,918
  5




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SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
 
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Basic net income per share
    
    $
    0.11
    
    
    $
    0.31
    
    
    $
    0.23
    
    
    $
    1.16Diluted net income per share
    
    $
    0.11
    
    
    $
    0.31
    
    
    $
    0.23
    
    
    $
    1.15Weighted average common shares outstanding
    
    
    6,672,118
    
    
    
    5,976,883
    
    
    
    6,338,632
    
    
    
    5,967,310Weighted average number of common and
common equivalent shares outstanding
    
    
    6,672,388
    
    
    
    6,018,584
    
    
    
    6,344,275
    
    
    
    6,010,367
   6




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SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
 
    Nine Months EndedSeptember 30,2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    1,433
    
    
    $
    6,918Adjustments to reconcile net income to net cash
provided by operating activitiesDepreciation
    
    
    2,027
    
    
    
    1,685Provision for loan losses
    
    
    14,741
    
    
    
    4,996Net investment securities gains
    
    
    (718
    )
    
    
    (88
    )Net amortization of premium (accretion of discount)
on investment securities
    
    
    146
    
    
    
    (133
    )Increase in CSV of bank-owned life insurance
    
    
    (649
    )
    
    
    (548
    )Stock options compensation cost
    
    
    141
    
    
    
    155Loss (gain) on disposal of premises and equipment
    
    
    16
    
    
    
    (7
    )Loss on the sale of other real estate
    
    
    516
    
    
    
    4Gain on sales of loans
    
    
    (6,643
    )
    
    
    (4,365
    )Real estate loans originated for sale
    
    
    (289,322
    )
    
    
    (197,388
    )Proceeds from sales of real estate loans
    
    
    294,086
    
    
    
    197,869Decrease in accrued interest receivable
    
    
    716
    
    
    
    980Increase in other assets
    
    
    (800
    )
    
    
    (1,329
    )Decrease in accrued interest payable and other liabilities
    
    
    (120
    )
    
    
    (1,613
    )Net cash provided by operating activities
    
    
    15,570
    
    
    
    7,136Cash flows from investing activities:Proceeds from sales of available for sale securities
    
    
    79,533
    
    
    
    27,285Proceeds from maturities of available for sale securities
    
    
    111,070
    
    
    
    59,853Proceeds from maturities of held to maturity securities
    
    
    203
    
    
    
    765Purchase of available for sale securities
    
    
    (201,968
    )
    
    
    (89,165
    )Purchase of restricted equity securities
    
    
    (322
    )
    
    
    (1,535
    )Proceeds from redemption of FHLB stock
    
    
    23
    
    
    
    Net increase in loans
    
    
    (5,675
    )
    
    
    (117,943
    )Purchase of bank-owned life insurance
    
    
    (5,000
    )
    
    
    Additions to premises and equipment
    
    
    (685
    )
    
    
    (4,841
    )Proceeds from sale of other real estate
    
    
    6,430
    
    
    
    482Proceeds from sale of premises and equipment
    
    
    270
    
    
    
    1,512Net cash used in investing activities
    
    
    (16,121
    )
    
    
    (123,587
    )
  7




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SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
 
  Nine Months EndedSeptember 30,2009
    
    
    2008Cash flows from financing activities:Net increase in deposits
    
    
    119,196
    
    
    
    173,618Net decrease in federal funds purchased and
securities sold under repurchase agreements
    
    
    (61,693
    )
    
    
    (32,558
    )Advances from Federal Home Loan Bank
    
    
    
    
    
    
    25,000Payments of Federal Home Loan Bank advances
    
    
    (7,000
    )
    
    
    Proceeds from subordinated debentures
    
    
    2,947
    
    
    
    Proceeds from other borrowed funds
    
    
    600
    
    
    
    Principal payments on other borrowed funds
    
    
    
    
    
    
    (100
    )Purchase of treasury stock
    
    
    (5
    )
    
    
    (445
    )Proceeds from issuance of common stock
    
    
    9,010
    
    
    
    Payment of cash dividends
    
    
    (778
    )
    
    
    (2,191
    )Proceeds from stock options exercised
    
    
    
    
    
    
    466Proceeds from Directors stock purchase plan
    
    
    24
    
    
    
    25Net cash provided by financing activities
    
    
    62,301
    
    
    
    163,815Net increase in cash and cash equivalents
    
    $
    61,750
    
    
    $
    47,364Cash and cash equivalents at beginning of period
    
    
    37,768
    
    
    
    25,058Cash and cash equivalents at end of period
    
    $
    99,518
    
    
    $
    72,422Supplemental disclosures of cash paid during the period for:Interest
    
    $
    23,043
    
    
    $
    27,661Income taxes
    
    $
    351
    
    
    $
    5,190Supplemental information on noncash investing activities:Loans transferred to other real estate
    
    $
    16,831
    
    
    $
    863
   8




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9




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Fair Value Measurements and Disclosures, .
   10




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September 30, 2009Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    gains
    
    
    losses
    
    
    fair value(Dollars in Thousands)Available for saleMortgage backed securitiesU.S. GSEs MBS  residential*
    
    $
    103,443
    
    
    
    3,251
    
    
    
    (16
    )
    
    
    106,678U.S. GSEs CMO
    
    
    86,820
    
    
    
    1,200
    
    
    
    (208
    )
    
    
    87,812Other CMO
    
    
    9,254
    
    
    
    
    
    
    
    (755
    )
    
    
    8,499Total MBS
    
    $
    199,517
    
    
    
    4,451
    
    
    
    (979
    )
    
    
    202,989Obligations
of U.S. Government agencies
    
    $
    73,490
    
    
    
    424
    
    
    
    (266
    )
    
    
    73,648Obligations of states and
political subdivisions
    
    
    26,122
    
    
    
    658
    
    
    
    (273
    )
    
    
    26,507Corporate bonds
    
    
    12,591
    
    
    
    93
    
    
    
    (2,377
    )
    
    
    10,307Equity securities
    
    
    14
    
    
    
    
    
    
    
    (4
    )
    
    
    10$
    311,734
    
    
    
    5,626
    
    
    
    (3,899
    )
    
    
    313,461Held to maturityObligations of states and
political subdivisions
    
    $
    490
    
    
    
    1
    
    
    
    
    
    
    
    491$
    490
    
    
    
    1
    
    
    
    
    
    
    
    491
 *
    
    Government sponsored entities   11




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September 30, 2009Amortized
    
    
    Estimatedcost
    
    
    fair valueDollars in ThousandsAvailable for sale:One year or less
    
    $
    654
    
    
    
    657After one year
through five years
    
    
    6,366
    
    
    
    6,367After five years
through ten years
    
    
    46,528
    
    
    
    46,670After ten years
    
    
    258,172
    
    
    
    259,757$
    311,720
    
    
    
    313,451Held to maturity:One year or less
    
    
    180
    
    
    
    181After one year
through five years
    
    
    310
    
    
    
    310490
    
    
    
    491
  September 30, 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
    
    $
    10,230
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    10,230
    
    
    
    16U.S. GSEs CMO
    
    
    21,586
    
    
    
    202
    
    
    
    808
    
    
    
    6
    
    
    
    22,394
    
    
    
    208Other CMO
    
    
    458
    
    
    
    192
    
    
    
    6,195
    
    
    
    300
    
    
    
    6,653
    
    
    
    492Total MBS
    
    $
    32,274
    
    
    
    410
    
    
    
    7,003
    
    
    
    306
    
    
    
    39,277
    
    
    
    716Obligations
of U.S. Government agencies
    
    $
    30,839
    
    
    
    266
    
    
    
    
    
    
    
    
    
    
    
    30,839
    
    
    
    266Obligations of states and
political subdivisions
    
    
    1,572
    
    
    
    62
    
    
    
    4,549
    
    
    
    211
    
    
    
    6,121
    
    
    
    273Corporate bonds
    
    
    505
    
    
    
    1,528
    
    
    
    6,950
    
    
    
    849
    
    
    
    7,455
    
    
    
    2,377Equity securities
    
    
    10
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    4$
    65,200
    
    
    
    2,270
    
    
    
    18,502
    
    
    
    1,366
    
    
    
    83,702
    
    
    
    3,636Other-than-temporarily impairedMortgage backed securitiesOther CMO
    
    $
    
    
    
    
    
    
    
    
    1,846
    
    
    
    263
    
    
    
    1,846
    
    
    
    263Total temporarily impaired and
other-than-temporarily impaired
    
    $
    65,200
    
    
    
    2,270
    
    
    
    20,348
    
    
    
    1,629
    
    
    
    85,548
    
    
    
    3,899
  12




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Other-Than-Temporary-Impairment
 Investments  Debt and Equity Securities.
   13




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Mortgage-backed Securities
      14




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Corporate Securities
     Beginning balance, July 1, 2009
    
    $
    619Amounts related to credit loss for which
an other-than-temporary impairment
was not previously recognized
    
    
    Additions/SubtractionsAmounts realized for securities sold during the period
    
    
    Amounts related to securities for which the company
intends to sell or that it will be more likely than not
that the company will be required to sell prior to
recovery of amortized cost basis
    
    
    Reductions for increase in cash flows expected to be
collected that are recognized over the remaining
life of the security
    
    
    Increases to the amount related to the credit
loss for which other-than-temporary was previously
recognized
    
    
    356Ending balance, September 30, 2009
    
    
    975
  15




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SilvertonFinancialServices, Inc
    
    
    CMO 1
    
    
    CMO 2
    
    
    Total(dollars in thousands)Amount of other-than temporary-impairment
related to credit losses at July 1, 2009
    
    $
    500
    
    
    $
    57
    
    
    $
    62
    
    
    $
    619Addition for credit losses recognized in
earnings
    
    
    
    
    
    
    98
    
    
    
    258
    
    
    
    356Amount of other-than temporary-impairment
related to credit losses at September 30, 2009
    
    $
    500
    
    
    $
    155
    
    
    $
    320
    
    
    $
    975
   EstimatedAmortized
    
    
    Fair
    
    
    Unrealized
    
    
    Ratings as of September 30, 2009(dollars in thousands)
    
    cost
    
    
    Value
    
    
    Losses
    
    
    S&P
    
    
    Fitch
    
    
    MoodysSilverton Financial Services, Inc.
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    NR
    
    NR
    
    NRCMO 1
    
    
    793
    
    
    
    702
    
    
    
    (91
    )
    
    CCC
    
    
    C
    
    
    NRCMO 2
    
    
    1,316
    
    
    
    1,144
    
    
    
    (172
    )
    
    CCC
    
    NR
    
    Caa2Total
    
    $
    2,109
    
    
    $
    1,846
    
    
    $
    (263
    )
       16




---



##### Table of Contents



Investment Securities
 Loans Held for Sale
 Impaired Loans
 Investments in Tax Credits:
 Other Real Estate Owned
  17




---



##### Table of Contents



Assets and Liabilities Measured on a Recurring Basis
  QuotedPrices inActive
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(Dollars in thousands)Available-for-sale securities
    
    $
    313,461
    
    
    $
    30,351
    
    
    $
    268,605
    
    
    $
    14,505Tax credits
    
    
    455
    
    
    
    
    
    
    
    
    
    
    
    455Loans held for sale
    
    
    20,835
    
    
    
    
    
    
    
    20,835
    
    
    
    Total
    
    $
    334,751
    
    
    $
    30,351
    
    
    $
    289,440
    
    
    $
    14,960
 QuotedPrices inActive
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableDecember 30,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(Dollars in thousands)Available-for-sale securities
    
    $
    299,339
    
    
    $
    46
    
    
    $
    295,163
    
    
    $
    4,130Tax credits
    
    
    515
    
    
    
    
    
    
    
    
    
    
    
    515Loans held for sale
    
    
    18,955
    
    
    
    
    
    
    
    18,955
    
    
    
    Total
    
    $
    318,809
    
    
    $
    46
    
    
    $
    314,118
    
    
    $
    4,645
  18




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##### Table of Contents



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
    
    
    
    
    
    
    (356
    )
    
    
    (356
    )Amortization of tax credit investment
    
    
    (60
    )
    
    
    
    
    
    
    (60
    )Included in other comprehensive income
    
    
    
    
    
    
    1,598
    
    
    
    1,598Transfers in and/or out of Level 3
    
    
    
    
    
    
    9,133
    
    
    
    9,133Ending balance, September 30, 2009
    
    $
    455
    
    
    $
    14,505
    
    
    $
    14,960
 
 Available-for-saleTax credits
    
    
    Securities
    
    
    Total(dollars in thousands)Beginning balance, January 1, 2008
    
    $
    594
    
    
    $
    
    
    
    $
    594Total gains or losses (realized/unrealized)Included in earningsOther-than-temporary impairment
    
    
    
    
    
    
    
    
    
    
    Amortization of tax credit investment
    
    
    (60
    )
    
    
    
    
    
    
    (60
    )Included in other comprehensive income
    
    
    
    
    
    
    
    
    
    
    Transfers in and/or out of Level 3
    
    
    
    
    
    
    4,412
    
    
    
    4,412Ending balance, September 30, 2008
    
    $
    534
    
    
    $
    4,412
    
    
    $
    4,946
 Assets and Liabilities Measured on a Non-Recurring Basis
  QuotedPrices inActive
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(Dollars in thousands)Assets:Impaired loans
    
    $
    11,160
    
    
    
    
    
    
    
    
    
    
    $
    11,160Other real estate owned
    
    
    15,619
    
    
    
    
    
    
    
    
    
    
    
    15,619
  19




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##### Table of Contents



QuotedPrices inActive
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(Dollars in thousands)Assets:Impaired loans
    
    $
    14,743
    
    
    
    
    
    
    
    
    
    
    $
    14,743Other real estate owned
    
    
    5,734
    
    
    
    
    
    
    
    
    
    
    
    5,734
         20




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##### Table of Contents



(a)
    
    Cash and Cash EquivalentsFair value equals the carrying value of such assets due to their nature.(b)
    
    Investment SecuritiesThe fair values of investment securities are determined as discussed above.(c)
    
    LoansThe fair value of loans is calculated using discounted cash flows by loan type. The
discount rate used to determine the present value of the loan portfolio is an estimated
market rate that reflects the credit and interest rate risk inherent in the loan
portfolio without considering widening credit spreads due to market illiquidity. The
estimated maturity is based on the Companys historical experience with repayments
adjusted to estimate the effect of current market conditions. The carrying amount of
related accrued interest receivable approximates its fair value and is not disclosed.
The carrying amount of real estate loans originated for sale approximates their fair
value. The allowance for loan losses is considered a reasonable discount for credit
risk.(d)
    
    DepositsFair values for certificates of deposit have been determined using discounted cash
flows. The discount rate used is based on estimated market rates for deposits of
similar remaining maturities. The carrying amounts of all other deposits, due to their
short-term nature, approximate their fair values. The carrying amount of related
accrued interest payable approximates its fair value and is not disclosed.
  21




---



##### Table of Contents



(e)
    
    Federal Funds Sold and Securities Sold Under Repurchase AgreementsFair value approximates the carrying value of such liabilities due to their short-term
nature.(f)
    
    Other Borrowed FundsFair value approximates the carrying value of such liabilities as the borrowings are at
a variable rate of interest.(g)
    
    Advances from FHLBThe fair value of the FHLB advances is obtained from the FHLB and is calculated by
discounting contractual cash flows using an estimated interest rate based on the
current rates available to the Company for debt of similar remaining maturities and
collateral terms.(h)
    
    Subordinated debenturesThe fair value for subordinated debentures is calculated based upon current market
spreads to LIBOR for debt of similar remaining maturities and collateral terms.(i)
    
    CommitmentsThe difference between the carrying values and fair values of commitments to extend
credit are not significant and are not disclosed.
  September 30,2009Carrying
    
    
    Estimatedamount
    
    
    fair value(Dollars in Thousands)Financial assets:Cash and cash
equivalents
    
    $
    99,518
    
    
    
    99,518Investment securities
    
    
    313,951
    
    
    
    313,952Loans, net
    
    
    967,025
    
    
    
    975,700Financial liabilities:Deposits
    
    
    1,258,748
    
    
    
    1,240,933Federal funds purchased
and securities sold under
repurchase agreements
    
    
    860
    
    
    
    860Other borrowed funds
    
    
    600
    
    
    
    600Advances from FHLB
    
    
    77,000
    
    
    
    78,560Subordinated debentures
    
    
    22,947
    
    
    
    14,760
  22




---



##### Table of Contents



December 31,2008Carrying
    
    
    Estimatedamount
    
    
    fair value(Dollars in Thousands)Financial assets:Cash and cash
equivalents
    
    $
    37,768
    
    
    
    37,768Investment securities
    
    
    300,028
    
    
    
    300,037Loans, net
    
    
    991,044
    
    
    
    997,338Financial liabilities:Deposits
    
    
    1,139,552
    
    
    
    1,141,627Federal funds purchased
and securities sold under
repurchase agreements
    
    
    62,553
    
    
    
    62,553Other borrowed funds
    
    
    
    
    
    
    Advances from FHLB
    
    
    84,000
    
    
    
    76,090Subordinated debentures
    
    
    20,000
    
    
    
    11,814
       23




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##### Table of Contents



24




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
  Overview
      25




---



##### Table of Contents



Table 1  Selected Financial Data
 September 30,
    
    
    December 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2004(Dollars in thousands)Assets
    
    $
    1,475,805
    
    
    $
    1,411,039
    
    
    $
    706,517Loans
    
    
    983,851
    
    
    
    1,005,786
    
    
    
    494,170Deposits
    
    
    1,258,748
    
    
    
    1,139,552
    
    
    
    556,785Annualized return on average total assets
    
    
    0.13
    %
    
    
    0.57
    %
    
    
    1.29
    %Annualized return on average equity
    
    
    1.93
    %
    
    
    8.48
    %
    
    
    15.50
    %
  26




---



##### Table of Contents



Forward-Looking Statements
   27




---



##### Table of Contents



Critical Accounting Estimates
  Allowance for Loan Losses
     28




---



##### Table of Contents



Fair Value of Financial Instruments
  Investment Securities
  Results of Operations
   29




---



##### Table of Contents



30




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##### Table of Contents



Table 2  Selected Balance Sheet Data
 September 30,
    
    
    December 31,
    
    
    Variance2009
    
    
    2008
    
    
    Amount
    
    
    %(Dollars in thousands)Cash, due from banks
and interest-bearing deposits
    
    $
    92,218
    
    
    $
    27,988
    
    
    $
    64,230
    
    
    
    229.5
    %Federal funds sold
    
    
    7,300
    
    
    
    9,780
    
    
    
    (2,480
    )
    
    
    (25.4
    %)Investment securities
    
    
    313,951
    
    
    
    300,028
    
    
    
    13,923
    
    
    
    4.6
    %Loans
    
    
    983,851
    
    
    
    1,005,786
    
    
    
    (21,935
    )
    
    
    (2.2
    %)Other real estate owned
    
    
    15,619
    
    
    
    5,734
    
    
    
    9,885
    
    
    
    172.4
    %Assets
    
    
    1,475,805
    
    
    
    1,411,039
    
    
    
    64,766
    
    
    
    4.6
    %Deposits
    
    
    1,258,748
    
    
    
    1,139,552
    
    
    
    119,196
    
    
    
    10.5
    %Securities sold under repurchase agreements
    
    
    860
    
    
    
    62,553
    
    
    
    (61,693
    )
    
    
    (98.6
    %)Advances from Federal Home Loan Bank
    
    
    77,000
    
    
    
    84,000
    
    
    
    (7,000
    )
    
    
    (8.3
    %)Liabilities
    
    
    1,370,318
    
    
    
    1,316,388
    
    
    
    53,930
    
    
    
    4.1
    %Stockholders equity
    
    
    105,487
    
    
    
    94,651
    
    
    
    10,836
    
    
    
    11.4
    %
     31




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##### Table of Contents



Net Interest Income
  Table 3  Average Balances, Income and Expenses, Yields and Rates
 Three Months Ended Sept. 30, 2009
    
    
    Three Months Ended Sept. 30, 2008Annualized
    
    
    
    
    
    
    
    
    
    
    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
    
    $
    981,976
    
    
    
    5.69
    %
    
    $
    14,218
    
    
    $
    968,298
    
    
    
    6.09
    %
    
    $
    15,003Investment securitiesTaxable
    
    
    265,590
    
    
    
    4.60
    %
    
    
    3,052
    
    
    
    232,366
    
    
    
    5.46
    %
    
    
    3,171Tax-exempt
    
    
    22,123
    
    
    
    4.38
    %
    
    
    242
    
    
    
    16,032
    
    
    
    4.34
    %
    
    
    174Federal funds sold
    
    
    7,300
    
    
    
    1.19
    %
    
    
    22
    
    
    
    39,133
    
    
    
    1.91
    %
    
    
    188Interest-bearing deposits in other banks
    
    
    61,940
    
    
    
    0.43
    %
    
    
    68
    
    
    
    500
    
    
    
    5.40
    %
    
    
    7Total interest-earning assets
    
    $
    1,338,929
    
    
    
    5.18
    %
    
    $
    17,602
    
    
    $
    1,256,329
    
    
    
    5.82
    %
    
    $
    18,543Interest-bearing liabilities:Deposits
    
    $
    1,079,093
    
    
    
    2.08
    %
    
    $
    5,658
    
    
    $
    962,011
    
    
    
    3.09
    %
    
    $
    7,497Federal funds purchased / securities
sold under repurchase agreements
    
    
    57,907
    
    
    
    0.78
    %
    
    
    114
    
    
    
    59,266
    
    
    
    1.97
    %
    
    
    295Other borrowings
    
    
    101,764
    
    
    
    3.93
    %
    
    
    1,009
    
    
    
    104,171
    
    
    
    3.84
    %
    
    
    1,009Total interest-bearing liabilities
    
    $
    1,238,764
    
    
    
    2.17
    %
    
    $
    6,781
    
    
    $
    1,125,448
    
    
    
    3.10
    %
    
    $
    8,801Net interest margin/income:
    
    
    
    
    
    
    3.17
    %
    
    $
    10,821
    
    
    
    
    
    
    
    3.04
    %
    
    $
    9,742
  32




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##### Table of Contents



Table 4  Average Balances, Income and Expenses, Yields and Rates
 Nine Months Ended Sept. 30, 2009
    
    
    Nine Months Ended Sept. 30, 2008Annualized
    
    
    
    
    
    
    
    
    
    
    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
    
    $
    989,637
    
    
    
    5.65
    %
    
    
    42,228 $
    
    
    $
    937,175
    
    
    
    6.54
    %
    
    $
    46,483Investment securitiesTaxable
    
    
    270,247
    
    
    
    5.08
    %
    
    
    10,301
    
    
    
    233,035
    
    
    
    5.38
    %
    
    
    9,406Tax-exempt
    
    
    20,476
    
    
    
    4.32
    %
    
    
    663
    
    
    
    16,455
    
    
    
    4.36
    %
    
    
    538Federal funds sold
    
    
    27,384
    
    
    
    0.31
    %
    
    
    62
    
    
    
    24,632
    
    
    
    2.03
    %
    
    
    375Interest-bearing deposits in other banks
    
    
    34,921
    
    
    
    0.34
    %
    
    
    90
    
    
    
    500
    
    
    
    5.00
    %
    
    
    18Total interest-earning assets
    
    $
    1,342,665
    
    
    
    5.27
    %
    
    $
    53,344
    
    
    $
    1,211,797
    
    
    
    6.20
    %
    
    $
    56,820Interest-bearing liabilities:Deposits
    
    $
    1,076,330
    
    
    
    2.29
    %
    
    $
    18,469
    
    
    $
    918,478
    
    
    
    3.27
    %
    
    $
    22,539Federal funds purchased / securities
sold under repurchase agreements
    
    
    53,933
    
    
    
    0.79
    %
    
    
    320
    
    
    
    62,043
    
    
    
    2.49
    %
    
    
    1,160Other borrowings
    
    
    104,144
    
    
    
    3.75
    %
    
    
    2,928
    
    
    
    96,969
    
    
    
    4.22
    %
    
    
    3,072Total interest-bearing liabilities
    
    $
    1,234,407
    
    
    
    2.35
    %
    
    $
    21,717
    
    
    $
    1,077,490
    
    
    
    3.31
    %
    
    $
    26,771Net interest margin/income:
    
    
    
    
    
    
    3.11
    %
    
    $
    31,627
    
    
    
    
    
    
    
    3.25
    %
    
    $
    30,049
   33




---



##### Table of Contents



Table 5  Rate/Volume Analysis
 Three Months EndedSeptember 30, 2009 compared to September 30, 2008Increase (Decrease) due toVolume
    
    
    Rate
    
    
    Combined
    
    
    TotalInterest-earning assets:Loans
    
    
    212
    
    
    
    (983
    )
    
    
    (14
    )
    
    
    (785
    )Investment securities
    
    
    529
    
    
    
    (501
    )
    
    
    (79
    )
    
    
    (51
    )Federal funds sold
    
    
    (153
    )
    
    
    (70
    )
    
    
    57
    
    
    
    (166
    )Interest-bearing deposits in other banks
    
    
    860
    
    
    
    (6
    )
    
    
    (793
    )
    
    
    61Total interest-earning assets
    
    
    1,448
    
    
    
    (1,560
    )
    
    
    (829
    )
    
    
    (941
    )Interest-bearing liabilities:Deposits
    
    
    912
    
    
    
    (2,453
    )
    
    
    (298
    )
    
    
    (1,839
    )Federal funds purchased / securities
sold under repurchase agreements
    
    
    (7
    )
    
    
    (178
    )
    
    
    4
    
    
    
    (181
    )Other borrowings
    
    
    (23
    )
    
    
    24
    
    
    
    (1
    )
    
    
    Total interest-bearing liabilities
    
    
    882
    
    
    
    (2,607
    )
    
    
    (295
    )
    
    
    (2,020
    )Net change in net interest income
    
    $
    566
    
    
    $
    1,047
    
    
    $
    (534
    )
    
    $
    1,079
  34




---



##### Table of Contents



Table 6  Rate/Volume Analysis
 Nine Months EndedSeptember 30, 2009 compared to September 30, 2008Increase (Decrease) due toVolume
    
    
    Rate
    
    
    Combined
    
    
    TotalInterest-earning assets:Loans
    
    
    2,602
    
    
    
    (6,494
    )
    
    
    (363
    )
    
    
    (4,255
    )Investment securities
    
    
    1,643
    
    
    
    (535
    )
    
    
    (88
    )
    
    
    1,020Federal funds sold
    
    
    42
    
    
    
    (319
    )
    
    
    (36
    )
    
    
    (313
    )Interest-bearing deposits in other
banks
    
    
    1,239
    
    
    
    (17
    )
    
    
    (1,150
    )
    
    
    72Total interest-earning assets
    
    
    5,526
    
    
    
    (7,365
    )
    
    
    (1,637
    )
    
    
    (3,476
    )Interest-bearing liabilities:Deposits
    
    
    3,873
    
    
    
    (6,778
    )
    
    
    (1,165
    )
    
    
    (4,070
    )Federal funds purchased / securities
sold under repurchase agreements
    
    
    (152
    )
    
    
    (793
    )
    
    
    105
    
    
    
    (840
    )Other borrowings
    
    
    227
    
    
    
    (346
    )
    
    
    (25
    )
    
    
    (144
    )Total interest-bearing
liabilities
    
    
    3,948
    
    
    
    (7,917
    )
    
    
    (1,085
    )
    
    
    (5,054
    )Net change in net interest income
    
    $
    1,578
    
    
    $
    552
    
    
    $
    (552
    )
    
    $
    1,578
 Provision for Loan Losses
   35




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##### Table of Contents



Noninterest Income
 Table 7  Noninterest Income
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Variance
    
    
    September 30,
    
    
    Variance2009
    
    
    2008
    
    
    Amount
    
    
    %
    
    
    2009
    
    
    2008
    
    
    Amount
    
    
    %(Dollars in thousands)
    
    
    (Dollars in thousands)Service charges and fees
on deposits
    
    $
    1,846
    
    
    $
    1,955
    
    
    $
    (109
    )
    
    
    (5.6
    %)
    
    $
    5,224
    
    
    $
    5,446
    
    
    $
    (222
    )
    
    
    (4.1
    %)Gain on sales of loans
    
    
    1,945
    
    
    
    1,529
    
    
    
    416
    
    
    
    27.2
    %
    
    
    6,643
    
    
    
    4,365
    
    
    
    2,278
    
    
    
    52.2
    %(Loss) gain on sale of fixed assets
    
    
    
    
    
    
    (1
    )
    
    
    1
    
    
    
    100.0
    %
    
    
    (16
    )
    
    
    7
    
    
    
    (23
    )
    
    
    (328.6
    %)Investment securities gains,
net of OTTI
    
    
    25
    
    
    
    21
    
    
    
    4
    
    
    
    19.0
    %
    
    
    718
    
    
    
    88
    
    
    
    630
    
    
    
    715.9
    %Retail investment income
    
    
    326
    
    
    
    277
    
    
    
    49
    
    
    
    17.7
    %
    
    
    854
    
    
    
    841
    
    
    
    13
    
    
    
    1.5
    %Trust services fees
    
    
    268
    
    
    
    288
    
    
    
    (20
    )
    
    
    (6.9
    %)
    
    
    766
    
    
    
    873
    
    
    
    (107
    )
    
    
    (12.3
    %)Increase in cash surrender
value of bank-owned
life insurance
    
    
    256
    
    
    
    190
    
    
    
    66
    
    
    
    34.7
    %
    
    
    649
    
    
    
    548
    
    
    
    101
    
    
    
    18.4
    %Miscellaneous income
    
    
    142
    
    
    
    178
    
    
    
    (36
    )
    
    
    (20.2
    %)
    
    
    428
    
    
    
    652
    
    
    
    (224
    )
    
    
    (34.4
    %)Total noninterest income
    
    $
    4,808
    
    
    $
    4,437
    
    
    $
    371
    
    
    
    8.4
    %
    
    $
    15,266
    
    
    $
    12,820
    
    
    $
    2,446
    
    
    
    19.1
    %
   36




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##### Table of Contents



Noninterest Expense
 Table 8  Noninterest Expense
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Variance
    
    
    September 30,
    
    
    Variance2009
    
    
    2008
    
    
    Amount
    
    
    %
    
    
    2009
    
    
    2008
    
    
    Amount
    
    
    %(Dollars in thousands)
    
    
    
    
    
    
    
    
    
    
    (Dollars in thousands)Salaries and other
personnel expense
    
    $
    5,469
    
    
    $
    5,202
    
    
    $
    267
    
    
    
    5.1
    %
    
    $
    16,927
    
    
    $
    15,755
    
    
    $
    1,172
    
    
    
    7.4
    %Occupancy expenses
    
    
    1,213
    
    
    
    1,122
    
    
    
    91
    
    
    
    8.1
    %
    
    
    3,495
    
    
    
    3,153
    
    
    
    342
    
    
    
    10.8
    %Other operating
expenses
    
    
    3,582
    
    
    
    3,041
    
    
    
    541
    
    
    
    17.8
    %
    
    
    10,484
    
    
    
    8,642
    
    
    
    1,842
    
    
    
    21.3
    %Total noninterest
expense
    
    $
    10,264
    
    
    $
    9,365
    
    
    $
    899
    
    
    
    9.6
    %
    
    $
    30,906
    
    
    $
    27,550
    
    
    $
    3,356
    
    
    
    12.2
    %
 Salaries and other personnel expenses:
  Occupancy expenses:
  Other operating expenses:
  Income Taxes
   37




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##### Table of Contents



Loans
  Table 9  Loan Portfolio Composition
 September 30, 2009
    
    
    December 31, 2008Amount
    
    
    %
    
    
    Amount
    
    
    %(Dollars in thousands)Commercial financial and
agricultural
    
    $
    97,743
    
    
    
    10.15
    %
    
    $
    109,751
    
    
    
    11.12
    %Real estateCommercial
    
    
    311,930
    
    
    
    32.39
    %
    
    
    266,362
    
    
    
    26.49
    %Residential
    
    
    215,546
    
    
    
    22.38
    %
    
    
    212,856
    
    
    
    21.57
    %Construction and
development
    
    
    313,550
    
    
    
    32.56
    %
    
    
    369,731
    
    
    
    37.47
    %Total real estate
    
    
    841,026
    
    
    
    87.33
    %
    
    
    848,949
    
    
    
    86.29
    %Lease financing
    
    
    
    
    
    
    0.00
    %
    
    
    33
    
    
    
    0.00
    %ConsumerDirect
    
    
    21,363
    
    
    
    2.22
    %
    
    
    24,272
    
    
    
    2.46
    %Indirect
    
    
    2,250
    
    
    
    0.23
    %
    
    
    3,319
    
    
    
    0.34
    %Revolving
    
    
    797
    
    
    
    0.08
    %
    
    
    905
    
    
    
    0.09
    %Total consumer
    
    
    24,410
    
    
    
    2.53
    %
    
    
    28,496
    
    
    
    2.89
    %Deferred loan origination
fees
    
    
    (163
    )
    
    
    (0.02
    %)
    
    
    (398
    )
    
    
    (0.03
    %)Total
    
    $
    963,016
    
    
    
    100.00
    %
    
    $
    986,831
    
    
    
    100.00
    %
    38




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##### Table of Contents



September 30, 2009ReservesBalance
    
    
    Original
    
    
    Advanced
    
    
    Remaining(Dollars in thousands)Loan 1
    
    $
    4,246
    
    
    
    138
    
    
    
    138
    
    
    
    Loan 2
    
    
    8,498
    
    
    
    300
    
    
    
    117
    
    
    
    183Loan 3
    
    
    2,546
    
    
    
    255
    
    
    
    255
    
    
    
    Loan 4
    
    
    455
    
    
    
    30
    
    
    
    30
    
    
    
    Loan 5
    
    
    167
    
    
    
    10
    
    
    
    10
    
    
    
    Loan 6
    
    
    1,175
    
    
    
    81
    
    
    
    78
    
    
    
    3
 December 31, 2008ReservesBalance
    
    
    Original
    
    
    Advanced
    
    
    Remaining(Dollars in thousands)Loan 1
    
    $
    1,245
    
    
    
    138
    
    
    
    16
    
    
    
    122Loan 2
    
    
    
    
    
    
    300
    
    
    
    
    
    
    
    300Loan 3
    
    
    2,088
    
    
    
    255
    
    
    
    192
    
    
    
    63Loan 4
    
    
    440
    
    
    
    30
    
    
    
    15
    
    
    
    15Loan 5
    
    
    163
    
    
    
    10
    
    
    
    5
    
    
    
    5Loan 6
    
    
    1,113
    
    
    
    81
    
    
    
    19
    
    
    
    62
   39




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##### Table of Contents



Loan Review and Classification Process
     40




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##### Table of Contents



Nonperforming Assets
     41




---



##### Table of Contents



Table 10  Non-Performing Assets
(Dollars in thousands)
 September 30, 2009
    
    
    December 31, 2008
    
    
    September 30, 2008Nonaccrual loans:Commercial financial and agricultural
    
    $
    602
    
    
    $
    261
    
    
    $
    181Real Estate:Commercial
    
    
    2,299
    
    
    
    3,491
    
    
    
    3,734Residential
    
    
    4,383
    
    
    
    2,815
    
    
    
    3,002Construction and development
    
    
    31,299
    
    
    
    27,908
    
    
    
    30,795Consumer:Direct
    
    
    397
    
    
    
    306
    
    
    
    192Revolving
    
    
    
    
    
    
    
    
    
    
    1Total Nonaccrual loans
    
    
    38,980
    
    
    
    34,781
    
    
    
    37,905Restructured loans (1)
    
    
    1,980
    
    
    
    
    
    
    
    Other real estate owned
    
    
    15,619
    
    
    
    5,734
    
    
    
    377Total Non-performing assets
    
    $
    56,579
    
    
    $
    40,515
    
    
    $
    38,282Loans past due 90 days or more
and still accruing interest
    
    $
    3,168
    
    
    $
    7,298
    
    
    $
    Non-performing assets to total assets
    
    
    3.83
    %
    
    
    2.87
    %
    
    
    2.78
    %Non-performing assets to total loans and OREO
    
    
    5.78
    %
    
    
    4.08
    %
    
    
    3.88
    %Allowance for loan loss to total
non-performing loans
    
    
    43.17
    %
    
    
    42.39
    %
    
    
    35.66
    %
 (1)
    
    One restructured loan was on nonaccrual status as of 09/30/09 and is included in
nonaccrual loans in the table.  Table 11  Other Real Estate Owned
(Dollars in thousands)
 2009
    
    
    2008Beginning balance, January 1
    
    $
    5,734
    
    
    $
    0Additions
    
    
    16,831
    
    
    
    863Sales
    
    
    (6,430
    )
    
    
    (482
    )(Loss) gain on sale of OREO
    
    
    (516
    )
    
    
    (4
    )Ending balance, September 30
    
    $
    15,619
    
    
    $
    377
  42




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##### Table of Contents



Nonaccrual
    
    
    
    
    
    
    
    
    
    
    ($000s)
    
    
    
    
    
    
    AppraisalOriginated
    
    
    Date
    
    
    Trigger

    
    Collateral
    
    Allowance
    
    
    Method
    
    DateADC Loan  Georgia Loan Participation
    
    $
    1,076
    
    
    
    
    
    
    
    04/02/07
    
    
    
    11/06/08
    
    
    delinquency
    
    lots
    
    
    
    
    
    collateral value
    
    
    12/08ADC Loan  Georgia Loan Participation
    
    
    3,277
    
    
    
    
    
    
    
    12/13/06
    
    
    
    02/09/09
    
    
    delinquency
    
    land
    
    
    
    
    
    collateral value
    
    
    04/01/09ADC Loan  Athens, Georgia
    
    
    1,128
    
    
    
    
    
    
    
    07/31/06-10/11/06
    
    
    
    01/28/09
    
    
    delinquency
    
    houses
    
    
    
    
    
    collateral value
    
    
    05/22/09ADC Loan  Georgia Loan Participation
    
    
    1,793
    
    
    
    
    
    
    
    12/06/06
    
    
    
    09/17/08
    
    
    delinquency
    
    lots
    
    
    
    
    
    collateral value
    
    
    12/08ADC Loan  Georgia Loan Participation
    
    
    1,727
    
    
    
    
    
    
    
    04/13/06
    
    
    
    09/17/08
    
    
    delinquency
    
    lots
    
    
    
    
    
    collateral value
    
    In ProcessCRE, 1-4 family lots, Consumer loans 
CSRA
    
    
    1,359
    
    
    
    
    
    
    
    06/17/08-06/01/09
    
    
    
    04/10/09
    
    
    delinquency
    
    various
    
    
    351
    
    
    collateral value
    
    In ProcessADC Loan  Athens, Georgia
    
    
    3,600
    
    
    
    
    
    
    
    03/29/06
    
    
    
    06/11/09
    
    
    delinquency
    
    condominums
    
    
    1,400
    
    
    collateral value
    
    
    06/09ADC Loan  CSRA
    
    
    3,569
    
    
    
    
    
    
    
    08/25/06
    
    
    
    08/17/09
    
    
    delinquency
    
    lots
    
    
    
    
    
    collateral value
    
    
    09/09ADC Loan  Athens, Georgia
    
    
    3,350
    
    
    
    
    
    
    
    01/12/05-07/26/06
    
    
    
    4/08-6/08
    
    
    delinquency
    
    lots & land
    
    
    
    
    
    collateral value
    
    In ProcessADC Loan  Athens, Georgia
    
    
    883
    
    
    
    
    
    
    
    03/26/08
    
    
    
    06/02/08
    
    
    delinquency
    
    lots
    
    
    
    
    
    collateral value
    
    In ProcessADC Loan  Athens, Georgia
    
    
    4,279
    
    
    
    
    
    
    
    08/18/06-01/10/07
    
    
    
    01/28/09
    
    
    delinquency
    
    land & townhomes
    
    
    515
    
    
    collateral value
    
    
    03/01/09$
    26,041Other, net
    
    
    
    
    
    
    12,939Nonaccrual loans at September 30, 2009
    
    
    
    
    
    $
    38,980
  Allowance for Loan Losses
    43




---



##### Table of Contents



44




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##### Table of Contents



Table 12  Acquisition Development and Construction Loans
 September 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)CSRA  primary market areaPeriod-end loans
    
    
    242,171
    
    
    
    266,156FAS 114 Impaired loans
    
    
    4,292
    
    
    
    5,187Classified/watch rated loans
    
    
    27,000
    
    
    
    9,879Charge-offs % (annualized)
    
    
    0.28
    %
    
    
    0.19
    %FAS 114 allowance / Impaired loans
    
    
    0.91
    %
    
    
    0.00
    %FAS 5 Allowance / Loans not impaired %
    
    
    1.13
    %
    
    
    0.67
    %Allowance / Charge-offs
    
    
    4.09
    
    
    
    4.78Savannah, GeorgiaPeriod-end loans
    
    
    20,576
    
    
    
    28,300FAS 114 Impaired loans
    
    
    1,464
    
    
    
    2,645Classified/watch rated loans
    
    
    4,801
    
    
    
    5,060Charge-offs % (annualized)
    
    
    12.16
    %
    
    
    3.18
    %FAS 114 allowance / Impaired loans
    
    
    11.95
    %
    
    
    6.62
    %FAS 5 Allowance / Loans not impaired %
    
    
    5.60
    %
    
    
    4.20
    %Allowance / Charge-offs
    
    
    0.50
    
    
    
    1.39Athens, GeorgiaPeriod-end loans
    
    
    27,514
    
    
    
    31,806FAS 114 Impaired loans
    
    
    13,216
    
    
    
    8,772Classified/watch rated loans
    
    
    2,037
    
    
    
    13,667Charge-offs % (annualized)
    
    
    19.42
    %
    
    
    1.78
    %FAS 114 allowance / Impaired loans
    
    
    14.49
    %
    
    
    12.04
    %FAS 5 Allowance / Loans not impaired %
    
    
    7.54
    %
    
    
    3.97
    %Allowance / Charge-offs
    
    
    0.56
    
    
    
    2.55ADC Participations  GeorgiaPeriod-end loans
    
    
    14,956
    
    
    
    21,676FAS 114 Impaired loans
    
    
    8,456
    
    
    
    10,637Classified/watch rated loans
    
    
    6,500
    
    
    
    48Charge-offs % (annualized)
    
    
    31.17
    %
    
    
    8.88
    %FAS 114 allowance / Impaired loans
    
    
    0.67
    %
    
    
    4.09
    %FAS 5 Allowance / Loans not impaired %
    
    
    3.00
    %
    
    
    9.55
    %Allowance / Charge-offs
    
    
    0.05
    
    
    
    0.77ADC Participations  FloridaPeriod-end loans
    
    
    4,927
    
    
    
    8,005FAS 114 Impaired loans
    
    
    1,034
    
    
    
    3,650Classified/watch rated loans
    
    
    
    
    
    
    704Charge-offs % (annualized)
    
    
    11.20
    %
    
    
    0.19
    %FAS 114 allowance / Impaired loans
    
    
    0.00
    %
    
    
    11.34
    %FAS 5 Allowance / Loans not impaired %
    
    
    3.01
    %
    
    
    4.27
    %Allowance / Charge-offs
    
    
    0.21
    
    
    
    2.00Total ADC Impaired Loans
    
    
    28,462
    
    
    
    30,891Total ADC Classified/Watch Loans
    
    
    40,338
    
    
    
    29,358
  45




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##### Table of Contents



Table 13  Allowance for Loan Losses
 September 30,2009
    
    
    2008(Dollars in thousands)Total loans outstanding at end of period,
net of unearned income
    
    $
    963,016
    
    
    $
    985,239Average loans outstanding, net of
unearned income
    
    $
    967,764
    
    
    $
    937,175Balance of allowance for loan losses at
beginning of year
    
    $
    14,742
    
    
    $
    11,800Charge-offs:Commercial, financial and agricultural
    
    
    640
    
    
    
    586Real estate  acquisition, development
and construction
    
    
    10,299
    
    
    
    2,301Real estate  mortgage
    
    
    1,874
    
    
    
    340Consumer
    
    
    500
    
    
    
    581Total charge-offs
    
    
    13,313
    
    
    
    3,808Recoveries of previous loan losses:Commercial, financial and agricultural
    
    
    317
    
    
    
    276Real estate  acquisition, development
and construction
    
    
    2
    
    
    
    22Real estate  mortgage
    
    
    183
    
    
    
    43Consumer
    
    
    154
    
    
    
    187Total recoveries
    
    
    656
    
    
    
    528Net loan losses
    
    
    12,657
    
    
    
    3,280Provision for loan losses
    
    
    14,741
    
    
    
    4,996Balance of allowance for loan losses at
end of period
    
    $
    16,826
    
    
    $
    13,516Allowance for loan losses to period end
loans
    
    
    1.75
    %
    
    
    1.37
    %Net charge-offs to average loans
    
    
    1.31
    %
    
    
    0.35
    %
  46




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##### Table of Contents



Liquidity and Capital Resources
     47




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##### Table of Contents



Table 14  Regulatory Capital Requirements
September 30, 2009  (Dollars in Thousands)
 Required for capitalActual
    
    
    adequacy purposes
    
    
    ExcessAmount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentSoutheastern Bank Financial
CorporationRisk-based capital:Tier 1 capital
    
    $
    124,288
    
    
    
    11.56
    %
    
    
    43,003
    
    
    
    4.00
    %
    
    
    81,285
    
    
    
    7.56
    %Total capital
    
    
    140,126
    
    
    
    13.03
    %
    
    
    86,005
    
    
    
    8.00
    %
    
    
    54,121
    
    
    
    5.03
    %Tier 1 leverage ratio
    
    
    124,288
    
    
    
    8.46
    %
    
    
    58,771
    
    
    
    4.00
    %
    
    
    65,517
    
    
    
    4.46
    %Georgia Bank & Trust CompanyRisk-based capital:Tier 1 capital
    
    $
    109,276
    
    
    
    11.55
    %
    
    
    37,841
    
    
    
    4.00
    %
    
    
    71,435
    
    
    
    7.55
    %Total capital
    
    
    121,138
    
    
    
    12.81
    %
    
    
    75,682
    
    
    
    8.00
    %
    
    
    45,456
    
    
    
    4.81
    %Tier 1 leverage ratio
    
    
    109,276
    
    
    
    8.31
    %
    
    
    59,142
    
    
    
    4.50
    %
    
    
    50,134
    
    
    
    3.81
    %Southern Bank & TrustRisk-based capital:Tier 1 capital
    
    $
    14,126
    
    
    
    11.14
    %
    
    
    5,070
    
    
    
    4.00
    %
    
    
    9,056
    
    
    
    7.14
    %Total capital
    
    
    15,716
    
    
    
    12.40
    %
    
    
    10,140
    
    
    
    8.00
    %
    
    
    5,576
    
    
    
    4.40
    %Tier 1 leverage ratio
    
    
    14,126
    
    
    
    8.58
    %
    
    
    6,586
    
    
    
    4.00
    %
    
    
    7,540
    
    
    
    4.58
    %
    48




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##### Table of Contents



Commitments and Contractual Obligations
     Table 15  Commitments and Contractual Obligations  ($ in thousands)
 Less than
    
    
    1  3
    
    
    3  5
    
    
    More than1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsLines of credit
    
    $
    193,877
    
    
    
    
    
    
    
    
    
    
    
    Lease agreements
    
    
    362
    
    
    
    506
    
    
    
    88
    
    
    
    70Deposits
    
    
    1,120,753
    
    
    
    130,749
    
    
    
    6,693
    
    
    
    553Securities sold under
repurchase agreements
    
    
    860
    
    
    
    
    
    
    
    
    
    
    
    FHLB advances
    
    
    10,000
    
    
    
    15,000
    
    
    
    13,000
    
    
    
    39,000Other borrowings
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    Total commitments and
contractual obligations
    
    $
    1,326,452
    
    
    $
    146,255
    
    
    $
    19,781
    
    
    $
    39,623
 
  49




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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
   50




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##### Table of Contents



Part II
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Oversupply of assets and declining real estate values in our markets has led, and
may continue to lead, to a reduction of asset values resulting in significant
write-downs that negatively affect our capital.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Issuer Purchases of Equity Securities
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##### Table of Contents



Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 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.
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##### Table of Contents



SOUTHEASTERN BANK FINANCIAL CORPORATIONDate: October 30, 2009
    
    By:
    
    /s/ Darrell R. RainsDarrell R. RainsGroup Vice President, Chief
Financial Officer(Duly Authorized
Officer of Registrant and Principal
Financial Officer)
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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description31.1
    
    
    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.
  54