UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC  20549





FORM
10-K





ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)


OF
THE SECURITIES EXCHANGE ACT OF 1934





For
the fiscal year ended December 31, 2007





The
      Savannah Bancorp, Inc.(Exact
      name of registrant as specified in its
charter)





Georgia
            0-18560
            58-1861820State
      of Incorporation
            SEC
      File Number
            Tax
      I.D. Number





25
      Bull Street, Savannah, GA    31401(Address
      of principal executive offices)  (Zip
  Code)





912-629-6486(Registrant's
      telephone number, including area
code)





Securities
registered pursuant to Section 12(b) of the Act:


Common,
      $1.00 Par Value
            NASDAQ Global
      MarketSecurities
      registered pursuant to Section 12(g) of the Act:
  None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes __ No
X


Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.


Yes __ No
X





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.


Yes X No_





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [
]





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):


Large
      accelerated filer __
            Accelerated
      filer X
            Non-accelerated
      filer __





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act) Yes __ NoX





The
aggregate market value of the voting and non-voting common equity at June 30,
2007 held by non-affiliates, based on the price of the last trade of $25.10 per
share times 4,638,024 non-affiliated shares, was $116,414,402.





APPLICABLE
ONLY TO CORPORATE REGISTRANTS


As of
February 29, 2008, the registrant had outstanding 5,929,440 shares of
common stock.




- 1
-




Portions
of the 2007 Annual Report to Shareholders of Registrant are incorporated in
Parts I, II and IV of this report. Portions of the Proxy Statement of Registrant
dated March 24, 2008 are incorporated in Part III of this
report.





REGISTRANT'S
DOCUMENTS INCORPORATED BY REFERENCE





Document Incorporated
      by Reference
            Part Number and Item Number of
      Form 10-K Into
      Which IncorporatedPages F-28
      and F-29
              of
      Registrant's 2007 Annual Report to Shareholders
            Part
      II, Item 5, Market
              for
      Registrant's Common Equity
              and
      Related Shareholder MattersPages
      F-26-28, F-36, F-40-42
              of
      Registrant's 2007 Annual Report to Shareholders
            Part
      II, Item 6,
              Selected Financial
      DataPages
      F-26 through F-42
              of
      Registrant's 2007 Annual Report to Shareholders
            Part
      II, Item 7, Management's Discussion and
              Analysis
      of Financial Condition and Results
      of OperationsPages
      F-37, F-38 and F-40
              of
      Registrant's 2007 Annual Report to Shareholders
            Part
      II, Item 7A, Quantitative and Qualitative Disclosures about Market
      RiskPages
      F-4 through F-25
              of
      Registrant's 2007 Annual Report to Shareholders
            Part
      II, Item 8,
              Financial
      Statements and Supplementary DataPages 4
      through 15 of Registrant's Proxy Statement in
              connection
      with its Annual Shareholders' Meeting to be held April 24, 2008
      (“2008 Proxy Statement”)
            Part
      III, Item 10,
              Directors
      and Executive OfficersPage
      12 and pages 15 through 21 of Registrant's 2008 Proxy
      Statement
            Part
      III, Item 11,
              Executive
      CompensationPages
      4 through 8 and page 21
              of
      Registrant's 2008 Proxy Statement
            Part
      III, Item 12,
              Security
      Ownership of Certain Beneficial Owners and Management and
      Related Shareholder MattersPage
      22 of Registrant's 2008 Proxy Statement
            Part
      III, Item 13,
              Certain
      Relationships and Related TransactionsPages 22
      and 23 of Registrant’s 2008 Proxy Statement
            Part
      III, Item 14,
              Principal Accountant
      Fees and ServicesPages
      F-2 through F-25
              of
      Registrant's 2007 Annual Report to Shareholders
            Part
      IV, Item 15,
              Exhibits
      and Financial Statement Schedules







- 2
-


THE
SAVANNAH BANCORP, INC.


2007
ANNUAL REPORT ON FORM 10-K


TABLE
OF CONTENTS





PART
      I
            PageItem
      1. Business
            5Item
      1A. Risk Factors
            17Item
      1B. Unresolved Staff Comments
            24Item
      2. Properties
            24Item
      3. Legal Proceedings
            25Item
      4. Submission of Matters to a Vote of Security Holders
            25PART
      IIItem
      5. Market for Registrant's Common Equity and Related Shareholder
      Matters
            26Item
      6. Selected Financial Data
            26Item
      7. Management's Discussion and Analysis of Financial
    Conditionand
      Results of Operations
            26Item
      7A. Quantitative and Qualitative Disclosures about Market
    Risk
            26Item
      8. Financial Statements and Supplementary Data
            27Item
      9. Changes in and Disagreements with Accountants on
    Accountingand
      Financial Disclosure
            27Item
      9A. Controls and Procedures
            27Item
      9B. Other Information
            29PART
      IIIItem
      10. Directors, Executive Officers and Corporate Governance
            29Item
      11. Executive Compensation
            29Item
      12. Security Ownership of Certain Beneficial Owners and
      Managementand
      Related Shareholder Matters
            29Item
      13. Certain Relationships and Related Transactions
            29Item
      14. Principal Accountant Fees and Services
            29PART
      IVItem
      15. Exhibits and Financial Statement Schedules
            30Signature
      Page
            32






SAVB 2007 Form
10-K
 -
3 -


PART
I





The
Savannah Bancorp, Inc. (the “Company”) may, from time to time, make written or
oral forward-looking statements (as defined in the Private Securities Litigation
Reform Act of 1995), including statements contained in the Company’s filings
with the United States Securities and Exchange Commission (“SEC” or
“Commission”) (including this Annual Report on Form 10-K and the exhibits
thereto), in its reports to shareholders and in other communications by the
Company.  These forward-looking statements may include, among others,
statements about our beliefs, plans, objectives, goals, expectations, estimates
and intentions that are subject to significant risks and uncertainties and which
may change based on various factors, many of which are beyond our
control.  The words "may," "could," "should," "would," "believe,"
"anticipate," "estimate," "expect," "intend," "plan" and similar expressions are
intended to identify forward-looking statements.  The following
factors, among others, could cause our financial performance to differ
materially from what is contemplated in those forward-looking
statements:





Ø
            The
      strength of the United States economy in general and the strength of the
      local economies in which the Company conducts
  operations;


Ø
            The
      effects of and changes in trade, monetary and fiscal policies and laws,
      including interest rate policies of the Board of Governors of the Federal
      Reserve System;


Ø
            Inflation,
      interest rate, market and monetary
fluctuations;


Ø
            Adverse
      conditions in the stock market and other capital markets and the impact of
      those conditions on our capital markets and capital management activities,
      including our investment and wealth management advisory
      businesses;


Ø
            Changes
      in the cost and availability of funding due to changes in the deposit
      market and credit market, or the way in which the Company is perceived in
      such markets;


Ø
            The
      effects of harsh weather conditions, including
  hurricanes;


Ø
            Changes
      in United States foreign or military
policy;


Ø
            The
      timely development of competitive new products and services by the Company
      and the acceptance of those products and services by new existing
      customers;


Ø
            The
      willingness of customers to accept third-party products marketed by
      us;


Ø
            The
      willingness of customers to substitute competitors’ products and services
      for the Company’s products and services and vice
  versa;


Ø
            The
      impact of changes in financial services’ laws and regulations (including
      laws concerning taxes, banking, securities and
  insurance);


Ø
            Technological
      changes;


Ø
            Changes
      in consumer spending and saving
habits;


Ø
            The
      effect of corporate restructuring, acquisitions or dispositions, including
      the actual restructuring and other related charges and the failure to
      achieve the expected gains, revenue growth or expense savings from such
      corporate restructuring, acquisitions or
  dispositions;


Ø
            The
      growth and profitability of our noninterest or fee income being less than
      expected;


Ø
            Unanticipated
      regulatory or judicial proceedings;


Ø
            The
      impact of changes in accounting policies by the SEC or the Financial
      Accounting Standards Board;


Ø
            The
      limited trading activity of our common
stock;


Ø
            The
      effects of our lack of a diversified loan portfolio, including the risks
      of geographic concentrations;


Ø
            Adverse
      changes in the financial performance and/or condition of our borrowers,
      which could impact the repayment of those borrowers' outstanding loans;
      and


Ø
            The
      success of the Company at managing the risks involved in the
      foregoing.





The
Company cautions that the foregoing list of important factors is not
exclusive.  The Company does not undertake to update any
forward-looking statement, whether written or oral, that may be made from time
to time by or on our behalf except as may be required by our disclosure
obligations in filings we make with the SEC under federal securities
laws.




SAVB 2007 Form
10-K
 - 4
-


Item
1. Business





(a)           General
Development of Business





The
Company was incorporated as a Georgia business corporation on October 5, 1989,
for the purpose of becoming a bank holding company.  The Company
became a bank holding company within the meaning of the Federal Bank Holding
Company Act and the Georgia Bank Holding Company Act upon the acquisition of 100
percent of the common stock of The Savannah Bank, National Association
("Savannah") on August 22, 1990.





In
February 1998, the Company entered into a plan of merger to exchange shares of
its stock for shares of Bryan Bancorp of Georgia, Inc. (“Bryan”), the bank
holding company for Bryan Bank & Trust (“Bryan Bank”).  The
transaction was valued at approximately $24 million.  The merger,
which was accounted for as a pooling of interests, was a tax-free reorganization
for federal income tax purposes.  The merger was consummated on
December 15, 1998.  Bryan was merged into the Company and Bryan Bank
became a wholly-owned subsidiary of the Company on the merger date.





On
February 6, 2006, the Company invested $10 million cash, a portion of the net
proceeds from an August 2005 private placement stock offering, in 100 percent of
the common stock of Harbourside Community Bank (“Harbourside”), a newly-formed
federal stock savings bank, located on Hilton Head Island, South
Carolina.  In addition to full-service banking, Harbourside conducts
mortgage banking activities including mortgage loan origination, sales and
servicing.  The plans for forming Harbourside began in October 2003
when Savannah opened a mortgage loan production office on Hilton Head
Island.





The
Company acquired all of the net assets of Minis & Co., Inc. (“Minis”) as of
August 31, 2007.  The net assets of Minis were incorporated into a
new, wholly-owned subsidiary of the Company which will continue to operate under
the name of Minis & Co., Inc.  The acquisition was accounted for
using the purchase method of accounting, and accordingly, the results of Minis’
operations have been included in the consolidated financial statements beginning
September 1, 2007.  Minis is a registered investment advisor based in
Savannah, Georgia, offering a full line of investment management
services.  Minis’ assets under management at September 1, 2007
were approximately $500 million.





Savannah,
Bryan Bank, Harbourside and Minis are the four operating subsidiaries of the
Company.  The three bank subsidiaries, collectively, are referred to
as the “Subsidiary Banks” or “Banks”.  Savannah received its charter
from the Office of the Comptroller of the Currency (“OCC”) to commence business
and opened for business on August 22, 1990.  Bryan Bank received its
charter from the Georgia Department of Banking and Finance (“GDBF”) in December
1989.  Harbourside received its charter from the Office of Thrift
Supervision (“OTS”) on February 6, 2006 and commenced public business on March
1, 2006.  The deposits at the Subsidiary Banks are insured by the
Federal Deposit Insurance Corporation ("FDIC").





As of
December 31, 2007, Savannah had six full service offices, total assets of
$624 million, total loans of $543 million, total deposits of $517 million, total
shareholders’ equity of $51.3 million and $6.6 million in 2007 net
income.  As of December 31, 2007, Bryan Bank had one full service
office, total assets of $211 million, total loans of $187 million, total
deposits of $172 million, total shareholders’ equity of $18.7 million and net
income of $3.8 million for the year then ended.  Harbourside had two
full service offices, total assets of $89.5 million, total loans of $78.6
million, total deposits of $76.4 million, total shareholders’ equity of $8.7
million and a net loss of $2.0 million for 2007.





In
September 2005, the Company formed SAVB Properties, LLC for the primary purpose
of owning a 50 percent interest in two real estate
partnerships.  Johnson Square Associates, a Georgia general
partnership, owns a seven-story, 35,000 square foot building at 25 Bull Street
on Johnson Square in downtown Savannah.  The Company currently leases
approximately 25 percent of this space for its corporate headquarters and the
main office of Savannah.  Whitaker Street Associates, a Georgia
Limited Partnership, owned the 80’ x 200’ parking lot directly across Whitaker
Street from 25 Bull Street.  Under an agreement with the City of
Savannah, the parking lot is currently being re-developed as part of a 3 acre,
1100 space underground parking garage.  Upon completion of the garage
construction, the partnership’s surface parking lot will be restored and will
include the structural foundation adequate to support a 6-story building, the
maximum height allowed on this property by city ordinances.  This lot
will adjoin Ellis Square, one of Savannah’s original squares, which is being
restored by the City of Savannah.




SAVB 2007 Form
10-K
 - 5
-





(b)           Information
about Industry Segments





In June
1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (“SFAS”) No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (“SFAS 131”).  SFAS 131 requires
disclosure of financial and descriptive information about an enterprise’s
operating segments in annual and interim financial reports issued to
shareholders.  It defines an operating segment as a component of an
enterprise which engages in business activities that generate revenues and incur
expenses, whose operating results are reviewed by the chief operating decision
makers in the determination of resource allocation and performance, and for
which discrete financial information is available.  The Company has no
segments or any subsidiaries that meet the criteria for segment
reporting.





(c)           Narrative
Description of Business





General





The
Company is authorized to engage in any corporate activity permitted by law,
subject to applicable federal regulatory restrictions on the activities of bank
holding companies.  The Company was formed for the primary purpose of
becoming a holding company to own 100 percent of the stock of the Subsidiary
Banks.  The holding company structure provides the Company with
greater flexibility than a bank would otherwise have to expand and diversify its
business activities through newly formed subsidiaries or through
acquisitions.





Banking
Services





The
Company has approximately 208 full time equivalent employees as of December 31,
2007.  The Subsidiary Banks offer a full range of deposit services,
including checking accounts, savings accounts and various time deposits ranging
from daily money market accounts to long-term certificates of
deposit.  The transaction accounts and time deposits are tailored to
the principal market areas at rates competitive with those offered in the
area.  In addition, retirement accounts such as Individual Retirement
Accounts and Simplified Employee Pension accounts are offered.  The
FDIC insures all deposit accounts up to the maximum amount (currently $100,000
per non-retirement account or $250,000 for certain retirement
accounts).  The Subsidiary Banks solicit these accounts from
individuals, businesses, foundations, organizations, and governmental
authorities.





The
Subsidiary Banks offer a full range of short-term and medium-term commercial,
real estate, residential mortgage and personal loans.  The Subsidiary
Banks’ primary lending focus is business, real estate and consumer
lending.  Commercial loans include both secured loans and a limited
volume of unsecured loans.  Consumer loans include secured loans for
financing automobiles, home improvements, real estate and other personal
investments.  Unsecured consumer loans are limited and generally made
to the most creditworthy borrowers. The Subsidiary Banks originate fixed and
variable rate mortgage loans and offer real estate construction and acquisition
loans.





The
Subsidiary Banks' lending policies provide each lending officer with written
guidance for lending activities as approved by the Banks’ Board of Directors
(“Board”).  Real estate loan-to-value guidelines generally conform to
regulatory loan-to-value limits.  Additionally, the existence of
reliable sources of repayment/cash flow are usually required before making any
loan, regardless of the collateral.  Appraisals are obtained as
required.  Lending officers or contract inspectors make on-site
inspections on construction loans.  Lending authority is delegated to
each lending officer by the Credit Committee of each Subsidiary Banks’
Board.  Loans in excess of the individual officer limits must be
approved by a senior officer with sufficient approval authority delegated by
these committees.  Loans to borrowers whose aggregate combined
companywide exposure exceeds $2,500,000 at Savannah, $1,300,000 at Harbourside
and $1,000,000 at Bryan Bank require the approval of the Subsidiary Bank’s
Credit Committee.





Management
and the directors are aware that environmental liabilities may negatively impact
the financial condition of borrowers, the value of real property and the
contingent environmental clean-up liabilities the Subsidiary Banks could incur
by having a lien on environmentally deficient property.  The
Subsidiary Banks generally decline to make loans secured by property with
environmental deficiencies.  Environmental surveys are required when
there is reason for concern about potential environmental
liabilities.




SAVB 2007 Form
10-K
 - 6
-





Savannah
and Bryan Bank operate residential mortgage loan origination
departments.  The departments take mortgage loan applications, obtain
rate commitments and complete various origination documentation and follow-up
for an origination and service release fee from third-party mortgage
bankers.  In addition to generating fee income, the departments also
generate banking relationships from its customers and real estate-related
contacts.  These loans are funded by other mortgage investors and have
not been warehoused on Savannah or Bryan Bank’s books.





Harbourside’s
activities in the mortgage banking area include originating, processing,
underwriting, closing, warehousing and selling mortgage loans.  Since
2006, they have largely discontinued the sale of loans on a servicing retained
basis, although they continue to service the loans originated prior to the
change.  Variations in mortgage origination volume, the value of loans
held for sale, the initial valuation of servicing assets and the ongoing
valuation of servicing assets for impairment result in the potential for both
positive and negative earnings volatility.





Credit
Risk Management and Allowance for Loan Losses





The
Subsidiary Banks have a comprehensive program designed to control and
continually monitor the credit risks inherent in the loan
portfolios.  This program includes a structured loan approval process
in which the Board delegates authority for various types and amounts of loans to
loan officers on a basis commensurate with seniority and lending
experience.  There are four risk grades of "criticized" assets:
Special Mention, Substandard, Doubtful and Loss.  Assets designated as
substandard, doubtful or loss are considered "classified".  The
classification of assets is subject to regulatory review and
reclassification.  The Subsidiary Banks include aggregate totals of
criticized assets, and general and specific valuation reserves in quarterly
reports to the Board, which approves the overall allowance for loan losses
evaluation.





The
Subsidiary Banks use a risk rating system which is consistent with the
regulatory risk rating system.  This system applies to all assets of
an insured institution and requires each institution to periodically evaluate
the risk rating assigned to its assets.  The Subsidiary Banks' loan
risk rating systems utilize both the account officer and an independent loan
review function to monitor the risk rating of loans.  Each loan
officer is charged with the responsibility of monitoring changes in loan quality
within his or her loan portfolio and reporting changes directly to loan review
and senior management.  The internal credit administration function
monitors loans on a continuing basis for both documentation and credit related
exceptions.  Additionally, the Subsidiary Banks have contracted with
an external loan review service which performs a review of the Subsidiary Banks'
loans to determine that the appropriate risk grade has been assigned to each
borrowing relationship and to evaluate other credit quality, documentation and
compliance factors.  Delinquencies are monitored on all loans as a
basis for potential credit quality deterioration.  Commercial and
mortgage loans that are delinquent 90 days (four payments) or longer generally
are placed on nonaccrual status unless the credit is well-secured and in process
of collection.  Revolving credit loans and other personal loans are
typically charged-off when payments are 120 days past due.  Loans are
placed on nonaccrual status or charged-off at an earlier date if collection of
principal or interest in full becomes doubtful.  Real estate
acquired through foreclosure is classified as substandard unless there is
sufficient evidence to indicate such classification is not
warranted.





The
allowance for loan losses is evaluated as described in the Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”) section of the 2007 Annual Report to Shareholders (“2007 Annual
Report”) on pages F-31 through F-33.





Other
Banking Services





Savannah
was granted trust powers by the OCC in 1996.  The Trust Department of
Savannah contracts with Marshall & Ilsley Trust Company for trust data
processing, securities safekeeping and certain other operational functions. This
system provides clients and their advisors access to trust account information
via the Internet.  Employee benefit administration and certain money
management functions are outsourced to third parties.  Using these
resources, the Trust Department offers a full array of trust services, including
investment management, personal trusts, custodial accounts, estate
administration and retirement plan asset management.





Originally
founded in 1932, Minis is a registered investment advisory firm based in
Savannah, Georgia.  Minis provides fee-only investment services to
individuals, families, employee benefit plans, non-profit organizations and
other entities.




SAVB 2007 Form
10-K
 - 7
-





The
Subsidiary Banks offer cash management services, Internet banking, electronic
bill payment, non-cash deposit courier service, safe deposit boxes, travelers
checks, direct deposit of payroll, U.S. Savings bonds, official bank checks,
money orders and automatic drafts for various accounts.  The
Subsidiary Banks have ten automated teller machines and are members of the
STAR network of
automated teller machines.  The Subsidiary Banks issue ATM and debit
cards.  They also offer VISA and MasterCard credit cards as an agent
for a correspondent bank.





Location
and Service Area





The
Subsidiary Banks’ primary service areas include the city of Savannah and
surrounding Chatham County, the city of Richmond Hill (which is 20 miles
southwest of downtown Savannah) and surrounding Bryan County and Hilton Head
Island, Bluffton and southern Beaufort County in South
Carolina.  Their secondary service areas include Effingham and Liberty
Counties, Georgia and Jasper County, South Carolina.  The Subsidiary
Banks’ target customers are individuals and small to medium-sized businesses,
including wholesale, retail and professional service businesses in the
community.  The Subsidiary Banks also target individuals who meet
certain net worth and income requirements as potential customers for private
banking services.





Savannah's
main office, known as the Johnson Square Office, opened in August 1990 and is
located in the primary financial district in downtown Savannah, where most of
the commercial banks in the primary service area have their main Savannah
offices.  In recent years, regional banks with headquarters outside of
the state of Georgia have acquired several of the banks in the primary service
area.  Savannah emphasizes that it is based in Savannah and that its
directors and officers are committed to the economic development of the Savannah
area.





Bryan
Bank’s main office opened in December 1989 and is located in the primary
commercial area of the city of Richmond Hill.  Several other community
bank branch offices and one grocery store branch office are located in Richmond
Hill.





In
October 1992, Savannah opened its second office at 400 Mall
Boulevard.  The Mall Boulevard Office is located in the primary
commercial and retail district in Savannah which includes a high concentration
of professional and service-related businesses.





In
November 1995, Savannah opened its third office, the West Chatham Office, at 100
Chatham Parkway.  West Chatham is a full service office located six
miles west of the main office in a commercial and industrial growth area of
Chatham County.





In
October 1997, the fourth office at 4741 Highway 80 East on Whitemarsh Island,
six miles east of the main office, opened for business.  Deposits,
mortgage loans and consumer loans are the primary opportunities for this
location which serves a large concentration of higher net worth
individuals.





In
October 1998, Savannah opened its fifth location in the Medical Arts Shopping
Center.  This office is strategically located near two major hospitals
and numerous medical, dental and professional practices.  This
location is approximately four miles southeast of the main office.





In May
2002, the Company opened an operations center in 5,000 square feet of office
space at 450 Mall Boulevard, adjacent to Savannah’s existing branch office at
400 Mall Boulevard.  The imaged item processing, statement rendering,
information technology, deposit operations and branch operations support
functions are located at this center.  These functions work closely
together and their relocation from different offices to one location provides an
opportunity for significant service enhancements, efficiencies and
synergies.





In
October 2003, Savannah opened a mortgage loan production office on Hilton Head
Island, South Carolina which operated as Harbourside Mortgage Company, a
division of Savannah, through February 28, 2006.  On March 1, 2006,
the separately chartered Harbourside opened for business in its new main
office building at 852 William Hilton Parkway, the primary traffic artery on
Hilton Head Island.





In
September 2006, Savannah opened its sixth office in The Village on Skidaway
Island adjacent to the Landings community in Savannah.  This office
location services the higher income individuals and higher net worth retiree
island communities nearby.




SAVB 2007 Form
10-K
 - 8
-





In
December 2007, Harbourside opened its second office in Bluffton, South Carolina
on Bluffton Parkway.  This is a rapidly growing area with a
concentration of residential homes and small businesses.





The
Subsidiary Banks' business plans rely principally upon local advertising and
promotional activity and upon personal contacts by their directors and officers
to attract business and to acquaint potential customers with their personalized
services.  The Subsidiary Banks emphasize a high degree of
personalized customer service.  Advertising and marketing emphasize
the advantages of dealing with an independent, locally-owned,
relationship-oriented bank to meet the particular needs of individuals,
professionals and small to medium-size businesses in the community.





Liquidity
and Interest Rate Sensitivity Management





Quantitative
disclosures regarding the Company’s liquidity management are included on pages
F-36 to F-38 in the 2007 Annual Report.





Interest
Rate Risk





Quantitative
discussion of the Company’s interest rate risk is included on pages F-37 and
F-38 in the 2007 Annual Report.





Federal
and State Laws and Regulation of Banks and Bank Holding Companies





Bank
holding companies and commercial and federal savings banks are extensively
regulated under both federal and state law.  These laws and
regulations delineate the nature and extent of the activities in which
commercial and federal savings banks may engage.  In particular,
federal savings banks are limited in the amount of commercial, non-residential
real property loans and consumer loans they can hold in their
portfolio.  To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory
provisions.  Change in applicable laws or regulations may have a
material effect on the business of the Company and its
subsidiaries.





Savannah
is subject to extensive supervision and regulation by the OCC, Bryan Bank is
subject to extensive supervision by the GBDF and the FDIC and Harbourside is
subject to extensive supervision by the OTS.  The regulators are
responsible for overseeing the affairs of the Subsidiary Banks and periodically
examining the Banks to determine their compliance with laws and
regulations.  The Subsidiary Banks must make quarterly reports of
financial condition and results of operations to the regulators.  This
quarterly financial information is made available to the public approximately 45
days after each quarter-end.  Regulators use this data for quarterly
offsite monitoring of the financial condition of the Banks.  Quarterly
holding company reports are filed with the Federal Reserve Bank of Atlanta
(“FRB”) within 40 days of each quarter-end.  This financial
information is reviewed by the FRB for accuracy, consistency and reasonableness
and is also made available to holding company database providers within 75 days
of the end of each quarter.  Bank analysts, regulators and consultants
regularly use this information in analyzing historical and expected performance
of banks and bank holding companies.





The
regulators have authority to issue cease and desist orders against banks and
bank holding companies which are about to engage, are engaging or have engaged
in unsafe or unsound practices in the conduct of their business.  The
regulators can order affirmative action to correct any harm resulting from a
violation or practice, including, but not limited to, making restitution and
providing reimbursement or guarantees against loss in certain
cases.  Regulators also administer several federal statutes, such as
the Community Reinvestment Act of 1977 (“CRA”) and the Depository Institution
Management Interlocks Act, which apply to banks.  The Subsidiary Banks
are subject to special examination by the FDIC and to certain FDIC
regulations.





Regulators
have adopted risk-based capital requirements that specify the minimum level for
which no prompt corrective action is required.  In addition, the FDIC
adopts FDIC insurance assessment rates based on certain risk-based and equity
capital ratios.  The regulators have authority to establish higher
capital requirements if they determine that the circumstances of a particular
institution require it and to take certain supervisory actions against
undercapitalized institutions, the severity of which depends upon the
institution’s degree of undercapitalization.  The table in Note 13 to the
Consolidated Financial Statements in the 2007 Annual Report shows the capital
ratios for the Company and Subsidiary Banks and the regulatory minimum capital
ratios at December 31, 2007.  The capital ratios




SAVB 2007 Form
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of the
Company and each Subsidiary Bank exceeded the ratios required to be considered
"well-capitalized" by the FDIC.





OTS
regulations require institutions to meet a qualified thrift lender test.
 Under the test, such an institution is required to either qualify as a
"domestic building and loan association" under the Internal Revenue Code or
maintain at least 65% of its "portfolio assets" (total assets less: (i)
specified liquid assets up to 20% of total assets; (ii) intangibles, including
goodwill; and (iii) the value of property used to conduct business) in certain
"qualified thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed securities) in at least 9 months
out of each 12 month period.  An institution that fails the qualified
thrift lender test is subject to certain operating restrictions and may be
required to convert to a bank charter.  Harbourside passed the test in
each of the four quarters of 2007 and will continue to calculate the ratio at
least quarterly.





The
Subsidiary Banks are subject to applicable provisions of the Federal Reserve Act
(“Act”) which restrict the ability of any bank to extend credit to its parent
holding company.  Additionally, a national banking association cannot
extend credit to any affiliate (including its parent and non-bank subsidiaries
of its parent); issue a guarantee, acceptance or letter of credit (including an
endorsement or standby letter of credit) on behalf of its affiliates; invest in
the stock or securities of affiliates or, under certain circumstances, take such
stock or securities as collateral for loans to any borrower.





Shareholders
of banks (including bank holding companies which own stock in banks, such as the
Company) may be compelled by bank regulatory authorities to invest additional
capital in the event their bank's capital becomes impaired by losses or
otherwise.  Failure to pay such an assessment could cause a forced
sale of the holder's bank stock.  In addition, the Company may also be
required to provide additional capital to any banks that it acquires as a
condition to obtaining the approvals and consents of regulatory authorities in
connection with such acquisitions.





The
earnings of the Subsidiary Banks and, consequently, of the Company, are affected
significantly by the policies of the Board of Governors of the Federal Reserve
System (the “Fed”), which regulates the money supply in order to mitigate
recessionary and inflationary pressures.  Among the techniques used to
implement these objectives are open market operations in United States
Government securities, changes in the rate paid by banks on bank borrowings, and
changes in reserve requirements against bank deposits.  These
techniques are used in varying combinations to influence overall growth and
distribution of bank loans, investments and deposits, and their use may also
affect interest rates charged on loans or paid for deposits.  The
monetary policies of the Fed have had a significant effect on the operating
results of banks in the past and are expected to continue to do so in the
future.





The
Company, as a bank holding company, is required to register as such with the Fed
and the GDBF.  It is required to file with both of these agencies
quarterly and annual reports and other information regarding its business
operations and those of its subsidiaries.  It is also subject to
examination by these two agencies and will be required to obtain their approval
before acquiring, directly or indirectly, ownership or control of any voting
shares of a bank or bank subsidiary of a bank holding company if, after such
acquisition, it would own or control, directly or indirectly, more than five
percent of the voting stock of such bank or banking subsidiary of a bank holding
company.  Furthermore, a bank holding company is prohibited from
acquiring direct or indirect ownership or control of any voting stock of any
company which is not a bank or bank holding company, with limited
exceptions.  It must engage only in the business of banking, managing
or controlling banks or furnishing services to or performing services for its
subsidiary banks.  During 1996, the Fed enacted regulations that are
slightly less restrictive regarding the types of businesses which bank holding
companies may own.





Banking
organizations are prohibited under the Act from participating in new financial
affiliations unless their depository institution subsidiaries are
well-capitalized and well-managed.  Regulators are required to address
any failure to maintain safety and soundness standards in a prompt
manner.  In addition, regulators must prohibit holding companies from
participating in new financial affiliations if, at the time of certification,
any insured depository affiliate had received a less than "satisfactory'' CRA
rating at its most recent examination.





Affiliation Authority-The Gramm-Leach-Bliley Act
of 1999 (“GLB”) amended section 4 of the Act to provide a framework for engaging
in new financial activities.  Those bank holding companies ("BHCs")
that qualify to engage in the new financial activities are designated as
Financial Holding Companies (“FHCs”).  Provisions of GLB permit BHCs
that qualify as FHCs to engage in activities, and acquire companies engaged in
activities, that are financial in nature or incidental to such financial
activities.  FHCs are also permitted to engage in activities that
are




SAVB 2007 Form
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"complementary"
to financial activities if the Fed determines that the activity does not pose a
substantial risk to the safety or soundness of the institution or the financial
system in general.





The Fed
may act by either regulation or order in determining what activities are
financial in nature, incidental to financial in nature, or
complementary.  In doing so, the Fed must notify the Treasury
Department (“Treasury”) of requests to engage in new financial activities and
may not determine that an activity is financial or incidental to a financial
activity if Treasury objects.  Furthermore, Treasury may propose that
the Fed find a particular activity financial in nature or incidental to a
financial activity.  GLB establishes a similar procedure with regard
to the Treasury's (acting through the OCC) determination of financial activities
and activities that are incidental to financial activities for subsidiaries of
national banks.  Congress intended for the Fed and Treasury to
establish a consultative process that would negate the need for either agency to
veto a proposal of the other agency.





Federal Home Loan Bank Reform -GLB reformed the Federal Home Loan Bank (“FHLB”) System, including
expanding the collateral that a community bank can pledge against FHLB advances,
thus giving smaller banks access to a substantial new liquidity
source.





Privacy -GLB imposed a
number of new restrictions on the ability of financial institutions to share
nonpublic personal information with nonaffiliated third
parties.  Specifically, the GLB:





·
            requires
      financial institutions to establish privacy policies and disclose them
      annually to all customers, setting forth how the institutions share
      nonpublic personal financial information with affiliates and third
      parties;


·
            directs
      regulators to establish regulatory standards that ensure the security and
      confidentiality of customer
information;


·
            permits
      customers to prohibit ("opt out" of permitting) such institutions from
      disclosing personal financial information to nonaffiliated third
      parties;


·
            prohibits
      transfer of credit card or other account numbers to third-party
      marketers;


·
            prohibits
      pretext calling (that is, makes it illegal for information brokers to call
      banks to obtain customer information with the intent to defraud the bank
      or customer);


·
            protects
      stronger state privacy laws, as well as those not "inconsistent" with the
      federal rules;


·
            requires
      the Treasury and other federal regulators to study the appropriateness of
      sharing information with affiliates, including considering both negative
      and positive aspects of such sharing for
  consumers.





GLB also
imposes an affirmative obligation on banks to respect their customers' privacy
interests.  Language protects a community bank's ability to share
information with third parties selling financial products (for example,
insurance or securities) to bank customers.  Community banks can thus
continue such sales practices without being subject to the opt-out provisions
contained elsewhere in the legislation.





The
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
“Riegle-Neal Act”) has introduced a process that enables nationwide interstate
banking through bank subsidiaries and interstate bank
mergers.  Separately, the Riegle-Neal Act also permits bank
subsidiaries to act as agents for each other across state
lines.  Since September 29, 1995, adequately capitalized and managed
bank holding companies have been permitted to acquire control of a bank in any
state.  Acquisitions are subject to concentration
limits.  Beginning June 1, 1997, banks were permitted to merge with
one another across state lines.  The Interstate Banking Act also
permits de novo branching to the extent that a particular state "opts into" the
de novo branching provisions.  The legislation preserves the state
laws which require that a bank must be in existence for a minimum period of time
before being acquired as long as the requirement is five years or
less.  This legislation has relevance for the banking industry due to
increased competitive forces from institutions which may consolidate through
mergers and those which may move into new markets through enhanced opportunities
to branch across state lines.  Georgia and South Carolina do not have
reciprocal provisions for de novo branches or charters.  Holding
companies domiciled in Georgia may not branch or charter banks in South Carolina
and vice versa.  Alternatives for expansion between these states
include acquiring an existing financial institution, chartering a federal
savings bank or moving the charter of a national bank within 35 miles of its
headquarters into the new state.





A bank
holding company and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with the extension of credit or provision of
any property or service.  Thus, a bank may not extend credit, lease or
sell property or furnish any service or fix or vary the consideration for such
on the condition that (i) the




SAVB 2007 Form
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customer
should obtain or provide some additional credit, property or service from or to
such bank (other than a loan, discount, deposit or trust service related to and
usually provided in connection with a loan, discount, deposit or trust service),
its bank holding company or any other subsidiary of its bank holding company or
(ii) the customer may not obtain some other credit, property or service from a
competitor, except to the extent reasonable conditions are imposed in a credit
transaction to assure the soundness of the credit extended.





The Fed
has cease and desist powers over bank holding companies and non-banking
subsidiaries should their actions constitute a serious threat to the safety,
soundness or stability of a subsidiary bank.  The Company is also
subject to certain restrictions with respect to engaging in the business of
issuing, underwriting and distributing securities.





Although
the Company is not presently subject to any direct regulatory restrictions on
dividends (other than those of Georgia corporate law), the Company's long-term
ability to pay cash dividends will depend on the amount of dividends paid by the
Subsidiary Banks and any other subsequently acquired entities.  OCC
regulations restrict the amount of dividends which Savannah may pay without
obtaining prior approval.  Based on such regulatory restrictions
without prior approval, Savannah is restricted from paying dividends in a
calendar year which exceeds the current year's net income combined with the
retained net profits of the preceding two years.  Bryan Bank may pay
dividends equal to no more than 50 percent of prior year net income without
prior approval from the GDBF. Harbourside does not anticipate paying
dividends for the foreseeable future.  The dividend payout plans of
the Subsidiary Banks consider the objective of maintaining their
“well-capitalized” status.





The
Subsidiary Banks are members of the FHLB System, which consists of 12 regional
FHLBs subject to supervision and regulation by the Federal Housing Finance
Board.  The FHLBs maintain central credit facilities primarily for
member institutions.  The Subsidiary Banks, as members of the FHLB of
Atlanta, are required to hold shares of capital stock in the FHLB of Atlanta in
an amount at least equal to the greater of: (i) 1 percent of the aggregate
outstanding principal amount of its unpaid residential mortgage loans, home
purchase contracts and similar obligations as of the beginning of each year,
(ii) 4.5 percent of its advances (borrowings) from the FHLB of Atlanta, or (iii)
$500,000.  Additionally, the FHLB of Atlanta imposed a maximum
investment in its capital stock equal to $100,000 over the required
minimum.  The Subsidiary Banks are in compliance with this requirement
at December 31, 2007.





Each FHLB
serves as a reserve or central bank for its member institutions within its
assigned regions.  It is funded primarily from proceeds derived from
the sale of obligations of the FHLB System.  The FHLB makes advances
(i.e., loans) to members in accordance with policies and procedures established
by its Board.  The Subsidiary Banks are authorized to borrow funds
from the FHLB of Atlanta to meet demands for withdrawals of deposits, to meet
seasonal requirements and for the expansion of its loan
portfolio.  Advances may be made on a secured or unsecured basis
depending upon a number of factors, including the purpose for which the funds
are being borrowed and the amount of previously existing
advances.  Interest rates charged for advances vary depending upon
maturity, the cost of funds to the FHLB of Atlanta and the purpose of the
borrowing.





Community Reinvestment Act





CRA
requires the federal bank regulatory agencies to encourage financial
institutions to meet the credit needs of low- and moderate-income borrowers in
their local communities.  In May 1995, the federal bank regulatory
agencies published final amended regulations promulgated pursuant to the
CRA.  The final regulations eliminate the 12 assessment factors under
the former regulation and replace them with performance
tests.  Institutions are no longer required to prepare CRA statements
or extensively document director participation, marketing efforts or the
ascertainment of community credit needs.  Under the final rule, an
institution's size and business strategy determines the type of examination that
it will receive.  Large, retail-oriented institutions are examined
using a performance-based lending, investment and service test.  Small
institutions are examined using a streamlined approach.  All
institutions have the option of being evaluated under a strategic plan
formulated with community input and pre-approved by the applicable bank
regulatory agency.





CRA
regulations provide for certain disclosure obligations.  In accordance
with the CRA, each institution must post a CRA notice advising the public of the
right to comment to the institution and its regulator on the institution's CRA
performance and to review the CRA public file.  Each lending
institution must maintain for public inspection a public file that includes a
listing of branch locations and services, a summary of lending activity, a map
of its communities, and any written comments from the public on its performance
in meeting community credit needs.




SAVB 2007 Form
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Large
institutions also are required to collect certain data, including the amount and
location of originated and purchased small business, small farm, community
development, and home mortgage loans, and to report this data to their
regulatory agencies.





Public
disclosure of written CRA evaluations of financial institutions made by
regulatory agencies is required under the CRA.  This promotes
enforcement of CRA requirements by providing the public with the status of a
particular institution's community reinvestment record.  Savannah and
Bryan Bank received a "satisfactory" rating on the most recent performance
evaluations of their CRA efforts by their respective banking regulatory
agencies.  Harbourside has not yet been evaluated.





Fair
Lending





Congress
and various federal agencies responsible for implementing fair lending laws have
been increasingly concerned with discriminatory lending practices.  In
1994, those federal agencies announced a Joint Policy Statement detailing
specific discriminatory practices prohibited under the Equal Opportunity Act and
the Fair Housing Act.  In the Policy Statement, three methods of
proving lending discrimination were identified: (i) overt evidence of
discrimination, where a lender blatantly discriminates on a prohibited basis;
(ii) evidence of disparate treatment, when a lender treats applicants
differently based upon a prohibited factor, even where there is no evidence
showing that the treatment was motivated by intention to discriminate; and (iii)
evidence of disparate impact, when a lender applies a practice uniformly to all
applicants, but the practice has a discriminatory effect, even where such
practices are neutral in appearance and applied equally.





Anti-Money
Laundering





The
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001 ("Patriot Act") significantly
expands the responsibilities of financial institutions in preventing the
use of the United States financial system to fund terrorist activities.
 Title III of the Patriot Act provides for a significant overhaul of the
United States anti-money laundering regime.  Among other provisions, it
requires financial institutions operating in the United States to develop new
anti-money laundering compliance programs, due diligence policies and controls
to ensure the detection and reporting of money laundering.  Such required
compliance programs are intended to supplement existing compliance requirements,
also applicable to financial institutions, under the Bank Secrecy Act and the
Office of Foreign Assets Control Regulations. This federal legislation and the
resultant bank regulations require a financial institution to expeditiously
search its records to determine whether it maintains or has maintained accounts,
or engaged in transactions with individuals or entities listed in a database
maintained by the Financial Crimes Enforcement Network
(“FinCEN”).  The records search must cover current accounts, accounts
opened in the prior twelve months, and transactions conducted in the prior six
months.  Its purpose is to identify funds or transactions with
individuals associated with terrorist activities.  Substantial
penalties and /or criminal prosecution may result from
non-compliance.  Management has established policies and procedures to
ensure compliance with the Patriot Act.





Rules
Adopted by the SEC





The
Sarbanes-Oxley Act of 2002 (“Sarbox”) was enacted to enhance penalties for
accounting and auditing improprieties at publicly traded companies and to
protect investors by improving the accuracy and reliability of corporate
disclosures under the federal securities laws.  Sarbox typically
applies to all companies, including the Company, which file or are required to
file periodic reports with the SEC.  Generally, Sarbox (i) requires
chief executive officers and chief financial officers to certify to the accuracy
of periodic reports filed with the SEC; (ii) imposes specific and enhanced
corporate disclosure requirements; (iii) accelerates the time frame for
reporting of insider transactions and periodic disclosures by public companies;
(iv) requires companies to adopt and disclose information about corporate
governance practices, including whether or not they have adopted a code of
ethics for senior financial officers and whether the audit committee includes at
least one “audit committee financial expert;” and (v) requires the SEC, based on
certain enumerated factors, to regularly and systematically review corporate
filings.





SAVB 2007 Form
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Recent
Banking Legislation





Bills are
presently pending before the United States Congress and certain state
legislatures, and additional bills may be introduced in the future in the
Congress and the state legislatures, which, if enacted, may alter the structure,
regulation and competitive relationships of the nation's financial
institutions.  It cannot be predicted whether or in what form any of
these proposals will be adopted or the extent to which the business of the
Company or the Subsidiary Banks may be affected thereby.





Competition





The
banking business is very competitive.  Banks generally compete with
other financial institutions using the mix of banking products and services
offered, the pricing of services, the convenience and availability of services,
and the degree of expertise and the personal manner in which services are
offered.  The Subsidiary Banks compete with other commercial and
savings banks in their primary service areas.  The Subsidiary Banks
also compete with credit unions, consumer finance companies, insurance
companies, money market mutual funds, brokerage firms and other financial
institutions, some of which are not subject to the degree of regulation and
restriction imposed upon the Subsidiary Banks.  Many of these
competitors have substantially greater resources and lending limits than the
Subsidiary Banks and offer certain services that the Subsidiary Banks do not
provide currently.





Many of
these competitors have more branch offices in the Subsidiary Bank’s primary
service area.  However, the Company's plan is to expand into the
markets which will best serve its targeted customers.  Management
believes that competitive pricing, local ownership, local decisions, local
control and personalized, relationship-oriented service provide the Subsidiary
Banks with a method to compete effectively for prospective
customers.





The
Subsidiary Banks experience the most competition from new local community bank
entrants into the market area.  Numerous banking offices of community
banks and de novo banks have opened in the Savannah market since January 1,
2002.  Other banks have indicated interest in the coastal Georgia and
South Carolina markets.  These new entrants have increased and will
continue to increase the competition for existing and new business.





Deposit
growth is a substantial challenge facing the banking industry and the Subsidiary
Banks.  It is likely that deposit growth in competitive markets will
require higher deposit interest rates.  Higher costs of funds without
corresponding higher rates on earning assets will have a long-term negative
impact on net interest income.  Higher growth in lower cost core
deposits, higher revenue growth from fee based services and lower overhead
growth rates are the key items required to accomplish the Company's earnings
growth objectives.






































REMAINDER
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SAVB 2007 Form
10-K
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SELECTED
STATISTICAL INFORMATION FOR THE COMPANY





Investments





Table
1 - Weighted Average Yields by Maturity





The
following table sets forth the amortized cost, fair value and tax-equivalent
yields by investment type and maturity category at December 31,
2007:





Amortized
            
            Fair
            
            Taxable
              EquivalentCost
            
            Value
            
            Yield
      (a)(Thousands)
            (%)Securities
      available for sale:U.S.
      Treasury, other U.S. Government
              Agencies
      and mortgage-backed:Within
      one year
            $
      11,346
            
            $
      11,500
            
            4.67One
      year to five years
            27,442
            
            27,814
            
            4.95Five
      years to ten years
            12,142
            
            12,306
            
            5.21Over
      ten years
            1,921
            
            1,947
            
            5.23Total
            52,851
            
            53,567
            
            4.96Other
      interest-earning investments:Within
      one year
            4,115
            
            4,171
            
            6.07One
      year to five years
            1,706
            
            1,729
            
            7.18Five
      years to ten years
            1,014
            
            1,027
            
            8.53Over
      ten years
            555
            
            563
            
            6.00Total
            7,390
            
            7,490
            
            6.66Total
      securities available for sale
            $
      60,241
            
            $
      61,057
            
            5.17


(a) The yield is calculated on the
amortized cost of the securities.








Loans





Following
is certain information regarding the loan portfolio as of December 31, 2007 on a
consolidated basis.





Table
2 - Loan Repricing Opportunities





The
following table sets forth certain loan maturity and repricing information as of
December 31, 2007.  Loan renewals generally reprice relative to the
prime rate in effect at the time of the renewal.  Management expects
that certain real estate mortgage loans which have maturities of one to three
years with longer amortization periods will renew at maturity.





($
      in thousands)
              
              
              Loan
      Category
            One
              Year
              or
      Less
            After
              One
      Year
              Through
              Five
      years
            Over
              Five
              Years
            TotalReal
      estate-construction and development
            $
      117,477
            $
      13,584
            $
      3,049
            $
      134,110Commercial
            49,597
            18,506
            3,267
            71,370Total
            $ 167,074
            $
      32,090
            $
      6,316
            $
      205,480Loans
      with fixed rates
            $   34,907
            $
      28,449
            $
      6,202
            $   69,558Loans
      with floating and adjustable rates
            135,922
            -
            -
            135,922Total
            $ 170,829
            $
      28,449
            $
      6,202
            $
      205,480






SAVB 2007 Form
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Nonaccrual,
Past Due and Restructured Loans





At
December 31, 2007 and 2006, nonperforming loans were $17,424,000 and $2,231,000,
respectively.  At December 31, 2007, the Subsidiary Banks had
nonaccruing loans of $14,663,000 and $2,761,000 in loans past due 90 days or
more.  Interest income of $731,000 was recognized on nonaccrual loans in
2007.





Except
for consumer loans, the Company's policy is to place loans on nonaccrual status
when, in management's judgment, the collection of principal and interest in full
becomes doubtful.  Interest receivable accrued in prior years and
subsequently determined to have doubtful collectibility is charged to the
allowance for loan losses.  Interest on loans that are placed on
nonaccrual is recognized after principal is collected in full.  In
some cases where borrowers are experiencing financial difficulties, loans may be
restructured to provide terms significantly different from the original
contractual terms.





Loan
Concentrations





Most of
the Company’s business activity is with customers located within Chatham and
Bryan County, Georgia and southern Beaufort County, South
Carolina.  Table 6 on page F-36 of the 2007 Annual Report provides
details of the various real estate loan concentrations.  The Company
has no loans that are considered to be highly leveraged transactions or foreign
credits.





Allowance
for Loan Losses





See
pages F-31 through F-33 of the 2007 Annual Report for details about the
activity and breakdown of the allowance for loan losses and additional
information regarding accounting estimates in the allowance.





Deposits





Deposit
Average Balances and Rates Paid





Tables 8
and 9 on pages F-41 and F-42 of the 2007 Annual Report summarize the
average balances of the Company’s deposits and the average rates paid on such
deposits during 2007, 2006 and 2005.








Table
3 - Long-term Obligations





The
following table includes a breakdown of payment obligations due under long-term
contracts:





($ in thousands)
            Payments
      Due by PeriodLess
      than
            1 -
      3
            4 -
      5
            More
      thanContractual
      Obligations
            Total
            1
      Year
            Years
            Years
            5
      YearsFHLB
      advances - long-term
            $  2,973
            $    1,750
            $
      1,050
            $  -
            $      173Subordinated
      debt
            10,310
            -
            -
            -
            10,310Operating
      leases - buildings
            12,087
            1,092
            1,558
            1,335
            8,102Long-term
      contracts
            5,036
            1,152
            2,409
            1,475
            -Total
            $
      30,406
            $
      3,994
            $
      5,017
            $
      2,810
            $
      18,585






SAVB 2007 Form
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Item 1A.
Risk Factors





Like
other financial companies, the Company is subject to a number of risks, many of
which are outside of our direct control.  Efforts are made to manage
those risks while optimizing returns.  Among the risks assumed are:
(1) credit
risk, which is the risk that loan customers or other counterparties will
be unable to perform their contractual obligations, (2) market risk, which is
the risk that changes in market rates and prices will adversely affect our
financial condition or results of operation, (3) liquidity risk, which
is the risk that the Company and/or Banks will have insufficient cash or access
to cash to meet its operating needs, (4) operational risk,
which is the risk of loss resulting from inadequate or failed internal
processes, people and systems, or external events and (5) common stock
marketabilityrisk, which is risk specifically related to the marketability of the
Company’s common stock.





In
addition to the other information included or incorporated by reference into
this report, readers should carefully consider that the following important
factors, among others, could materially impact our business, future results of
operations, and future cash flows.





Credit
Risk





Our
business is affected by the strength of the local economies where we
operate.





Our
success significantly depends upon the growth in population, income levels,
deposits and real estate development in our primary markets in coastal Georgia
and South Carolina.  If these communities do not grow or if prevailing
economic conditions locally or nationally are unfavorable, our business may be
adversely impacted.  We are less able than larger institutions to
spread the risks of unfavorable local economic conditions across a large number
of diversified economies.  Moreover, we cannot give any assurance that
we will benefit from any market growth or favorable economic conditions in our
primary market areas.





Any
adverse market or economic conditions in coastal Georgia and South Carolina may
disproportionately increase the risk that our borrowers will be unable to make
their loan payments.  In addition, the market value of the real estate
securing loans could be adversely affected by unfavorable changes in market and
economic conditions.  The Hilton Head Island/Bluffton (“HHI/Bluffton”)
market experienced a pronounced slowdown in the fourth quarter of 2007 which
adversely affected our speculative and non-owner occupied residential real
estate loans that were originated in 2004-2006 in a stronger real estate
market.  As of December 31, 2007, approximately 89% of our loans held
for investment were secured by real estate.  Of the commercial real
estate loans in our portfolio, approximately 38% represent properties owned and
occupied by businesses to which we have extended loans.  Any sustained
period of increased payment delinquencies, foreclosures or losses caused by
adverse market or economic conditions in coastal Georgia and South Carolina
could further adversely affect the value of our assets, our revenues, results of
operations and overall financial condition.





Our
business is concentrated in the areas of Chatham and Bryan County, Georgia and
southern Beaufort County, South Carolina.





Currently,
our lending and other business is concentrated in Chatham and Bryan Counties in
Georgia and southern Beaufort County in South Carolina.  A downturn in
market conditions in any of the respective areas may adversely affect the
performance of our loans and the results of our operations and financial
condition.  In particular, Hilton Head Island in southern Beaufort
County is a vacation and resort area with high concentrations of second home and
investment properties.  Changes in interest rates, local or general
economic conditions, real estate values or the income tax deductibility of
mortgage interest may subject this market to greater volatility which could
adversely impact our performance.  Additionally, our market area is
susceptible to the risk of hurricane disasters and many areas are located in
flood zones.  While most such losses are insurable, hurricanes and
flooding could adversely affect operations and our financial
condition.





If
our allowance for loan losses is not sufficient to cover actual charge-offs, our
earnings could decrease.





Our loan
customers may not repay their loans according to the terms of these loans and
the collateral securing the payment of these loans may be insufficient to assure
repayment.  We may experience significant charge-offs which could have
a material adverse effect on our operating results.  Our management
makes various assumptions and judgments about the collectibility of our loans,
including the creditworthiness of our borrowers and the value of the




SAVB 2007 Form
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real
estate and other assets serving as collateral for the repayment of our
loans.  We maintain an allowance for loan losses in an attempt to
cover any charge-offs which may occur.  In determining the size of the
allowance, we rely on an analysis of our loan portfolio based on historical loss
experience, volume and types of loans, trends in classification, volume and
trends in delinquencies and nonaccruals, national and local economic conditions
and other pertinent information.  As we expand into new markets, such
as the coastal South Carolina market in which Harbourside operates, our
determination of the size of the allowance could be understated due to our lack
of familiarity with market-specific factors.  As noted above, the
HHI/Bluffton market experienced a slowdown in the fourth quarter of 2007 which
necessitated additional provisions for loan losses at Savannah and
Harbourside.





If our
assumptions are wrong, our current allowance may not be sufficient to cover
future charge-offs, and adjustments may be necessary to allow for different
economic conditions or adverse developments in our loan
portfolio.  Material additional provisions to our allowance would
materially decrease our net income.





In
addition, federal and state regulators periodically review our allowance for
loan losses and may require us to increase our provision for loan losses or
recognize further loan charge-offs, based on judgments different than those of
our management.  Any increase in our allowance for loan losses or loan
charge-offs as required by these regulatory agencies could have a negative
effect on our operating results.





Market
Risk





Changes
in interest rates could negatively impact our financial condition and results of
operations.





Our
earnings are significantly dependent on our net interest income.  We
expect to realize income primarily from the difference between interest earned
on loans and investments and the interest paid on deposits and
borrowings.  We expect that we will periodically experience "gaps" in
the interest rate sensitivities of our assets and liabilities, meaning that
either our interest-bearing liabilities will be more sensitive to changes in
market interest rates than our interest-earning assets, or vice
versa.  In either event, if market interest rates should move contrary
to our position, this "gap" would work against us, and our earnings may be
negatively affected.





For
example, in the event of a decrease in interest rates, our net interest income
will be negatively affected because our interest-bearing assets currently
reprice faster than our interest-bearing liabilities.  Although our
asset-liability management strategy is designed to control our risk from changes
in market interest rates, we may not be able to prevent changes in interest
rates from having a material adverse effect on our results of operations and
financial condition.





Changes
in the level of interest rates also may negatively affect our ability to
originate loans, the value of our assets and our ability to realize gains from
the sale of our assets, all of which ultimately affect our
earnings.  A decline in the market value of our assets may limit our
ability to borrow additional funds or result in our lenders requiring additional
collateral from us under our loan agreements.  As a result, we could
be required to sell some of our loans and investments under adverse market
conditions, upon terms that are less favorable to us, in order to maintain our
liquidity.  If those sales are made at prices lower than the amortized
costs of the investments, we will incur losses.  While rising interest
rates are favorable to us, declining rates, like those experienced in 2007,
generally have a negative impact on earnings.  There can be no
assurance or guarantee that declining rates will not continue to negatively
impact earnings or that we will be able to take measures to hedge, on favorable
terms or at all, against unfavorable events, which could adversely affect our
results of operations and financial condition.





Monetary
policies may adversely affect our business and earnings.





Our
results of operations are affected by the policies of monetary authorities,
particularly the Fed.  Changes in interest rates can affect the number
of loans we originate, as well as the value of our loans and other
interest-bearing assets and liabilities and the ability to realize gains on the
sale of those assets and liabilities.  Prevailing interest rates also
affect the extent to which borrowers prepay loans owned by us.  When
interest rates decrease, borrowers are more likely to prepay their loans, and
vice versa.  We may be required to invest funds generated by
prepayments at less favorable interest rates.  Increases in interest
rates could hurt the ability of borrowers who have loans with floating interest
rates to meet their increased payment obligations.  If those borrowers
were not able to make their payments, then we could suffer losses, and our level
of nonperforming assets could increase.




SAVB 2007 Form
10-K
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The
loss of significant revenues in Minis could result in lower operating earnings
as well as significant non-cash charges to earnings related to the impairment of
goodwill and accelerated amortization of the client list intangible
asset.





Asset
management fee revenues are directly impacted by the total investments under
management.  The assets under management are impacted by stock values,
bond values, interest rates and the gain or loss of accounts due primarily to
investment performance.  Minis’ selling shareholders have significant
earn-out incentives to maintain and increase revenues through June
2010.  However, events and decisions beyond their control can
negatively impact assets under management and the related revenues from such
assets.





Liquidity
Risk





Our
use of brokered deposits, uninsured local deposits and other borrowings may
impair our liquidity and constitute an unstable and/or higher cost funding
source.





We use
wholesale, institutional and brokered deposits, uninsured local deposits and
other borrowings, including repurchase agreements, federal funds purchased and
FHLB borrowings, to fund a portion of our operations.  Federal law
requires a bank to be well-capitalized if it accepts new brokered
deposits.  Thus, the Company and the Banks must maintain a
"well-capitalized" status to meet our funding plans.  Failure to
maintain "well-capitalized" status would limit our access to wholesale and
brokered deposits and federal funds purchased (but not necessarily repurchase
agreements or FHLB borrowings), which could impair our liquidity.  We
will be considered "well-capitalized" if we (i) have a total risk-based capital
ratio of 10.0 percent or greater; (ii) have a Tier 1 risk-based capital ratio of
6.0 percent or greater; (iii) have a leverage ratio of 5.0 percent or greater;
and (iv) are not subject to any written agreement, order, capital directive, or
prompt corrective action directive issued by the FDIC to meet and maintain a
specific capital level for any capital measure.





Depositors
that invest in brokered deposits are generally interest rate sensitive and well
informed about alternative markets and investments.  Consequently,
funding with brokered deposits may not provide the same stability to our deposit
base as traditional local retail deposit relationships.  Our liquidity
may be negatively affected if brokered deposit supply declines due to a loss of
investor confidence or a flight to higher quality investments such as U.S.
Treasury securities.  In addition, brokered deposits typically have a
higher rate of interest than core local deposits.





Deposit
balances in excess of the FDIC's $100,000 insurance limit ($250,000 for certain
retirement accounts) per depositor are uninsured deposits.  Customers
with uninsured deposits are more sensitive to financial or reputation risk than
insured depositors.  Consequently, uninsured deposits do not provide
the same stability to our deposit base as insured deposits.  Our
liquidity may be negatively affected by a decline in uninsured deposits due to a
loss of investor confidence and a flight to insured deposits at other financial
institutions.





Operational
Risk





Future
departures of our key personnel may impair our operations.





We are,
and for the foreseeable future will be, dependent on the services of John
C. Helmken II, President and Chief Executive Officer of the Company and of
Savannah; E. James Burnsed, Vice Chairman of the Company and Chairman and Chief
Executive Officer of Bryan Bank; R. Stephen Stramm, Executive Vice President –
Lending of the Company and of Savannah; Robert B. Briscoe, Executive Vice
President and Chief Financial Officer of the Company and of Savannah; and Jerry
O’Dell Keith, a Vice President of the Company and President of Bryan
Bank.  Should the services of any of Messrs. Helmken, Burnsed, Stramm,
Briscoe or Keith become unavailable, there can be no assurance that a suitable
successor could be found who will be willing to be employed upon terms and
conditions acceptable to us.  A failure to replace any of these
individuals promptly, should his services become unavailable, could have a
material adverse effect on our results of operations and financial
performance.  These risks are heightened by the fact that none of
these officers have entered into employment agreements with the Company or
Banks.  G. Mike Odom, Jr., CEO, resigned on November 17, 2006
effective February 28, 2007 to pursue other professional
interests.  An orderly management transition was made in the CEO
position, and in 2007 several key hires were made for senior management
positions.




SAVB 2007 Form
10-K
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Our
continued pace of growth may require us to raise additional capital in the
future, but that capital may not be available when it is needed.





We are
required by federal and state regulatory authorities to maintain adequate levels
of capital to support our operations.  We anticipate that our current
capital resources will satisfy our capital requirements for the foreseeable
future.  We may, at some point, however, need to raise additional
capital to support our continued growth.





Our
ability to raise additional capital, if needed, will depend on conditions in the
capital markets at that time, which are outside our control, and on our
financial performance.  Accordingly, we cannot give any assurances of
our ability to raise additional capital if needed on terms acceptable to us, or
at all.  If we cannot raise additional capital when needed, our
ability to further expand our operations through internal growth and
acquisitions could be materially impaired.





We
have limited operating history for Harbourside upon which to base an estimate of
our future financial performance.





Harbourside
opened for business on March 1, 2006 and has a relatively short operating
history as a bank.  There was also turnover in the initial senior
management, but Thomas W. Lennox has served as President and CEO since
October 2006.  Our operations at Harbourside are subject to the risks
inherent in the establishment of any new business and, specifically, those of a
new bank.  Harbourside has experienced significant losses and may
not be profitable for several quarters, if ever.





Our
industry operates in a highly regulated environment.  New laws or
regulations or changes in existing laws or regulations affecting the banking
industry could have a material adverse effect on our results of
operations.





The
Company and the Banks are subject to extensive government regulation and
supervision under various state and federal laws, rules and regulations,
primarily the rules and regulations of the OCC, OTS, FDIC, GDBF, SEC and the
Fed.  These laws and regulations are designed primarily to protect
depositors, borrowers, and the deposit insurance funds of the
FDIC.  These regulators maintain significant authority to impose
requirements on our overall operations, such as limiting certain activities or
mandating the increase of capital levels.  The financial services
industry also is subject to frequent legislative and regulatory changes and
proposed changes, the effects of which cannot be predicted.





We
face substantial competition in our industry sector from banking and financial
institutions that have larger and greater financial and marketing capabilities,
which may hinder our ability to compete successfully.





The
banking and financial services industry is highly competitive.  This
competitiveness may negatively impact our ability to retain qualified management
and loan officers, raise sufficient deposits at an acceptable price, and attract
customers.  The increasingly competitive environment is a result of
changes in regulation, changes in technology and product delivery systems, and
the accelerating pace of consolidation among financial providers.





We
compete with many different banking and financial institutions, including banks
and savings and loan associations, credit unions, brokerage and investment
banking firms, and mortgage companies and brokers.These entities may be branches
or subsidiaries of much larger organizations affiliated with statewide, regional
or national banking companies and, as a result, may have greater resources and
lower costs of funds.  These entities may also be start-up
organizations.  Any of these entities may attempt to duplicate our
business plan and strategy.  There can be no assurance that we will be
able to compete effectively in the future.





Failure
to implement our business strategies may adversely affect our financial
performance.





Our
management has developed a business plan that details the strategies we intend
to implement in our efforts to continue profitable operations.  If we
cannot implement our business strategies, we may be hampered in our ability to
develop business and serve our customers, which could, in turn, have an adverse
effect on our financial performance.  Even if our business strategies
are successfully implemented, they may not have the favorable impact on
operations that we anticipate.




SAVB 2007 Form
10-K
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An
extended disruption of vital infrastructure could negatively impact our
business, results of operations, and financial condition.





Our
operations depend upon, among other things, our infrastructure, including
equipment and facilities.  Extended disruption of vital infrastructure
by fire, power loss, natural disaster, telecommunications failure, computer
hacking or viruses, terrorist activity or the domestic and foreign response to
such activity, or other events outside of our control could have a material
adverse impact on the financial services industry as a whole and on our
business, results of operations, cash flows, and financial condition in
particular.  Our disaster recovery and business resumption contingency
plans may not work as intended or may not prevent significant interruptions of
our operations.





Non-compliance
with the Patriot Act, Bank Secrecy Act, or other laws and regulations could
result in fines or sanctions.





The
Patriot and Bank Secrecy Acts require financial institutions to develop programs
to prevent financial institutions from being used for money laundering and
terrorist activities.  If such activities are detected, financial
institutions are obligated to file suspicious activity reports with the
Treasury’s FinCEN.  These rules require financial institutions to
establish procedures for identifying and verifying the identity of customers
seeking to open new financial accounts. Failure to comply with these regulations
could result in fines or sanctions.  We have developed policies and
procedures designed to assist in compliance with these laws and
regulations.





The
Fed may require the Company to commit capital resources to support the
Subsidiary Banks.





The Fed,
which examines the Company and our non-bank subsidiaries, has a policy stating
that a bank holding company is expected to act as a source of financial and
managerial strength to a subsidiary bank and to commit resources to support such
subsidiary bank.  Under the source of strength doctrine, the Fed may
require a bank holding company to make capital injections into a troubled
subsidiary bank, and may charge the bank holding company with engaging in unsafe
and unsound practices for failure to commit resources to such a subsidiary bank.
Capital injections may be required at times when the holding company may not
have the resources to provide it, and, therefore, may be required to borrow the
funds.  Loans from a holding company to its subsidiary banks are
subordinate in right of payment to deposits and to certain other indebtedness of
such subsidiary bank.  In the event of a bank holding company’s
bankruptcy, the bankruptcy trustee will assume any commitment by the holding
company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank.  Moreover, the bankruptcy law provides that claims
based on any such commitment will be entitled to a priority of payment over the
claims of the institution’s general unsecured creditors, including the holders
of its note obligations.  Thus, any borrowing that must be done by the
holding company in order to make the required capital injection becomes more
difficult and expensive and may adversely impact the holding company’s results
of operations and cash flows.





Common
Stock Marketability Risk





Our
authorized preferred stock exposes holders of our common stock to certain
risks.





Our
Articles of Incorporation authorize the issuance of up to 10,000,000 shares of
preferred stock, par value $1.00 per share.  The authorized but
unissued preferred stock constitutes what is commonly referred to as "blank
check" preferred stock.  This type of preferred stock may be issued by
us, at the direction of our Board, from time to time on any number of occasions,
without shareholder approval, as one or more separate series of shares comprised
of any number of the authorized but unissued shares of preferred stock,
designated by resolution of the Board stating (i) the dividend rate or the
amount of dividends to be paid thereon, whether dividends shall be cumulative
and, if so, from which date(s), the payment date(s) for dividends, and the
participating or other special rights, if any, with respect to dividends; (ii)
the voting powers, full or limited, if any, of shares of such series; (iii)
whether the shares of such series shall be redeemable and, if so, the price(s)
at which, and the terms and conditions on which, such shares may be redeemed;
(iv) the amount(s) payable upon the shares of such series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the Company;
(v) whether the shares of such series shall be entitled to the benefit of a
sinking or retirement fund to be applied to the purchase or redemption of such
shares, and if so entitled, the amount of such fund and the manner of its
application, including the price or prices at which such shares may be redeemed
or purchased through the application of such funds; (vi) whether the shares of
such series shall be convertible into, or exchangeable for, shares of any other
class or classes of stock of the Company, and, if so, the




SAVB 2007 Form
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conversion
price(s), or the rate(s) of exchange, and the adjustments thereof, if any, at
which such conversion or exchange may be made, and any other terms and
conditions of such conversion and exchange; (vii) the price or other
consideration for which the shares of such series shall be issued; (viii)
whether the shares of such series which are redeemed or converted shall have the
status of authorized but unissued shares of serial preferred stock and whether
such shares may be reissued as shares of the same or any other series of serial
preferred stock; and (ix) whether the shares of such series shall be entitled to
other rights, preferences and privileges.  Such preferred stock may
provide our Board the ability to hinder or discourage any attempt to gain
control of us by a merger, tender offer at a control premium price, proxy
contest or otherwise.  Consequently, the preferred stock could
entrench our management.  The market price of our common stock could
be depressed to some extent by the existence of the preferred
stock.  Moreover, any preferred stock that is issued will rank ahead,
in terms of dividends, priority and liquidation preferences and may have greater
voting rights than our Company’s common stock.  No shares of preferred
stock have been issued as of December 31, 2007.





Our
directors and executive officers own a significant portion of our common
stock.





As of
December 31, 2007, our directors and executive officers, collectively,
beneficially owned approximately 20% of our outstanding common
stock.  As a result of their ownership, the directors and executive
officers, as a group, have the ability to significantly influence the outcome of
all matters submitted to our shareholders for approval, including the election
of directors and the approval of mergers and other significant corporate
transactions, even if their interests conflict with those of other shareholders,
which could adversely affect the market price of our common stock.





The
OCC, OTS or the GDBF may impose dividend payment and other restrictions on the
Subsidiary Banks which would impact our ability to pay dividends to
shareholders.   Dividends from Harbourside are not anticipated
for the foreseeable future.





The OCC,
OTS and the GDF are the primary regulatory agencies that examine the Subsidiary
Banks.  Under certain circumstances, including any determination that
the activities of a bank or their subsidiaries constitute unsafe and unsound
banking practices, the regulators have the authority by statute to restrict the
Subsidiary Banks’ ability to transfer assets, make shareholder distributions,
and redeem preferred securities or pay dividends to the parent
company.





Certain
provisions in our Articles of Incorporation and Bylaws may deter potential
acquirers and may depress our stock price.





Our
Articles of Incorporation and Bylaws divide our Board into three classes, as
nearly equal as possible, with staggered three-year terms.  Business
combinations, such as sales or mergers involving us, require the approval of a
majority of shareholders as well as the recommendation for such business
combination by at least two-thirds of the continuing directors, or in the
alternative, unanimously recommended by the continuing directors, provided that
the continuing directors constitute at least three members of the Board at the
time of such approval.  Shareholders may remove directors with or without
cause upon the affirmative vote of the holders of at least 75% of the
outstanding voting shares of the Company and the affirmative vote of the holders
of at least 75% of the outstanding voting shares of the Company other than those
of which an interested shareholder is the beneficial owner.  These
provisions could make it more difficult for a third party to acquire control of
the Company.  In addition, the above provisions may be altered only
pursuant to specified shareholder action.  With several specific
exceptions, our Articles of Incorporation and Bylaws are silent with respect to
the amendment of our Articles of Incorporation, and thus, the Georgia Business
Corporations Code ("GBCC") dictates the requirements for making such an
amendment.  The GBCC generally provides that, other than in the case
of certain routine amendments (such as changing the corporate name) and other
amendments which the GBCC specifically allows without shareholder action, the
corporation's board of directors must recommend any amendment of the Articles of
Incorporation to the shareholders (unless the board elects to make no such
recommendation because of a conflict of interest or other special circumstances
and the board communicates the reasons for its election to the shareholders) and
the affirmative vote of a majority of the votes entitled to be cast on the
amendment by each voting group entitled to vote on the amendment (unless the
GBCC, the articles of incorporation, or the board of directors require a greater
percentage of votes) is required to amend our Articles of
Incorporation.




SAVB 2007 Form
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Our
Articles of Incorporation provide that the provisions regarding the approval
required for certain business combinations may only be changed by the
affirmative vote of at least 75% of the outstanding voting shares of the Company
and the affirmative vote of the holders of at least 75% of the outstanding
shares of the Company other than those of which an interested shareholder is the
beneficial owner.  Our Articles of Incorporation also provide that the
provisions regarding the applicability of Article 11, Parts 2 and 3 of the GBCC
(regarding mergers and share exchanges) to the Company may only be repealed by
both the affirmative vote of at least two-thirds of the continuing directors and
a majority of the votes entitled to be cast by voting shares of the Company, in
addition to any other vote required by our Articles of
Incorporation.





Our
Bylaws generally provide that the Bylaws may be altered or amended by our
shareholders at any annual meeting or special meeting of the shareholders or by
our Board at any regular or special meeting of the Company's Board.





The
existence of the above provisions could result in our being less attractive to a
potential acquirer, or result in our shareholders receiving less for their
shares of common voting stock than otherwise might be available if there were a
takeover attempt.





We
have certain obligations and the general ability to issue additional shares of
our common stock in the future, and such future issuances may depress the price
of our common stock.





We have
various obligations to issue additional shares of common stock in the
future.  These obligations include non-qualified and incentive stock
options as detailed in Note 12 on page F-20 to the Consolidated Financial
Statements in the 2007 Annual Report.





The
options permit the holders to purchase shares of our common stock at specified
prices.  These purchase prices may be less than the then current
market price of our common stock.  Any shares of our common stock
issued pursuant to these options would dilute the percentage ownership of
existing shareholders.  The terms on which we could obtain additional
capital during the life of these options may be adversely affected because of
such potential dilution.  Finally, we may issue additional shares in
the future.  There are no preemptive rights in connection with our
common stock.  Thus, the percentage ownership of existing shareholders
may be diluted if we issue additional shares in the future.  For
issuances of shares and grants of options, our Board will determine the timing
and size of the issuances and grants and the consideration or services required
thereof.  Our Board intends to use its reasonable business judgment to
fulfill its fiduciary obligations to our then existing shareholders in
connection with any such issuance or grant.  Nonetheless, future
issuances of additional shares could cause immediate and substantial dilution to
the net tangible book value of shares of our common stock issued and outstanding
immediately before such transaction.  Any future decrease in the net
tangible book value of such issued and outstanding shares could materially and
adversely affect the market value of the shares.





Sales
of large quantities of our common stock could reduce the market price of
our common stock.





Any sales
of large quantities of shares of our common stock, or the perception that any
such sales are likely to occur, could reduce the market price of our common
stock.  In 2005, we issued 397,273 restricted shares to investors in a
private placement of our shares which were registered with the SEC on October
21, 2005.  When the registration statement covering the resale of
those restricted shares became effective, the holders of those shares are able
to offer to sell those shares from time to time at the current market price or
at negotiated prices.  In 2007, we issued 71,000 shares related to the
acquisition of Minis.  If holders sell large quantities of shares of
our common stock, the market price of our common stock may decrease and the
public market for our common stock may otherwise be adversely affected because
of the additional shares available in the market.





Our
common stock has experienced only limited trading.





Our
common stock is quoted and traded on the NASDAQ Global Market in the United
States under the symbol "SAVB". The trading volume in our common stock has
been relatively low when compared with larger companies quoted on the NASDAQ
Global Market or listed on the other stock exchanges.  We cannot say
with any certainty that a more active and liquid trading market for our common
stock will develop.  Because of this, it may be more difficult for you
to sell a substantial number of shares for the same price at which you could
sell a smaller number of shares.




SAVB 2007 Form
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We cannot
predict the effect, if any, that future sales of our common stock in the market,
or the availability of shares of common stock for sale in the market, will have
on the market price of our common stock.  We, therefore, can give no
assurance that sales of substantial amounts of our common stock in the market,
or the potential for large amounts of sales in the market, would not cause the
market price of our common stock to decline or impair our future ability to
raise capital through sales of our common stock.  As of December 31,
2007, there were 5,923,797 shares of common stock outstanding.  The
price of our common stock will be determined in the marketplace and may be
influenced by many factors, including the following:





Ø
            The
      depth and liquidity of the markets for our common
  stock;


Ø
            Investor
      perception of us and the industry in which we
  participate;


Ø
            General
      economic and market conditions;


Ø
            Responses
      to quarter-to-quarter variations in operating
  results;


Ø
            Earnings
      relative to securities analysts'
estimates;


Ø
            Changes
      in financial estimates by securities
analysts;


Ø
            Conditions,
      trends or announcements in the banking
industry;


Ø
            Announcements
      of significant acquisitions, strategic alliances, joint ventures or
      capital commitments by us or our
competitors;


Ø
            Additions
      or departures of key personnel;


Ø
            Accounting
      pronouncements or changes in accounting rules that affect our financial
      statements; and,


Ø
            Other
      factors and events beyond our
control.





The
market price of our common stock could experience significant fluctuations
unrelated to our operating performance.  As a result, an investor (due
to personal circumstances) may be required to sell their shares of our common
stock at a time when our stock price is depressed due to random fluctuations,
possibly based on factors beyond our control.








Item
1B. Unresolved Staff Comments





None








Item
2. Properties





See Note
6 and Note 14 of Notes to Consolidated Financial Statements on page F-16 and
page F-21 of the Registrant's 2007 Annual Report, which is specifically
incorporated herein by reference.





Savannah's
main office is located at 25 Bull Street, Savannah, Georgia, on the ground floor
and lower level of a seven story office building located on Johnson Square in
downtown Savannah.  Savannah has leased approximately 4,700 square
feet on the main floor and 2,000 square feet on the lower level of the
building.  In November 1998, an additional 1,475 square feet of space
on the sixth floor was added to the lease.  An additional 600 square
feet was added to the sixth floor lease in 2003 and approximately 2,500
additional square feet in December 2005.  The leases expire in June
2009.  The rental costs increase by two percent of the gross rental
amount each year during the current five-year term.  The Company is
also responsible for its pro rata share of operating cost increases
in utilities, janitorial services, property taxes and
insurance.  In September 2005, SAVB Properties LLC, a nonconsolidated
subsidiary of the Company, acquired a 50 percent interest in Johnson Square
Associates, LLP (“JSA”), which owns the 25 Bull Street property.  SAVB
Properties LLC also acquired a 50 percent interest in Whitaker Street
Associates, which owns the adjacent parking lot on which an underground parking
deck is being constructed.





In 1989,
Bryan Bank constructed its 8,500 square foot, two-story main office in Richmond
Hill, Georgia, on land owned by Bryan Bank.  The building has a
walk-up ATM, a drive-up ATM and 4 drive-through lanes.  All Bryan Bank
personnel are housed in this location.





Savannah
leases approximately 6,500 square feet on the first floor of a two-story
building located at 400 Mall Boulevard, Savannah, Georgia.  This space
is used for a branch location and the mortgage and construction lending
departments.  The building is near the intersection of Mall Boulevard
and Hodgson Memorial Drive, a location that is convenient to a significant
concentration of commercial, service, and retail entities.  The lease
rate increases with




SAVB 2007 Form
10-K
 - 24
-




the
Consumer Price Index.  The initial lease term was for five years and
ended March 31, 1997.  Savannah committed to exercise the third
five-year lease option in February 2007.  There is one additional
five-year renewal option included in the terms.  Savannah is also
responsible for its prorata share of increases in the cost of ad valorem taxes,
insurance and maintenance of common areas.  Savannah renovated the
space, constructed a vault, and added a five lane drive-through teller facility
adjacent to the building.





During
1995, Savannah entered into a five-year ground lease with seven five-year
renewal options on land located at 100 Chatham Parkway.  Savannah also
has a right of first refusal to buy the property at appraised value should the
owner ever decide to sell the property.  The location is at the
intersection of Chatham Parkway and U.S. Highway 80, a major commercial and
industrial intersection in west Chatham County.   Savannah made
land improvements and constructed a 2,200 square-foot banking facility including
four drive-through lanes and an ATM drive-through lane.  The West
Chatham Office opened for business on November 20, 1995.





In 1997,
Savannah constructed a 2,300 square foot office on an out lot owned in the
Island Towne Centre Shopping Plaza on Whitemarsh Island, six miles east of
downtown Savannah.  This office includes a four lane drive-through
facility.





In
November 1997, Savannah entered into a ten-year lease beginning June 1, 1998
with four five-year renewal options in the Medical Arts Shopping Center at 4809
Waters Avenue.  The property consists of 3,055 square feet of banking
office space and a separate drive-through facility behind the shopping
center.





In March
2002, Savannah entered into a lease agreement, effective May 1, 2002, for
approximately 5,000 square feet of office space at 450 Mall Boulevard, adjacent
to the existing branch office at 400 Mall Boulevard.  The Company is
currently operating under a month to month lease while a new operations center
and Bryan Bank banking office are constructed in Richmond Hill.  The
new building is expected to be complete in 2008.





On
February 24, 2006, Harbourside entered into a lease agreement, effective March
1, 2006, for approximately 17,400 square feet of office space at 852 William
Hilton Parkway on Hilton Head Island.  The lease is on a new building
for a 20-year initial lease term with three five-year renewal
options.  Harbourside’s main banking office is located on the ground
floor.  The mortgage banking and other offices are located on the
second floor.  The lease is accounted for as an operating
lease.  The tenant is responsible for all taxes, insurance and
maintenance.  After five years, the rent will adjust annually by an
amount that approximates the increase in the Consumer Price Index.





On August
1, 2006, Savannah entered into a lease agreement for approximately 1,200 square
feet of banking office space in The Village, a shopping center on Skidaway
Island.  The initial term of the lease is for five years and includes
two five-year renewal options.  The rent will adjust annually by an
amount that approximates the increase in the Consumer Price
Index.  Savannah is also responsible for its prorata share of
increases in the cost of ad valorem taxes, insurance and maintenance of common
areas.





On
January 31, 2007, Harbourside entered into a lease agreement, effective October
1, 2007, for approximately 4,500 square feet of office space on Bluffton Parkway
in Bluffton, South Carolina.  The lease is on a new building for a 10-year
initial lease term with three five-year renewal options.  The tenant
is responsible for all taxes, insurance and maintenance.  After three
years the rent will adjust three percent.





Bryan
Bank entered into a contract in 2007 to acquire a lot for a future branch site
in a commercial development on Highway 144 in Richmond Hill.








Item
3. Legal Proceedings





The
Company is not a party to, nor is any of its property the subject of, any
material pending legal proceedings incidental to the business of the Company or
the Subsidiary Banks.








Item
4. Submission of Matters to a Vote of Security Holders





None




SAVB 2007 Form
10-K
 - 25
-








PART
II





Item
5. Market for Registrant's Common Equity and Related Shareholder
Matters





Incorporated
herein by reference to sections entitled “Table 4 - Market for Registrant's
Common Equity and Related Shareholder Matters” on page F-28 of the Financial
Statement Section of the 2007 Annual Report.








Item
6. Selected Financial Data





Incorporated
herein by reference to sections entitled “Table 1– Selected Financial Condition
Highlights – Five-Year Comparison,” “Table 2 – Selected Operating Highlights –
Five-Year Comparison,” “Table 3 – Selected Quarterly Data,”  “Table 6
– Loan Concentrations,” “Table 8 – Average Balance Sheet and Rate/Volume
Analysis-2007 and 2006” and “Table 9 – Average Balance Sheet and Rate/Volume
Analysis-2006 and 2005” in the Registrant’s MD&A on pages F-26 through F-42
of the Financial Statement Section of the 2007 Annual
Report.  Additional selected financial data is included on pages 15
and 16 of this Annual Report on Form 10-K.








Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations





The
MD&A on pages F-26 through F-42 of the Financial Statement Section of the
2007 Annual Report are incorporated herein by reference.








Item
7A. Quantitative and Qualitative Disclosures about Market Risk





Incorporated
herein by reference to the sections entitled “Liquidity and Interest Rate
Sensitivity Management” and “Table 7 – Cash Flow/Maturity Gap and Repricing
Data” in the Registrant’s MD&A on pages F-37, F-38 and F-40 of the Financial
Statement Section of the 2007 Annual Report.





























REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK






SAVB 2007 Form
10-K
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Item
8. Financial Statements and Supplementary Data





(a)


1.
            Financial
      Statements -- See listing in Item 152.
            Financial
      Statement Schedules – See Item 15








Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure





None








Item
      9A. Controls and Procedures





Evaluation of Disclosure Controls
and Procedures-We have evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this
Annual Report on Form 10-K as required by Rule 13a-15 of the Securities
Exchange Act of 1934, as amended.  This evaluation was carried out
under the supervision and with the participation of our management, including
our chief executive officer and chief financial officer.  Based on
this evaluation, the chief executive officer and chief financial officer have
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company required to be
included in our periodic SEC filings.





Management’s Report on Internal
Control over Financial Reporting and Report of Independent Registered Public
Accounting Firm.- Our management is responsible for establishing and
maintaining adequate internal control over financial reporting for the Company.
 Internal control over financial reporting is a process to provide
reasonable assurance regarding the reliability of our financial reporting for
external purposes in accordance with accounting principles generally accepted in
the United States of America.  Internal control over financial reporting
includes maintaining records that in reasonable detail accurately and fairly
reflect our transactions; providing reasonable assurance that transactions are
recorded as necessary for preparation of our financial statements; providing
reasonable assurance that receipts and expenditures of Company assets are made
in accordance with management authorization; and providing reasonable assurance
that unauthorized acquisition, use or disposition of Company assets that could
have a material effect on our financial statements would be prevented or
detected in a timely manner.  Because of its inherent limitations, internal
control over financial reporting is not intended to provide absolute assurance
that a misstatement of our financial statements would be prevented or
detected.





Management
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.  Based on this evaluation, management concluded that
the Company’s internal control over financial reporting was effective as of
December 31, 2007.  Mauldin & Jenkins, LLC has audited the
effectiveness of our internal control over financial reporting and their report
is included below.





Changes in Internal Control over
Financial Reporting - No change in our internal control over financial
reporting occurred during the fourth fiscal quarter covered by this Annual
Report on Form 10-K that materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.





SAVB 2007 Form
10-K
 - 27
-


Report
of Independent Registered Public Accounting Firm





To the
Board of Directors and Shareholders


The
Savannah Bancorp, Inc.:





We have audited The Savannah Bancorp
Inc. and Subsidiaries’ (the “Company”) internal control over financial reporting
as of December 31, 2007, based on criteria established inInternal Control - Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).  The Company’s
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying “Management’s
Report on Internal Control over Financial Reporting” included in item 9A.
 Our responsibility is to express an opinion on the Company's internal
control over financial reporting based on our audit.





We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United
States).  Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects.  Our
audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk.  Our audit also included performing such other
procedures as we considered necessary in the circumstances.  We
believe that our audit provides a reasonable basis for our opinion.





A company's internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.  A company's internal control over financial
reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of
the Company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the Company's
assets that could have a material effect on the financial
statements.





Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements.  Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.





In our opinion, The Savannah Bancorp,
Inc. and Subsidiaries maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007, based on criteria
established inInternal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).





We have also audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of The Savannah Bancorp, Inc. and
Subsidiaries as of December 31, 2007 and the related consolidated statements of
income, comprehensive income, stockholders’ equity and cash flows for the period
ended December 31, 2007 and our report dated March 10, 2008 expressed an
unqualified opinion.








/s/
Mauldin & Jenkins, LLC





Albany,
Georgia


March 10,
2008




SAVB 2007 Form
10-K
 - 28
-






Item
9B. Other Information





None








PART
III





Item
10. Directors, Executive Officers and Corporate Governance





Incorporated
herein by reference to the sections entitled "Election of Directors,"
“Information about the Board of Directors and Certain Committees” and "Executive
Compensation and Benefits" in the Registrant’s Proxy Statement dated March 24,
2008 and filed on March 17, 2008.  All transactions required pursuant
to the insider trading regulations were filed on either Form 4 or Form 5 of the
SEC.  The required Code of Ethics disclosures are also incorporated by
reference to the section entitled “Code of Business Conduct and Ethics” in the
Registrant’s Proxy Statement dated March 24, 2008.








Item
11. Executive Compensation





Incorporated
herein by reference to the sections entitled “Information about the Board of
Directors and Certain Committees” under the caption “Compensation Committee” and
"Executive Compensation and Benefits" in the Registrant’s Proxy Statement dated
March 24, 2008 and filed on March 17, 2008.








Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters





Incorporated
herein by reference to the sections entitled "Election of Directors" and
"Ownership of Equity Securities" in the Registrant’s Proxy Statement dated March
24, 2008 and filed on March 17, 2008.








Item
13. Certain Relationships and Related Transactions





Incorporated
by reference, the information contained in Note 5 to the Consolidated Financial
Statements and under the caption "Certain Transactions" in the Registrant’s
Proxy Statement dated March 24, 2008 and filed on March 17, 2008.








Item
14. Principal Accountant Fees and Services





Incorporated
herein by reference to the information under the caption entitled "Principal
Accountant Fees and Services" in the Registrant’s Proxy Statement dated March
24, 2008 and filed on March 17, 2008.




SAVB 2007 Form
10-K
 - 29
-


PART
IV





Item
15. Exhibits and Financial Statement Schedules




(a) The
following documents are filed as part of this report:
 
 1.
              Financial
      statements
 
 Incorporated
herein by reference to the financial statements, together with the applicable
report of independent accountants, are included on pages F-2 through F-25 of the
Financial Statement Section of the 2007 Annual Report. The index for the
financial statements is as follows:
 
 Financial
      Statement
              Page(i) Report of Independent Registered Public Accounting Firm
              F-2(ii) Report of
      Independent Registered Public Accounting Firm
              F-3(iii) Consolidated Balance SheetsDecember
      31, 2007 and 2006
              F-4(iv) Consolidated Statements of Income for the YearsEnded
      December 31, 2007, 2006 and 2005
              F-5(v) Consolidated Statements of Changes in Shareholders'
    Equityfor
      the Years Ended December 31, 2007, 2006 and 2005
              F-6(vi) Consolidated Statements of Cash Flows for the YearsEnded
      December 31, 2007, 2006 and 2005
              F-7(vii) Notes to Consolidated Financial Statements
              F-8
      to F-25
 
 2.
              Required
      financial statement schedules
 
 Other
schedules and exhibits are not required information or are inapplicable and,
therefore, have been omitted.
 
 3.  The exhibits listed in the accompanying index to exhibits are filed or
incorporated by reference as part of this Annual Report on Form
10-K.


SAVB 2007 Form
10-K
 - 30
-


Index to
Exhibits







Exhibit
 Number  Description
 3.1
      *
              Articles
      of Incorporation 3.2
      *
              By-laws
      as amended 10.1
      *
              Lease
      for Bank Site at 25 Bull Street and Assumption of
    Lease 10.5
      *
              Form
      of Organizers' Stock Option Agreement 10.6
      *
              Lease
      for Mall Boulevard Office dated February 14,
  1992 10.7
              The
      Savannah Bancorp, Inc. Incentive Stock Option Plan approved by
      shareholders on April 18, 1995
 10.8
              Amendment
      to The Savannah Bancorp, Inc. Incentive Stock Option Plan approved by
      shareholders on April 16, 1996.
 10.9
      *
              The
      Savannah Bancorp, Inc. 2005 Omnibus Stock Ownership and Long Term
      Incentive Plan approved by shareholders on April 21,
  2005.
 10.10
      *
              Lease
      for Harbourside Community Bank main office dated February 24,
      2006.
 11
              Computation
      of Earnings Per Share **
 ** Data
required by Statement of Financial Accounting Standards No. 128, “Earnings per
Share,” is provided in Note 1 to the consolidated
 financial
statements in the 2007 Annual Report.
 13
              2007
      Annual Report to Shareholders
 21
              Subsidiaries
      of Registrant
 22
              Proxy
      Statement for Annual Meeting - filed in DEF 14A on March 17,
  2008
 23.1
              Consent
      of Mauldin & Jenkins, LLC, Independent Registered Public Accounting
      Firm23.2
              Consent
      of BDO Seidman, LLP, Independent Registered Public Accounting
      Firm
 31.1
              Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002
 31.2
              Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002
 32
              Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
 
 *Items
3.1, 3.2, 10.1 and 10.5 were previously filed by the Company as Exhibits (with
the same respective Exhibit Numbers as indicated herein) to the Company's
Registration Statement (Registration No. 33-33405) filed in February 1990 and
such documents are incorporated herein by reference.
 
 Item 10.6
was filed as an exhibit with the 1992 Annual Report on Form 10-K in March
1993.
 Item 10.9
was filed as an exhibit with the DEF 14A on March 25, 2005.
 Item
10.10 was filed as an exhibit with the Form 8-K filed on March 3,
2006.


SAVB 2007 Form
10-K
 - 31
-





Signature
Page








Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on March 11-13,
2008 by the undersigned, thereunto duly authorized.





THE
      SAVANNAH BANCORP, INC./s/ JOHN C. HELMKEN
      II
              John
      C. Helmken II
              President
      and Chief Executive Officer
              (Principal
      Executive Officer)
            /s/
      ROBERT B. BRISCOE
              Robert
      B. Briscoe
              Chief
      Financial Officer
              (Principal
      Financial and Accounting Officer)Directors:/s/  J.
      WILEY ELLIS
              J.
      Wiley Ellis
              Chairman
      of the Board
            /s/  JOHN C. HELMKEN
      II
              John
      C. Helmken II
            /s/  JAMES W. ROYAL,
      SR.
              James
      W. Royal, Sr./s/  E.
      JAMES BURNSED
              E.
      James Burnsed
              Vice
      Chairman
            /s/  CHARLES E.
      IZLAR
              Charles
      E. Izlar
            /s/  ROBERT T. THOMPSON,
      JR.
              Robert
      T. Thompson, Jr./s/  RUSSELL
      W. CARPENTER
              Russell
      W. Carpenter
            /s/  AARON M.
      LEVY
              Aaron
      M. Levy/s/  ROBERT
      H. DEMERE, JR.
              Robert
      H. Demere, Jr.
            /s/  J. CURTIS LEWIS
      III
              J.
      Curtis Lewis III/s/BERRYMAN
      W. EDWARDS
              Berryman
      W. Edwards
            /s/  M. LANE
      MORRISON
              M.
      Lane Morrison/s/  L.
      CARLTON GILL
              L.
      Carlton Gill
            /s/  J. TOBY ROBERTS,
      SR.
              J.
      Toby Roberts, Sr.













- 32
-


SAVB
2007 Form 10-K