**The      Savannah Bancorp, Inc. and Subsidiaries**

**Financial      Statement Section**

**Index**

|                                                                                               | Page                Number  |
|----------------------------------------------------------------------------------------------------|----------------------------------|
| Index              to Financial Statement Section                                             | F-1                         |
|                                                                                               |                             |
| Report              of Independent Registered Public Accounting Firm                          | F-2                         |
|                                                                                               |                             |
| Consolidated              Balance Sheets                                                      |                             |
| December                31, 2005 and 2004                                                     | F-3                         |
|                                                                                               |                             |
| Consolidated              Statements of Income for the Years                                  |                             |
| Ended                December 31, 2005, 2004 and 2003                                         | F-4                         |
|                                                                                               |                             |
| Consolidated              Statements of Changes in Shareholders'                              |                             |
| Equity                for the Years Ended December 31, 2005,                                  |                             |
| 2004                and 2003                                                                  | F-5                         |
|                                                                                               |                             |
| Consolidated              Statements of Cash Flows for the Years                              |                             |
| Ended                December 31, 2005, 2004 and 2003                                         | F-6                         |
|                                                                                               |                             |
| Notes              to Consolidated Financial Statements                                       | F-7                         |
|                                                                                               |                             |
| Management’s              Discussion and Analysis of Financial                          |                             |
| Condition                and Results of Operations                                            | F-22                        |
|                                                                                               |                             |
| Selected                Five-Year Financial Data - 2001-2005                                  |                             |
| Selected                Financial Condition Highlights                                        | F-22                        |
| Selected                Operating Highlights                                                  | F-23                        |
|                                                                                               |                             |
| Selected                Quarterly Data                                                        | F-24                        |
|                                                                                               |                             |
| Market                for Registrant's Common Equity and                                      |                             |
| Related                Shareholder Matters                                                    | F-24                        |
|                                                                                               |                             |
| Introduction                                                                             | F-25                        |
|                                                                                               |                             |
| Critical                Accounting Estimate                                                   | F-26                        |
|                                                                                               |                             |
| Results                of Operations                                                          |                             |
|                                                                                               |                             |
| 2005                Compared with 2004                                                        | F-27                        |
| 2004                Compared with 2003                                                        | F-28                        |
|                                                                                               |                             |
| Financial                Condition and Capital Resources                                      | F-29                        |
|                                                                                               |                             |
| Loan                Concentrations                                                            | F-29                        |
|                                                                                               |                             |
| Liquidity                and Interest Rate Sensitivity Management                             | F-30                        |
|                                                                                               |                             |
| Off-Balance                Sheet Arrangements                                                 | F-31                        |
|                                                                                               |                             |
| Forward                Looking Statements                                                     | F-32                        |
|                                                                                               |                             |
| Cash                Flow/Maturity Gap and Repricing Data                                      | F-33                        |
|                                                                                               |                             |
| Average                Balance Sheet and Rate/Volume Analysis - 2005 and                2004  | F-34                        |
|                                                                                               |                             |
| Average                Balance Sheet and Rate/Volume Analysis - 2004 and                2003  | F-35                        |

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

**Report      of Independent Registered Public Accounting Firm**

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

**The      Savannah Bancorp, Inc. and Subsidiaries**

**Consolidated      Balance Sheets**

|                                                                                                        | **                                                  December 31,** |
|-------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                        | **2005**                                                                                                                                                                                                                                     | 2004 |
| **Assets**                                                                                                  |                                                                                                                                                                                                                                         |   |
| Cash                and due from banks                                                                      | **$                14,736**                                                                                                                                                                                                                  | $                11,164 |
| Federal                funds sold                                                                           | **11,847**                                                                                                                                                                                                                                   | 12,521 |
| Interest-bearing                deposits in banks                                                           | **5,885**                                                                                                                                                                                                                                    | 13,211 |
| Cash                and cash equivalents                                                                    | **32,468**                                                                                                                                                                                                                                   | 36,896 |
| Securities                available for sale, at fair value (amortized                                      |                                                                                                                                                                                                                                         |   |
| cost                of $44,972 in 2005 and $41,196 in 2004)                                                 | **44,438**                                                                                                                                                                                                                                   | 41,505 |
| Loans                held for sale                                                                          | **10,473**                                                                                                                                                                                                                                   | 26,471 |
| Loans,                net of allowance for credit losses of $7,813in                2005 and $6,389 in 2004 | **605,854**                                                                                                                                                                                                                                  | 493,479 |
| Premises                and equipment, net                                                                  | **5,020**                                                                                                                                                                                                                                    | 4,785 |
| Other                real estate owned                                                                      | **-**                                                                                                                                                                                                                                        | 460 |
| Bank-owned                life insurance                                                                    | **5,551**                                                                                                                                                                                                                                    | 5,349 |
| Other                assets                                                                                 | **14,097**                                                                                                                                                                                                                                   | 8,396 |
| **Total                assets**                                                                             | **$717,901**                                                                                                                                                                                                                                 | $617,341 |
|                                                                                                        |                                                                                                                                                                                                                                         |   |
| **Liabilities**                                                                                             |                                                                                                                                                                                                                                         |   |
| Deposits:                                                                                                   |                                                                                                                                                                                                                                         |   |
| Noninterest-bearing                                                                                         | **$                93,082**                                                                                                                                                                                                                  | $                83,790 |
| Interest-bearing                demand                                                                      | **93,568**                                                                                                                                                                                                                                   | 86,401 |
| Savings                                                                                                     | **19,319**                                                                                                                                                                                                                                   | 18,423 |
| Money                market                                                                                 | **118,413**                                                                                                                                                                                                                                  | 83,443 |
| Time                deposits                                                                                | **276,128**                                                                                                                                                                                                                                  | 234,063 |
| Total                deposits                                                                               | **600,510**                                                                                                                                                                                                                                  | 506,120 |
| Short-term                borrowings                                                                        | **19,902**                                                                                                                                                                                                                                   | 35,069 |
| Federal                Home Loan Bank advances - long-term                                                  | **20,476**                                                                                                                                                                                                                                   | 20,837 |
| Subordinated                debt to nonconsolidated subsidiaries                                            | **10,310**                                                                                                                                                                                                                                   | 10,310 |
| Other                liabilities                                                                            | **8,160**                                                                                                                                                                                                                                    | 4,934 |
| **Total                liabilities**                                                                        | **659,358**                                                                                                                                                                                                                                  | 577,270 |
|                                                                                                        |                                                                                                                                                                                                                                         |   |
| Commitments                and contingencies (Notes 13 and 16)                                              |                                                                                                                                                                                                                                         |   |
|                                                                                                        |                                                                                                                                                                                                                                         |   |
| **Shareholders'                equity**                                                                     |                                                                                                                                                                                                                                         |   |
| Common                stock, par value $1 per share: authorized                                             |                                                                                                                                                                                                                                         |   |
| 20,000,000                shares; issued 4,591,339 and 4,112,448 shares                                     |                                                                                                                                                                                                                                         |   |
| in                2005 and 2004 respectively                                                                | **4,591**                                                                                                                                                                                                                                    | 4,112 |
| Preferred                stock, par value $1 per share:                                                     |                                                                                                                                                                                                                                         |   |
| authorized                10,000,000 shares, none issued                                                    | -                                                                                                                                                                                                                                            | - |
| Additional                paid-in capital                                                                   | **36,257**                                                                                                                                                                                                                                   | 24,232 |
| Retained                earnings                                                                            | **18,272**                                                                                                                                                                                                                                   | 11,539 |
| Treasury                stock, 267 and 282 shares                                                           |                                                                                                                                                                                                                                         |   |
| in                2005 and 2004, respectively                                                               | **(4)**                                                                                                                                                                                                                                      | (4) |
| Accumulated                other comprehensive income (loss), net                                           | **(573)**                                                                                                                                                                                                                                    | 192 |
| **Total                shareholders' equity**                                                               | **58,543**                                                                                                                                                                                                                                   | 40,071 |
| **Total                liabilities and shareholders' equity**                                               | **$717,901**                                                                                                                                                                                                                                 | $617,341 |

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

**The      Savannah Bancorp, Inc. and Subsidiaries**

**Consolidated      Statements of Income**

|                                                              | **                                                   For the Years Ended December 31,** |
|-------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                              | **2005**                                                                                                                                                                                                                                                               | 2004 | 2003 |
| **Interest                and dividend income**                   |                                                                                                                                                                                                                                                                   |   |   |
| Loans,                including fees                              | **$                38,503**                                                                                                                                                                                                                                            | $                25,298 | $                20,644 |
| Loans                held for sale                                | **1,335**                                                                                                                                                                                                                                                              | 1,432 | 39 |
| Investment                securities:                             |                                                                                                                                                                                                                                                                   |   |   |
| Taxable                                                           | **1,325**                                                                                                                                                                                                                                                              | 1,306 | 1,618 |
| Tax-exempt                                                        | **218**                                                                                                                                                                                                                                                                | 282 | 359 |
| Dividends                                                         | **128**                                                                                                                                                                                                                                                                | 87 | 63 |
| Deposits                with banks                                | **473**                                                                                                                                                                                                                                                                | 201 | 102 |
| Federal                funds sold                                 | **376**                                                                                                                                                                                                                                                                | 101 | 112 |
| Total                interest and dividend income                 | **42,358**                                                                                                                                                                                                                                                             | 28,707 | 22,937 |
| **Interest                expense**                               |                                                                                                                                                                                                                                                                   |   |   |
| Deposits                                                          | **12,373**                                                                                                                                                                                                                                                             | 6,462 | 5,346 |
| Short-term                borrowings                              | **675**                                                                                                                                                                                                                                                                | 614 | 262 |
| Federal                Home Loan Bank advances                    | **1,009**                                                                                                                                                                                                                                                              | 1,023 | 1,023 |
| Subordinated                debt                                  | **622**                                                                                                                                                                                                                                                                | 328 | 64 |
| Total                interest expense                             | **14,679**                                                                                                                                                                                                                                                             | 8,427 | 6,695 |
| **Net                interest income**                            | **27,679**                                                                                                                                                                                                                                                             | 20,280 | 16,242 |
| Provision                for credit losses                        | **1,500**                                                                                                                                                                                                                                                              | 1,450 | 1,000 |
| Net                interest income after                          |                                                                                                                                                                                                                                                                   |   |   |
| provision                for credit losses                        | **26,179**                                                                                                                                                                                                                                                             | 18,830 | 15,242 |
| **Noninterest                income**                             |                                                                                                                                                                                                                                                                   |   |   |
| Service                charges on deposit accounts                | **1,622**                                                                                                                                                                                                                                                              | 1,598 | 1,572 |
| Mortgage                related income, net                       | **1,292**                                                                                                                                                                                                                                                              | 1,079 | 776 |
| Trust                fees                                         | **501**                                                                                                                                                                                                                                                                | 442 | 398 |
| Other                operating income                             | **979**                                                                                                                                                                                                                                                                | 890 | 635 |
| Gains                (losses) on sales of other real estate owned | **(7)**                                                                                                                                                                                                                                                                | 91 | - |
| Total                noninterest income                           | **4,387**                                                                                                                                                                                                                                                              | 4,100 | 3,381 |
| **Noninterest                expense**                            |                                                                                                                                                                                                                                                                   |   |   |
| Salaries                and employee benefits                     | **9,530**                                                                                                                                                                                                                                                              | 8,362 | 6,693 |
| Occupancy                and equipment                            | **2,199**                                                                                                                                                                                                                                                              | 1,963 | 1,767 |
| Information                technology                             | **1,244**                                                                                                                                                                                                                                                              | 1,049 | 908 |
| Other                operating expense                            | **3,673**                                                                                                                                                                                                                                                              | 2,880 | 2,287 |
| Total                noninterest expense                          | **16,646**                                                                                                                                                                                                                                                             | 14,254 | 11,655 |
| Income                before income taxes                         | **13,920**                                                                                                                                                                                                                                                             | 8,676 | 6,968 |
| Income                tax expense                                 | **4,880**                                                                                                                                                                                                                                                              | 2,940 | 2,324 |
| **Net                income**                                     | **$9,040**                                                                                                                                                                                                                                                             | $5,736 | $4,644 |
| **Net                income per share: (a)**                      |                                                                                                                                                                                                                                                                   |   |   |
| Basic                                                             | **$                2.09**                                                                                                                                                                                                                                              | $                1.40 | $                1.13 |
| Diluted                                                           | **$                2.04**                                                                                                                                                                                                                                              | $                1.36 | $                1.11 |

| (a)   | Share                and per share amounts have been restated to reflect the effect of                a                5-for-4 stock split in December                2004. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

**The      Savannah Bancorp, Inc. and Subsidiaries**

**Consolidated      Statements of Changes in Shareholders' Equity**

**For      the Years End**
**ed      December 31, 2005, 2004 and 2003**

|                                                                  | **                                               December 31,** |
|-----------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                  | **2005**                                                                                                                                                                                                                   | 2004 | 2003 |
| **Common                shares issued**                               |                                                                                                                                                                                                                       |   |   |
| Shares,                beginning of year                              | **4,112,448**                                                                                                                                                                                                              | 3,290,223 | 2,991,378 |
| Common                stock issued                                    | **397,273**                                                                                                                                                                                                                | - | - |
| Stock                split / dividend                                 | -                                                                                                                                                                                                                          | 822,225 | 298,845 |
| Exercise                of options                                    | **81,618**                                                                                                                                                                                                                 | - | - |
| Shares,                end of year                                    | **4,591,339**                                                                                                                                                                                                              | 4,112,448 | 3,290,223 |
| **Treasury                shares owned**                              |                                                                                                                                                                                                                       |   |   |
| Shares,                beginning of year                              | **282**                                                                                                                                                                                                                    | 8,246 | 8,450 |
| Stock                dividend, issuance, net                          | **(15)**                                                                                                                                                                                                                   | 36 | 845 |
| Exercise                of options, from treasury shares in 2004      |  **-**                                                                                                                                                                                                                | (8,000) | (1,049) |
| Shares,                end of year                                    | **267**                                                                                                                                                                                                                    | 282 | 8,246 |
| **Common                stock**                                       |                                                                                                                                                                                                                       |   |   |
| Balance,                beginning of year                             | **$                4,112**                                                                                                                                                                                                 | $                3,290 | $                2,991 |
| Common                stock issued                                    | **397**                                                                                                                                                                                                                    | - | - |
| Stock                split / dividend                                 | -                                                                                                                                                                                                                          | 822 | 299 |
| Exercise                of options                                    | **82**                                                                                                                                                                                                                     | - | - |
| Balance,                end of year                                   | **4,591**                                                                                                                                                                                                                  | 4,112 | 3,290 |
| **Additional                paid-in capital**                         |                                                                                                                                                                                                                       |   |   |
| Balance,                beginning of year                             | **24,232**                                                                                                                                                                                                                 | 25,109 | 18,557 |
| Common                stock issued, net of issuance costs             | **11,191**                                                                                                                                                                                                                 | - | - |
| Stock                split / dividend                                 | -                                                                                                                                                                                                                          | (822) | 6,551 |
| Exercise                of options                                    | **494**                                                                                                                                                                                                                    | (55) | 1 |
| Tax-benefit                of non-qualified option exercises          | **340**                                                                                                                                                                                                                    | - | - |
| Balance,                end of year                                   | **36,257**                                                                                                                                                                                                                 | 24,232 | 25,109 |
| **Retained                earnings**                                  |                                                                                                                                                                                                                       |   |   |
| Balance,                beginning of year                             | **11,539**                                                                                                                                                                                                                 | 7,965 | 12,261 |
| Net                income                                             | **9,040**                                                                                                                                                                                                                  | 5,736 | 4,644 |
| Dividends                declared                                     | **(2,307)**                                                                                                                                                                                                                | (2,162) | (2,090) |
| Stock                dividend                                         | -                                                                                                                                                                                                                          | - | (6,850) |
| Balance,                end of year                                   | **18,272**                                                                                                                                                                                                                 | 11,539 | 7,965 |
| **Treasury                stock**                                     |                                                                                                                                                                                                                       |   |   |
| Balance,                beginning of year                             | **(4)**                                                                                                                                                                                                                    | (147) | (161) |
| Exercise                of options                                    | -                                                                                                                                                                                                                          | 143 | 14 |
| Balance,                end of year                                   | **(4)**                                                                                                                                                                                                                    | (4) | (147) |
| **Accumulated                other comprehensive income (loss), net** |                                                                                                                                                                                                                       |   |   |
| Balance,                beginning of year                             | **192**                                                                                                                                                                                                                    | 554 | 1,108 |
| Change                in net unrealized gains (losses) on securities  |                                                                                                                                                                                                                       |   |   |
| available                for sale, net of tax                         | **(522)**                                                                                                                                                                                                                  | (362) | (554) |
| Net                change in fair value of derivative                 |                                                                                                                                                                                                                       |   |   |
| instruments,                net of tax                                | **(243)**                                                                                                                                                                                                                  | - | - |
| Balance,                end of year                                   |  **(573)**                                                                                                                                                                                                            | 192 | 554 |
| **Total                shareholders' equity**                         | **$                58,543**                                                                                                                                                                                                | $                40,071 | $                36,771 |

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

**The      Savannah Bancorp, Inc. and Subsidiaries**

**Consolidated      Statements of Cash Flows**

|                                                                                                                     | **For                the Years Ended December                31,                ** |
|--------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ($                in thousands)                                                                                          | **2005**                                                                                                                                                           | 2004 | 2003 |
| **Operating                activities**                                                                                  |                                                                                                                                                               |   |   |
| Net                income                                                                                                | **$                9,040**                                                                                                                                         | $                5,736 | $                4,644 |
| Adjustments                to reconcile net income to cash                                                               |                                                                                                                                                               |   |   |
| provided                by operating activities:                                                                         |                                                                                                                                                               |   |   |
| Provision                for credit losses                                                                               | **1,500**                                                                                                                                                          | 1,450 | 1,000 |
| Loans                originated for sale                                                                                 | **(104,888)**                                                                                                                                                      | (90,730) | (10,393) |
| Proceeds                from sale of loans originated for sale                                                           | **111,824**                                                                                                                                                        | 75,291 | - |
| Net                amortization of securities                                                                            | **102**                                                                                                                                                            | 171 | 264 |
| Depreciation                and amortization                                                                             | **809**                                                                                                                                                            | 743 | 684 |
| Decrease                in deferred income taxes, net                                                                    | **(860)**                                                                                                                                                          | (513) | (207) |
| Gain                on sale of loans, net                                                                                | **(760)**                                                                                                                                                          | (639) | - |
| Loss                (gain) on sale of foreclosed assets                                                                  | **7**                                                                                                                                                              | (91) | - |
| Increase                in CSV of bank-owned life insurance policies                                                     | **(202)**                                                                                                                                                          | (226) | (123) |
| Change                in other assets and other liabilities, net                                                         | **1,995**                                                                                                                                                          | (36) | 361 |
| Net                cash provided by (used in) operating activities                                                       | **18,567**                                                                                                                                                         | (8,844) | (3,770) |
| **Investing                activities**                                                                                  |                                                                                                                                                               |   |   |
| Activity                in available for sale securities                                                                 |                                                                                                                                                               |   |   |
| Purchases                                                                                                                | **(19,396)**                                                                                                                                                       | (29,707) | (13,925) |
| Maturities                and calls                                                                                      | **15,518**                                                                                                                                                         | 26,537 | 28,576 |
| Loan                originations and principal collections, net                                                          | **(104,053)**                                                                                                                                                      | (113,265) | (51,304) |
| Proceeds                from sale of foreclosed assets                                                                   | **453**                                                                                                                                                            | 798 | 115 |
| Investment                in bank-owned life insurance                                                                   | **-**                                                                                                                                                              | - | (5,000) |
| Investment                in low income housing tax credits                                                              | **(339)**                                                                                                                                                          | (1,157) | - |
| Investment                in nonconsolidated subsidiary                                                                  | **(2,709)**                                                                                                                                                        | - | - |
| Additions                to premises and equipment                                                                       | **(1,044)**                                                                                                                                                        | (711) | (697) |
| Net                cash used in investing activities                                                                     | **(111,570)**                                                                                                                                                      | (117,505) | (42,235) |
| **Financing                activities**                                                                                  |                                                                                                                                                               |   |   |
| Net                increase in noninterest-bearing deposits                                                              | **9,292**                                                                                                                                                          | 6,617 | 13,723 |
| Net                increase in interest-bearing deposits                                                                 | **85,098**                                                                                                                                                         | 110,357 | 12,379 |
| Net                (decrease) increase in short-term borrowings to                repurchase and federal funds purchased | **(15,167)**                                                                                                                                                       | 12,820 | 5,255 |
| Net                (decrease) increase in FHLB advances                                                                  | **(361)**                                                                                                                                                          | 428 | (216) |
| Proceeds                from issuance of subordinated debt                                                               | -                                                                                                                                                                  | 4,124 | 6,186 |
| Payment                on note payable                                                                                   | **(484)**                                                                                                                                                          | - | - |
| Dividend                payments                                                                                         | **(2,307)**                                                                                                                                                        | (2,162) | (2,090) |
| Issuance                of common stock                                                                                  | **11,588**                                                                                                                                                         | - | - |
| Exercise                of options                                                                                       | **916**                                                                                                                                                            | 88 | 15 |
| Net                cash provided by financing activities                                                                 | **88,575**                                                                                                                                                         | 132,272 | 35,252 |
| **(Decrease)                increase in cash and cash equivalents**                                                      | **(4,428)**                                                                                                                                                        | 5,923 | (10,753) |
| Cash                and cash equivalents, beginning of year                                                              | **36,896**                                                                                                                                                         | 30,973 | 41,726 |
| Cash                and cash equivalents, end of year                                                                    | $                **32,468**                                                                                                                                        | $                36,896 | $                30,973 |

| **Supplemental                disclosures of cash flow information**      |                        |                   |                   |
|---------------------------------------------------------------------------|-----------------------------|------------------------|------------------------|
| Cash                paid during the year for:                             |                        |                   |                   |
| Interest                on deposits and other borrowings                  | **$                14,199** | $                8,073 | $                6,732 |
| Income                taxes                                               | **4,559**                   | 2,858                  | 2,575                  |
| Noncash                investing activity:                                |                        |                   |                   |
| (Decrease)                in net unrealized gain on investment            |                        |                   |                   |
| securities                available for sale, net of tax                  | **(522)**                   | (362)                  | (554)                  |
| Increase                in net unrealized loss on derivatives, net of tax | **(243)**                   | -                      | -                      |

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

**Notes to          Consolidated          Financial Statements          **

----

**Note      1 - Organization and Summary of Significant Accounting      Policies**

***Principles      of Consolidation***
** **

***Nature      of Operations***

***Segments***

***Use      of Estimates***
*      -*

***Cash      and Cash Equivalents***

***Investment      Securities Available for Sale***
* *

***Loans      Held For Sale***

***Loans      and Loan Fees***

*The            Savannah Bancorp, Inc. - 2005 Annual            Report*

----

**Notes            to Consolidated Financial Statement**
**s            **

----

**Note      1 - Organization and Summary of Significant Accounting Policies      (continued)**

***Allowance      for Credit Losses***
** **

***Servicing      Assets***

***Foreclosed      Assets***

***Premises      and Equipment***

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

**Notes          to Consolidated Financial Statement**
**s          **

----

**Note      1 - Organization and Summary of Significant Accounting Policies      (continued)**

***Bank-Owned      Life Insurance***

***Income      Taxes***

***Earnings      Per Share***

|                                                                 |      |      |      |
|----------------------------------------------------------------------|-----------|-----------|-----------|
| Year                Ended December 31,                               | 2005      | 2004      | 2003      |
| Average                number of common shares outstanding - basic   | 4,317,000 | 4,109,000 | 4,103,000 |
| Effect of                dilutive options                       | 108,000   | 100,000   | 78,000    |
| Average                number of common shares outstanding - diluted | 4,425,000 | 4,209,000 | 4,181,000 |

***Derivative      Instruments and Hedging Activities***

***Other      Comprehensive Income (Loss), Net of Tax***

|                                                      |                   |                   |                   |
|-----------------------------------------------------------|------------------------|------------------------|------------------------|
| ($                in thousands)                           | 2005                   | 2004                   | 2003                   |
| Net                income                                 | $                9,040 | $                5,736 | $                4,644 |
| Change                in net unrealized gains (losses) on |                   |                   |                   |
| securities                available for sale, net of tax  | (522)                  | (362)                  | (554)                  |
| Net                change in fair value of derivative     |                   |                   |                   |
| instruments,                net of tax                    | (243)                  | -                      | -                      |
| Other                comprehensive income, net            | $                8,275 | $                5,374 | $                4,090 |

***Accounting      for Stock-Based Compensation***
**      - **

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

**Notes          to Consolidated Financial Statement**
**s          **

----

**Note      1 - Organization and Summary of Significant Accounting Policies      (continued)**

|                                                        |                  |                  |                  |
|-------------------------------------------------------------|-----------------------|-----------------------|-----------------------|
| ($                in thousands)                             | 2005                  | 2004                  | 2003                  |
| Net                income - as reported                     | $9,040                | $5,736                | $4,644                |
| Stock-based                compensation cost, net of tax    | 133                   | 46                    | 63                    |
| Net                income - pro forma                       | $8,907                | $5,690                | $4,581                |
|                                                        |                  |                  |                  |
| Net                income per share - basic - as reported   | $                2.09 | $                1.40 | $                1.13 |
| Net                income per share - pro forma             | $                2.06 | $                1.39 | $                1.12 |
|                                                        |                  |                  |                  |
| Net                income per share - diluted - as reported | $                2.04 | $                1.36 | $                1.11 |
| Net                income per share - diluted - pro forma   | $                2.01 | $                1.35 | $                1.10 |

|                                                          |                     |                     |                     |
|---------------------------------------------------------------|--------------------------|--------------------------|--------------------------|
|                                                          | 2005                     | 2004                     | 2003                     |
| Weighted                average fair value of options granted | $                12.45   | $                9.75    | $                7.33    |
| Expected                volatility                            | 35.0%                    | 35.0%                    | 30.0%                    |
| Dividend                yield                                 | 1.50%                    | 2.00%                    | 2.50%                    |
| Risk-free                interest rate                        | 4.00%                    | 3.50%                    | 3.00%                    |
| Expected                life                                  | 7.5                years | 7.0                years | 7.0                years |

***Recent      Accounting Pronouncements***

* *

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

**Notes          to Consolidated Financial Statement**
**s          **

----

**Note      2 - Restrictions on Cash and Demand Balances Due from Banks and Interest-Bearing      Bank Balances**

**Note      3 - Securities Available for Sale**

|                                          | 2005                        |
|-----------------------------------------------|-----------------------------|
| ($                in thousands)               | Amortized                   | Unrealized  | Unrealized | Fair |
|                                          | Cost                        | Gains  | Losses | Value |
| Investment                securities:         |                        |   |   |   |
| U.S.                government agencies  | $              28,170  | $              3  | $              (380)  | $              27,793 |
| Mortgage-backed                securities     | 10,137                      | 8 | (256) | 9,889 |
| State                and municipal            | 3,769                       | 91 | - | 3,860                5,604 |
| Other                taxable securities       | 2,896                       | - | - | 2,896                3,107 |
| Total                investment securities    | $                44,972     | $                102 | $                (636) | $                44,438 |
|                                          |                        |   |   |   |   |   |   |
|                                          |                        |
|                                          | 2004                        |
| ($                in thousands)               | Amortized                   | Unrealized  | Unrealized | Fair |
|                                          | Cost                        | Gains | Losses | Value |
| Investment                securities:         |                        |   |   |   |
| U.S.                government agencies  | $              21,640  | $              113  | $              (67)  | $              21,686 |
| Mortgage-backed                securities     | 11,047                      | 89 | (28) | 11,108 |
| State                and municipal            | 5,402                       | 202 | - | 5,604 |
| Other                taxable securities       | 3,107                       | - | - | 3,107 |
| Total                investment securities    | $                41,196     | $                404 | $                (95) | $                41,505 |
|                                          |                        |   |   |   |   |   |   |

|                                                  |                    |                            |
|-------------------------------------------------------|-------------------------|---------------------------------|
| ($                in thousands)                       | AmortizedCost           |  Fair                Value |
| Securities                available for sale:         |                    |                            |
| Due                in one year or less                | $                4,903  | $                4,856          |
| Due                after one year through five years  | 35,640                  | 35,127                          |
| Due                after five years through ten years | 858                     | 846                             |
| Due                after ten years                    | 3,571                   | 3,609                           |
| Total                investment securities            | $                44,972 | $                44,438         |

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

**Notes          to Consolidated Financial Statement**
**s          **

----

**N**
**ote      4 - Loans**

|                                                      |                     |                         |                     |                         |
|-----------------------------------------------------------|--------------------------|------------------------------|--------------------------|------------------------------|
| ($                in thousands)                           |                     | Percent                      |                     | Percent                      |
|                                                      | 2005                     | of                Total      | 2004                     | of                Total      |
| Commercial                                                | $                45,526  | 7.4%                         | $                36,577  | 7.3%                         |
| Real                estate - construction and development | 144,732                  | 23.6     | 97,054                   | 19.4     |
| Real                estate - mortgage                     | 409,253                  | 66.7     | 349,394                  | 69.9     |
| Installment                and other consumer             | 14,156                   | 2.3      | 16,843                   | 3.4      |
| Gross                loans                                | 613,667                  | 100.0%                       | 499,868                  | 100.0%                       |
| Allowance                for credit losses                | (7,813)                  |                         | (6,389)                  |                         |
| Net                loans                                  | $                605,854 |                         | $                493,479 |                         |

|                                                      |   |   |   |
|-----------------------------------------------------------|--------|--------|--------|
| ($                in thousands)                           | 2005   | 2004   | 2003   |
| Balance,              beginning of year              | $6,389 | $5,067 | $4,373 |
| Provision                for credit                losses | 1,500  | 1,450  | 1,000  |
| Charge-offs                                               | (152)  | (256)  | (395)  |
| Recoveries                                                | 76     | 128    | 89     |
| Balance,                end of year                       | $7,813 | $6,389 | $5,067 |

**Note      5 - Premises and Equipment**

| ($                in thousands)                               | Depreciable                Lives | 2005                   | 2004                   |
|---------------------------------------------------------------|----------------------------------|------------------------|------------------------|
| Land                                                          | -                                | $                698   | $                698   |
| Buildings                and improvements                     | 39                - 50           | 2,548                  | 2,453                  |
| Furniture                and banking equipment                |  5                - 15      | 5,130                  | 4,882                  |
| Leasehold                improvements                         | 10                - 39           | 1,423                  | 1,418                  |
| Total                cost                                     |                             | 9,799                  | 9,451                  |
| Less                accumulated depreciation and amortization |                             |  4,779            |  4,666            |
| Premises                and equipment, net                    |                             | $                5,020 | $                4,785 |

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

**Notes          to Consolidated Financial Statement**
**s          **

----

**Note      6 - Deposits**

| Maturity                period                | Amount                           |
|-----------------------------------------------|----------------------------------|
| Three                months or less           | $                34,489,000      |
| Over                three through six months  | 26,277,000                       |
| Over                six through twelve months | 50,411,000                       |
| Over                twelve months             |                  60,789,000 |
| Total                                         | $171,966,000                     |

**Note      7 - Short-Term Borrowings**

| ($                in thousands)                           | Federal                Funds Purchased |   | Securities                Sold Under Repurchase Agreements | FHLBShort-Term                Advances |  NotesPayable     |
|-----------------------------------------------------------|----------------------------------------|--------|------------------------------------------------------------|----------------------------------------|------------------------|
| 2005                                                      |                                   |   |                                                       |                                   |                   |
| Balance                at December 31                     | $                884                   |   | $                13,018                                    | $                4,000                 | $                2,000 |
| Maximum                indebtedness at any month end      | 6,056                                  |   | 16,980                                                     | 30,000                                 | 2,000                  |
| Daily                average indebtedness outstanding     | 1,593                                  |   | 15,462                                                     | 6,800                                  | 421                    |
| Average                rate paid for the year             | 3.20%                                  |   | 2.60%                                                      | 2.83%                                  | 6.99%                  |
| Average                rate paid on period-end borrowings | 4.05%                                  |   | 3.75%                                                      | 4.44%                                  | 7.25%                  |
| 2004                                                      |                                   |   |                                                       |                                   |                   |
| Balance                at December 31                     | $                840                   |   | $                18,229                                    | $                16,000                | -                      |
| Maximum                indebtedness at any month end      | 5,551                                  |   | 25,019                                                     | 36,000                                 | -                      |
| Daily                average indebtedness outstanding     | 2,969                                  |   | 20,450                                                     | 15,642                                 | -                      |
| Average                rate paid for the year             | 1.54%                                  |   | 1.51%                                                      | 1.66%                                  | -                      |
| Average                rate paid on period-end borrowings | 2.12%                                  |   | 1.51%                                                      | 2.44%                                  | -                      |

** **
** **

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

**Notes          to Consolidated Financial Statement**
**s          **

----

**Note      8 - Federal Home Loan Bank Advances - Long-Term**

*Convertible      Advances*

*Long-term      Advances*

*FHLB      Advance Borrowing Capacity -*

**Note      9 - Subordinated Debt to Nonconsolidated Subsidiaries and Other      Borrowings**

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

**Notes          to Consolidated Financial Statement**
**s          **

----

**Note      10 - Income Taxes **

|                              |   |   |   |
|-----------------------------------|--------|--------|--------|
| ($                in thousands)   | 2005   | 2004   | 2003   |
| Current                federal    | $5,227 | $3,171 | $2,390 |
| Current                state      | 513    | 282    | 164    |
| Total                current      | 5,740  | 3,453  | 2,554  |
| Deferred                federal   | (755)  | (464)  | (187)  |
| Deferred                state     | (105)  | (49)   | (43)   |
| Total                deferred     | (860)  | (513)  | (230)  |
| Income                tax expense | $4,880 | $2,940 | $2,324 |

|                                                            |   |   |   |
|-----------------------------------------------------------------|--------|--------|--------|
| ($                in thousands)                                 | 2005   | 2004   | 2003   |
| Tax                provision at 34%                             | $4,733 | $2,950 | $2,369 |
| State                tax, net of federal tax benefit            | 226    | 126    | 111    |
| Benefit                of tax-exempt income,                net | (157)  | (97)   | (126)  |
| Other                                                           | 78     | (39)   | (30)   |
| Income                tax expense                               | $4,880 | $2,940 | $2,324 |

|                                                |   |   |
|-----------------------------------------------------|--------|--------|
| ($                in thousands)                     | 2005   | 2004   |
| Deferred                tax assets:                 |   |   |
| Allowance                for credit losses          | $2,868 | $2,324 |
| Unrealized                losses on securities      | 204    | -      |
| Unamortized                loan fees                | 430    | 364    |
| Unamortized                non-compete costs        | 45     | 51     |
| Unrealized                losses on derivatives     | 149    | -      |
| Other                                               | 340    | 186    |
| Total                deferred tax assets            | 4,036  | 2,925  |
| Deferred                tax liabilities:            |   |   |
| Unrealized                gains on securities       | -      | 118    |
| Depreciation                                        | 471    | 575    |
| Deferred                costs on loans and deposits | 141    | 302    |
| Other                                               | 237    | 74     |
| Total                deferred tax liabilities       | 849    | 1,069  |
| Net                deferred tax assets              | $3,187 | $1,856 |

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

**Notes          to Consolidated Financial Statement**
**s          **

----

**Note      11 - Stock Option Plan and Benefit Plans **

|                                                          | 2005                     | 2004                         | 2003                     |
|---------------------------------------------------------------|--------------------------|------------------------------|--------------------------|
|                                                          |    Shares | WeightedAverageExercisePrice |    Shares | WeightedAverageExercisePrice |    Shares | WeightedAverageExercisePrice |
| Outstanding                at beginningof                year | 295,352                  | $                14.07       |  261,602            |  $                12.50 |  214,628 |  $                10.79 |
| Granted                                                       | 29,503                   | 27.89                        | 43,750                   | 22.31 | 50,000 | 19.79 |
| Exercised                                                     | (81,618)                 | 7.05                         | (10,000)                 | 8.82 | (1,210) | 12.48 |
| Forfeited                                                     | -                        | -                            | -                        | - | (1,816) | 12.48 |
| Outstanding                at end of year                     | 243,237                  | $                18.11       | 295,352                  | 14.07 | 261,602 | 12.50 |
| Exercisable                at end of year                     | 140,959                  | $                15.37       | 185,642                  | $                10.80 | 172,855 | $                9.91 |

|                                                           | Outstanding                                 | Exercisable         |
|----------------------------------------------------------------|---------------------------------------------|---------------------|
|  Outstanding                Common                Options | Remaining                Contractual Number | WeightedAverageLife | WeightedAveragePrice |   Number | WeightedAveragePrice |
| Range                of exercise prices                        |                                        |                |   |   |   |
| $6.79                - $ 8.81                                  | 24,851                                      | 0.31                | $                8.23 | 24,851 | $                8.23 |
| $12.48                - $14.21                                 | 43,863                                      | 4.11                | 12.86 | 40,535 | 12.88 |
| $15.79                - $16.95                                 | 51,270                                      | 4.70                | 16.52 | 40,820 | 16.59 |
| $19.70                - $22.31                                 | 93,750                                      | 8.03                | 20.97 | 28,750 | 20.56 |
| $27.75                - $28.45                                 | 29,503                                      | 9.14                | 27.89 | 6,003 | 28.45 |
| Total                outstanding                               | 243,237                                     | 5.97                | $                18.11 | 140,959 | $                15.37 |

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

**Notes          to Consolidated Financial Statement**
**s          **

----

**Note      12 - Capital Ratios and Dividend Restrictions**

|                                                  | Company                                                   | Savannah                           | Bryan                            |
|-------------------------------------------------------|-----------------------------------------------------------|------------------------------------|----------------------------------|
| ($                in thousands)                       |                     2005    | 2004                     | 2005                   | 2004                   | 2005                   | 2004    |
| Qualifying                Capital                     |                                                      |                               |                             |   |   |   |
| Tier                1 capital                         | $69,116                                    | $50,003             | $43,047           | $34,623    | $13,962    | $11,860    |
| Total                capital                          | 76,617                                     | 56,226              | 48,656            | 39,302    | 15,798    | 13,389    |
|                                                  |                                                      |                               |                             |   |   |   |
| Leverage                Ratios                        |                                                      |                               |                             |   |   |   |
| Tier                1 capital to average assets       | 9.60%                                      | 8.23%               | 7.93%             | 7.56%                   | 8.08%    | 8.08%    |
|                                                  |                                                      |                               |                             |   |   |   |
| Risk-based                Ratios                      |                                                      |                               |                             |   |   |   |
| Tier                1 capital to risk-weighted assets | 11.52%                                     | 9.95%               | 9.60%             | 9.16%    | 9.51%    | 9.70%    |
| Total                capital to risk-weighted assets  | 12.77%                                          | 11.20%                   | 10.85%            | 10.41%    | 10.76%    | 10.95%    |

|                                                  |   |    |        |
|-------------------------------------------------------|--------|---------|-------------|
|                                                  |   |    | Well-       |
| Required                Regulatory Capital Ratios:    |   | Minimum | Capitalized |
| Tier                1 capital to average assets       |   | 4.00%   | 5.00%       |
| Tier                1 capital to risk-weighted assets |   | 4.00%   | 6.00%       |
| Total                capital to risk-weighted assets  |   | 8.00%   | 10.00%      |

**Note      13 - Leases and Commitments**

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

**Notes          to Consolidated Financial Statement**
**s          **

----

**Note      14 - Other Operating Expense**

|                                                                |                 |                 |                 |
|---------------------------------------------------------------------|----------------------|----------------------|----------------------|
| ($                in thousands)                                     | 2005                 | 2004                 | 2003                 |
| Professional                and directors fees                      | $                748 | $                581 | $                386 |
| Regulatory                exams,                FDIC and audit fees | 694                  | 528                  | 326                  |
| Advertising                and sales promotion                      | 294                  | 180                  | 179                  |
| Postage                and courier                                  | 243                  | 231                  | 216                  |
| Stationery                and supplies                              | 239                  | 228                  | 212                  |
| Loans                costs                                          | 170                  | 258                  | 126                  |
| Taxes                and licenses                                   | 154                  | 99                   | 90                   |
| Telephone                                                           | 150                  | 148                  | 111                  |
| Correspondent                bank charges                           | 137                  | 121                  | 117                  |
| Dues                and subscriptions                               | 97                   | 74                   | 53                   |
| Insurance                                                           | 76                   | 59                   | 38                   |
| Pre-opening                expenses                                 | 129                  | -                    | -                    |
| Other                expense                                        | 542                  | 373                  | 433                  |
| Total                other operating expense                        | $3,673               | $2,880               | $2,287               |

**Note      15**
**      - On-Balance Sheet Derivative Instruments and Hedging      Activities**

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

**Notes          to Consolidated Financial Statement**
**s          **

----

**Note      15 - On-Balance Sheet Derivative Instruments and Hedging Activities      (continued)**

|                                      |                         | Notional                 |   | Fair                value |
|-------------------------------------------|------------------------------|--------------------------|--------|---------------------------|
| ($                in thousands)           | Maturity                     | amount                   |   | Asset                     | Liability |
| Cash                flow hedges:          |                         |                     |   |                      |   |
| Interest                rate swap         | November                2010 | $                50,000  |   | $                70       | $                - |
| 6%/9%                Interest rate collar | June                2010     | 40,000                   |   | -                         | 104 |
| 6%                Interest rate floor     | June                2010     | 35,000                   |   | 128                       | - |
| Total                                     |                         | $                125,000 |   | $                198      | $                104 |

**Note      16 - Financial Instruments with Off-Balance Sheet Risk**

*The            Savannah Bancorp, Inc. - 2005 Annual            Report*

----

**Notes            to Consolidated Financial Statement**
**s            **

----

**Note      17 - Fair Value of Financial Instruments**

*Investment      Securities: *

*Loans:      *

*Deposit      liabilities: *

|                                                             | December                31, 2005 | December                31, 2004 |
|------------------------------------------------------------------|----------------------------------|----------------------------------|
| ($                in thousands)                                  |                             | Estimated                        |   | Estimated |
|                                                             | Carrying                         | Fair                             | Carrying | Fair |
|                                                             | Value                            | Value                            | Value | Value |
| Financial                assets:                                 |                             |                             |   |   |
| Cash                and federal funds sold                       | $                26,583          | $                26,583          | $                23,685 | $                23,685 |
| Interest-bearing                deposits                         | 5,885                            | 5,885                            | 13,211 | 13,211 |
| Securities                available for sale                     | 44,438                           | 44,438                           | 41,505 | 41,505 |
| Loans                held for sale                               | 10,473                           | 10,538                           | 26,471 | 26,683 |
| Loans,                net of allowance for credit losses         | 605,854                          | 603,613                          | 493,479 | 492,154 |
|                                                             |                             |                             |   |   |
| Financial                liabilities:                            |                             |                             |   |   |
| Deposits                                                         | 600,510                          | 598,776                          | 506,120 | 506,533 |
| Short-term                borrowings                             | 19,902                           | 19,902                           | 35,069 | 35,069 |
| FHLB                advances - long-term                         | 20,476                           | 20,808                           | 20,837 | 21,947 |
| Subordinated                debt to nonconsolidated subsidiaries | 10,310                           | 10,310                           | 10,310 | 10,310 |

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

**Notes          to Consolidated Financial Statement**
**s          **

----

**Note      18 - The Savannah Bancorp, Inc. (Parent Company Only) Financial      Information**

|                                            |                        |                    |
|-------------------------------------------------|-----------------------------|-------------------------|
|                                            | **2005**                    | 2004                    |
| **Assets**                                      |                        |                    |
| Cash                on deposit                  | **$                14**     | $                22     |
| Interest-bearing                deposits        | **10,307**                  | 3,099                   |
| Investment                in subsidiaries       | **56,436**                  | 46,675                  |
| Premises                and equipment           | **958**                     | 591                     |
| Investment                in nonconsolidated    |                        |                    |
| subsidiary                                      | **2,709**                   | -                       |
| Other                assets                     | **1,161**                   | 659                     |
| Total                assets                     | **$71,585**                 | $51,046                 |
| **Liabilities**                                 |                        |                    |
| Note                payable                     | **$                2,000**  | $                -      |
| Subordinated                debt                | **10,310**                  | 10,310                  |
| Other                liabilities                | **732**                     | 665                     |
| Total                liabilities                | **13,042**                  | 10,975                  |
| **Shareholders'                equity**         |                        |                    |
| Common                stock                     | **4,591**                   | 4,112                   |
| Capital                surplus                  | **36,257**                  | 24,232                  |
| Retained                earnings                | **18,272**                  | 11,539                  |
| Treasury                stock                   | **(4)**                     | (4)                     |
| Accumulated                other                |                        |                    |
| comprehensive                income (loss)      | **(573)**                   | 192                     |
| Total                shareholders’ equity | **58,543**                  | 40,071                  |
| Total                liabilities and equity     | **$                71,585** | $                51,046 |

*The            Savannah Bancorp, Inc. - 2005 Annual            Report*

----

**Notes            to Consolidated Financial Statement**
**s            **

----

**Note      18 - The Savannah Bancorp, Inc. (Parent      Company Only) Financial Information (continued)**

|                                            |       |   |   |
|-------------------------------------------------|------------|--------|--------|
|                                            | **2005**   | 2004   | 2003   |
| Dividends                from subsidiaries      | **$1,250** | $1,850 | $2,050 |
| Interest                income                  | **146**    | 63     | 21     |
| Interest                expense                 | **652**    | 328    | 67     |
| Net                interest and dividend income | **744**    | 1,585  | 2,004  |
| Other                income                     | **58**     | 2      | -      |
| Processing                / management fees     | **3,827**  | 3,117  | 2,542  |
| Total                income                     | **4,629**  | 4,704  | 4,546  |
| Corporate                expenses               | **663**    | 304    | 271    |
| Processing                / management costs    | **3,891**  | 3,172  | 2,547  |
| Other                expenses                   | **4,554**  | 3,476  | 2,818  |
| Income                before income taxes       |       |   |   |
| and                equity in undistributed      |       |   |   |
| net                income of subsidiaries       | **75**     | 1,228  | 1,728  |
| Credit                for income taxes          | **440**    | 231    | 119    |
| Income                before equity in          |       |   |   |
| undistributed                net income         |       |   |   |
| of                subsidiaries                  | **515**    | 1,459  | 1,847  |
| Equity                in undistributed net      |       |   |   |
| income                of subsidiaries           | **8,525**  | 4,277  | 2,797  |
| Net                income                       | **$9,040** | $5,736 | $4,644 |

*The            Savannah Bancorp, Inc. - 2005 Annual            Report*

----

**Notes            to Consolidated Financial Statement**
**s            **

----

**Note      18 - The Savannah Bancorp, Inc. (Parent      Company Only) Financial Information (continued)**

|                                           |        |    |    |
|------------------------------------------------|-------------|---------|---------|
|                                           | **2005**    | 2004    | 2003    |
| **Operating                activities**        |        |    |    |
| Net                income                      | **$9,040**  | $5,736  | $4,644  |
| Adjustments                to reconcile net    |        |    |    |
| income                to cash provided by      |        |    |    |
| operations:                                    |        |    |    |
| Equity                in undistributed net     |        |    |    |
| income                of subsidiaries          | **(8,525)** | (4,277) | (2,797) |
| Depreciation                of equipment       | **259**     | 200     | 159     |
| Change                in other assets and      |        |    |    |
| liabilities,                net                | **(436)**   | (52)    | 58      |
| Net                cash provided by            |        |    |    |
| operating                activities            | **338**     | 1,607   | 2,064   |
| **Investing                activities**        |        |    |    |
| Purchase                of equipment and       |        |    |    |
| software                                       | **(626)**   | (234)   | (129)   |
| Investment                in                   |        |    |    |
| nonconsolidated                subsidiary      | **(2,709)** | -       | -       |
| Capital                contribution to         |        |    |    |
| subsidiary                                     | **(2,000)** | (6,500) | -       |
| Net                cash used in                |        |    |    |
| investing                activities            | **(5,335)** | (6,734) | (129)   |
| **Financing                activities**        |        |    |    |
| Net                increase in short-term      |        |    |    |
| borrowings                                     | **2,000**   | -       | -       |
| Exercise                of options             | **916**     | 88      | 15      |
| Issuance                of common stock        | **11,588**  | -       | -       |
| Proceeds                from subordinated debt | **-**       | 4,124   | 6,186   |
| Dividends                paid                  | **(2,307)** | (2,162) | (2,090) |
| Net                cash provided by            |        |    |    |
| financing                activities            | **12,197**  | 2,050   | 4,111   |
| **Increase                (decrease) in cash** |        |    |    |
| **and                cash equivalents**        | **7,200**   | (3,077) | 6,046   |
| Cash,                beginning of year         | **3,121**   | 6,198   | 152     |
|  Cash,                end of year         | **$10,321** | $3,121  | $6,198  |

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

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

----

**Table      1 - Selected Financial Condition Highlights - Five-Year      Comparison**

|                                                                                    |                       |                   |                   |                   |                   |
|-----------------------------------------------------------------------------------------|----------------------------|------------------------|------------------------|------------------------|------------------------|
| **($                in thousands except share data)**                                   | **2005**                   | 2004                   | 2003                   | 2002                   | 2001                   |
| **Selected                Average Balances**                                            |                       |                   |                   |                   |                   |
|                                                                                    |                       |                   |                   |                   |                   |
| Assets                                                                                  | **$685,163**               | $557,474               | $443,502               | $396,836               | $364,077               |
| Loans                held for sale                                                      | **23,033**                 | 27,209                 | 939                    | -                      | -                      |
| Loans                - net of unearned fees                                             | **565,131**                | 441,421                | 356,006                | 307,285                | 265,189                |
| Securities                                                                              | **41,300**                 | 40,703                 | 44,015                 | 55,692                 | 64,299                 |
| Other                interest-earning assets                                            | **26,168**                 | 22,383                 | 22,137                 | 13,426                 | 17,178                 |
| Total                interest-earning assets                                            | **655,632**                | 531,716                | 422,158                | 376,403                | 346,161                |
| Interest-bearing                deposits                                                | **487,493**                | 371,877                | 300,045                | 271,563                | 256,852                |
| Borrowed                funds                                                           | **55,255**                 | 67,353                 | 40,158                 | 34,341                 | 30,731                 |
| Total                interest-bearing liabilities                                       | **542,748**                | 439,230                | 340,203                | 305,904                | 287,583                |
| Noninterest-bearing                deposits                                             | **89,386**                 | 76,593                 | 65,403                 | 55,250                 | 43,356                 |
| Total                deposits                                                           | **576,879**                | 448,470                | 365,448                | 326,813                | 300,208                |
| Shareholders'                equity                                                     | **47,428**                 | 38,126                 | 35,740                 | 33,398                 | 30,532                 |
| Loan                to deposit ratio - average                                          | **98%**                    | 98%                    | 97%                    | 94%                    | 88%                    |
|                                                                                    |                       |                   |                   |                   |                   |
| **Selected                Financial Data at Year-End**                                  |                       |                   |                   |                   |                   |
|                                                                                    |                       |                   |                   |                   |                   |
| Assets                                                                                  | **$717,901**               | $617,341               | $476,865               | $437,598               | $376,183               |
| Interest-earning                assets                                                  | **685,531**                | 593,035                | 449,025                | 394,756                | 352,089                |
| Loans                held for sale                                                      | **10,473**                 | 26,471                 | 10,393                 | -                      | -                      |
| Loans                - net of unearned fees                                             | **613,667**                | 499,868                | 386,731                | 336,775                | 284,623                |
| Deposits                                                                                | **600,510**                | 506,120                | 389,146                | 363,044                | 309,623                |
| Loan                to deposit ratio                                                    | **102%**                   | 99%                    | 99%                    | 93%                    | 92%                    |
| Interest-bearing                liabilities                                             | **558,116**                | 488,546                | 360,817                | 337,213                | 291,550                |
| Shareholders'                equity                                                     | **58,543**                 | 40,071                 | 36,771                 | 34,756                 | 32,071                 |
| Shareholders'                equity to total assets                                     | **8.15%**                  | 6.49%                  | 7.71%                  | 7.94%                  | 8.53%                  |
| Dividend                payout ratio                                                    | **25.53%**                 | 37.69%                 | 45.00%                 | 44.32%                 | 41.95%                 |
| Risk-based                capital ratios:                                               |                       |                   |                   |                   |                   |
| Tier                1 capital to risk-based assets                                      | **11.52%**                 | 9.95%                  | 10.60%                 | 9.99%                  | 10.77%                 |
| Total                capital to risk-based assets                                       | **12.77%**                 | 11.20%                 | 11.85%                 | 11.24%                 | 12.02%                 |
|                                                                                    |                       |                   |                   |                   |                   |
| ** ****Credit                Quality Data**                                        |                       |                   |                   |                   |                   |
|                                                                                    |                       |                   |                   |                   |                   |
| Nonperforming                assets                                                     | **$                1,357** | $                998   | $                1,525 | $                2,114 | $                587   |
| Nonperforming                loans                                                      | **1,357**                  | 538                    | 598                    | 1,997                  | 587                    |
| Net                credit losses                                                        | **76**                     | 128                    | 306                    | 203                    | 148                    |
| Allowance                for credit losses                                              | **7,813**                  | 6,389                  | 5,067                  | 4,373                  | 3,826                  |
| Nonperforming                loans to loans                                             | **0.22%**                  | 0.11%                  | 0.15%                  | 0.59%                  | 0.21%                  |
| Nonperforming                assets to loans and                other real estate owned | **0.22%**                  | 0.20%                  | 0.39%                  | 0.63%                  | 0.21%                  |
| Net                credit losses to average loans                                       | **0.01%**                  | 0.03%                  | 0.09%                  | 0.07%                  | 0.06%                  |
| Allowance                for credit losses to total loans                               | **1.27%**                  | 1.28%                  | 1.31%                  | 1.30%                  | 1.34%                  |
|                                                                                    |                       |                   |                   |                   |                   |
|  **Per                Share Data at Year-End****(a)**                              |                       |                   |                   |                   |                   |
| Book                value                                                               | **$                12.75** | $                9.74  | $                8.96  | $                8.47  | $                7.86  |
| Common                stock closing price (Nasdaq)                                      | **$                35.48** | $                27.05 | $                23.20 | $                15.25 | $                14.84 |
| Common                shares outstanding (000s)                                         | **4,591**                  | 4,112                  | 4,103                  | 4,101                  | 4,079                  |

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

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

----

**Table      2 - Selected Operating Highlights - Five-Year Comparison**

|                                                                                |                       |                   |                   |                   |                   |
|-------------------------------------------------------------------------------------|----------------------------|------------------------|------------------------|------------------------|------------------------|
| **($                in thousands except share data)**                               | **2005**                   | 2004                   | 2003                   | 2002                   | 2001                   |
| **Summary                of operations**                                            |                       |                   |                   |                   |                   |
| Interest                income - taxable equivalent                                 | **$42,544**                | $28,947                | $23,221                | $23,824                | $27,016                |
| Interest                expense                                                     | **14,679**                 | 8,427                  | 6,695                  | 8,402                  | 12,734                 |
| Net                interest income - taxable equivalent                             | **27,865**                 | 20,520                 | 16,526                 | 15,422                 | 14,282                 |
| Taxable                equivalent adjustment                                        | **(186)**                  | (240)                  | (284)                  | (312)                  | (312)                  |
| Net                interest income                                                  | **27,679**                 | 20,280                 | 16,242                 | 15,110                 | 13,970                 |
| Provision                for credit losses                                          | **1,500**                  | 1,450                  | 1,000                  | 750                    | 605                    |
| Net                interest income after provision                for credit losses | **26,179**                 | 18,830                 | 15,242                 | 14,360                 | 13,365                 |
| Noninterest                income                                                   |                       |                   |                   |                   |                   |
| Service                charges on deposits accounts                                 | **1,622**                  | 1,598                  | 1,572                  | 1,576                  | 1,302                  |
| Mortgage                related income, net                                         | **1,292**                  | 1,079                  | 776                    | 612                    | 443                    |
| Trust                fees                                                           | **501**                    | 442                    | 398                    | 353                    | 317                    |
| Other                operating income                                               | **972**                    | 981                    | 635                    | 469                    | 471                    |
| Gains                on sale of securities                                          | **-**                      | -                      | -                      | -                      | 13                     |
| Total                noninterest income                                             | **4,387**                  | 4,100                  | 3,381                  | 3,010                  | 2,546                  |
| Noninterest                expense                                                  |                       |                   |                   |                   |                   |
| Salaries                and employee benefits                                       | **9,530**                  | 8,362                  | 6,693                  | 6,008                  | 4,974                  |
| Occupancy                and equipment                                              | **2,199**                  | 1,963                  | 1,767                  | 1,678                  | 1,335                  |
| Information                technology                                               | **1,244**                  | 1,049                  | 908                    | 805                    | 985                    |
| Other                operating expense                                              | **3,673**                  | 2,880                  | 2,287                  | 2,231                  | 2,138                  |
| Total                noninterest expense                                            | **16,646**                 | 14,254                 | 11,655                 | 10,722                 | 9,432                  |
| Income                before income taxes                                           | **13,920**                 | 8,676                  | 6,968                  | 6,648                  | 6,479                  |
| Income                tax expense                                                   | **4,880**                  | 2,940                  | 2,324                  | 2,140                  | 2,121                  |
| ** **Net                income                                                 | **$                9,040** | $                5,736 | $                4,644 | $                4,508 | $                4,358 |
| **Net                income per share:**(a)                                         |                       |                   |                   |                   |                   |
| Basic                                                                               | **$                2.09**  | $                1.40  | $                1.13  | $                1.10  | $                1.07  |
| Diluted                                                                             | **$                2.04**  | $                1.36  | $                1.11  | $                1.08  | $                1.05  |
| Cash                dividends paid per share                                   | **$                0.54**  | $                0.52  | $                0.51  | $                0.49  | $                0.45  |
| Average                basic shares outstanding (000s)                              | **4,317**                  | 4,109                  | 4,103                  | 4,100                  | 4,068                  |
| Average                diluted shares outstanding (000s)                            | **4,425**                  | 4,209                  | 4,181                  | 4,160                  | 4,140                  |
|                                                                                |                       |                   |                   |                   |                   |
| **Performance                ratios (averages)**                                    |                       |                   |                   |                   |                   |
| Net                interest margin                                                  | **4.25%**                  | 3.86%                  | 3.91%                  | 4.10%                  | 4.13%                  |
| Return                on average assets                                             | **1.32%**                  | 1.03%                  | 1.05%                  | 1.14%                  | 1.20%                  |
| Return                on average equity                                             | **19.06%**                 | 15.04%                 | 12.99%                 | 13.50%                 | 14.27%                 |
| Efficiency                ratio                                                     | **51.91%**                 | 58.47%                 | 59.40%                 | 59.17%                 | 57.11%                 |

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

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

----

**Table      3 - Selected Quarterly Data**

|                                                                               | **2005**              | 2004                  |
|------------------------------------------------------------------------------------|-----------------------|-----------------------|
| ($                in thousands)                                                    | Fourth                | Third                 | Second   | First | Fourth | Third | Second   | First |
| Net                interest income                                                 | $7,718                | $7,149                | $6,671 | $6,141 | $5,764 | $5,281 | $4,744 | $4,491 |
| Provision                for credit losses                                         | 305                   | 375                   | 315 | 505 | 255 | 320 | 415 | 460 |
| Net                interest income afterprovision                for credit losses | 7,413                 | 6,774                 | 6,356 | 5,636 | 5,509 | 4,961 | 4,329 | 4,031 |
|                                                                                    |
| Noninterest              income                                               | 1,252                 | 1,093                 | 1,048 | 994 | 1,091 | 1,029 | 1,042 | 938 |
| Noninterest                expense                                                 | 4,432                 | 4,239                 | 4,032 | 3,943 | 3,835 | 3,692 | 3,468 | 3,259 |
| Income                before income taxes                                          | 4,233                 | 3,628                 | 3,372 | 2,687 | 2,765 | 2,298 | 1,903 | 1,710 |
| Income                tax expense                                                  | 1,512                 | 1,274                 | 1,188 | 906 | 990 | 754 | 626 | 570 |
| Net                income                                                          | $2,721                | $2,354                | $2,184 | $1,781 | $1,775 | $1,544 | $1,277 | $1,140 |
|                                                                               |                  |                  |   |   |   |   |   |   |
| **Per                share:**(a)                                                   |                  |                  |   |   |   |   |   |   |
| Net                income - basic                                                  | $                .593 | $                .542 | $                .523 | $                .429 | $                .432 | $                .375 | $                .311 | $                .278 |
| Net                income - diluted                                                | $                .578 | $                .527 | $                .511 | $                .418 | $                .420 | $                .367 | $                .303 | $                .271 |
| Dividends                                                                          | $                .135 | $                .135 | $.                135 | $.                135 | $                .132 | $                .132 | $                .132 | $                .128 |
| **Average                shares (000s)**                                           |                  |                  |   |   |   |   |   |   |
| Basic                                                                              | 4,591                 | 4,346                 | 4,177 | 4,153 | 4,112 | 4,113 | 4,109 | 4,103 |
| Diluted                                                                            | 4,709                 | 4,467                 | 4,275 | 4,259 | 4,225 | 4,204 | 4,214 | 4,203 |

**Table      4 - Market for Registrant's Common Equity and Related Shareholder      Matters**

|                                 | **2005** | 2004   |
|--------------------------------------|----------|--------|
| Closing                Market Prices | Fourth   | Third  | Second | First   | Fourth | Third | Second | First |
|                                 |     |   |   |   |   |   |   |   |
| High                                 | $37.50   | $34.54 | $30.95 | $28.85   | $27.60 | $22.60 | $23.12 | $23.20 |
| Low                                  | 34.25    | 30.27  | 27.80 | 26.50   | 21.99 | 20.14 | 21.00 | 21.00 |
| Close                                | 35.48    | 34.50  | 30.95 | 28.85   | 27.05 | 22.16 | 22.60 | 21.78 |

*The            Savannah Bancorp, Inc. - 2005 Annual            Report*

----

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

----

**Introduction**

*The            Savannah Bancorp, Inc. - 2005 Annual            Report*

----

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

----

**C**
**ritical      Accounting Estimate - Allowance for Credit Losses**

*The            Savannah Bancorp, Inc. - 2005 Annual            Report*

----

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

----

**Results      of Operations**

**2005      Compared with 2004**

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

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

----

**2004      Compared with 2003**

*The            Savannah Bancorp, Inc. - 2005 Annual            Report*

----

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

----

**Financial      Condition and Capital Resources**

**Balance      Sheet Activity**

*Loans*

**Table      5**
**      - Loan Concentrations**

| ($                in thousands)                     | **2005  **                    | %                of Total | 2004           | %                of Total | %                Change ($) |
|-----------------------------------------------------|-----------------------------------------|---------------------------|--------------------------|---------------------------|-----------------------------|
| Non-residential                real estate          |                                    |                      |                     |                      |                        |
| Owner-occupied                                      | **$                94,622  ** | *16*                      | $                100,702 | *20*                      | *(6)*                       |
| Non                owner-occupied                   | **76,004                 **        | *12*                      | 70,529                   | *14*                      | *8*                         |
| Construction                                        | **14,601                 **        | *2*                       | 7,710                    | *2*                       | *89*                        |
| Commercial                land and lot development  | **30,643                 **        | *5*                       | 24,645                   | *5*                       | *24*                        |
| Total                non-residential real estate    | **215,870                 **       | *35*                      | 203,586                  | *41*                      | *6*                         |
| Residential                real estate              |                                    |                      |                     |                      |                        |
| Owner-occupied                - 1-4 family          | **68,971                 **        | *11*                      | 50,205                   | *10*                      | *37*                        |
| Non                owner-occupied - 1-4 family      | **58,142                 **        | *10*                      | 48,967                   | *10*                      | *19*                        |
| Construction                                        | **99,954                 **        | *16*                      | 65,451                   | *13*                      | *53*                        |
| Residential                lots                     | **41,859                 **        | *7*                       | 32,441                   | *7*                       | *29*                        |
| Residential                land and lot development | **30,730                 **        | *5*                       | 11,232                   | *2*                       | *174*                       |
| Home                equity lines                    | **39,230                 **        | *6*                       | 35,529                   | *7*                       | *10*                        |
| Total                residential real estate        | **338,886                 **       | *55*                      | 243,825                  | *49*                      | *39*                        |
| Total                real estate loans              | **554,756                 **       | *90*                      | 447,411                  | *90*                      | *24*                        |
| Commercial                                          | **45,526                 **        | *8*                       | 37,049                   | *7*                       | *23*                        |
| Consumer                                            | **14,156                 **        | *2*                       | 16,365                   | *3*                       | *(13)*                      |
| Unearned                fees, net                   | **(771)                 **         | *-*                       | (957)                    | *-*                       | *(19)*                      |
| Total                loans, net of unearned fees    | **$                613,667  **     | *100*                     | $                499,868 | *100*                     | *23*                        |

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

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

----

**Capital      Resources**

**Liquidity      and Interest Rate Sensitivity Management**

*The            Savannah Bancorp, Inc. - 2005 Annual            Report*

----

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

----

**Off-Balance      Sheet Arrangements**

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

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

----

**Forward      Looking Statements**

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

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

----

**Table      6**
**      - Cash Flow/Maturity Gap and Repricing Data**

|                                                    |                    |                                |                                 |                                |                                |                   |                     |
|---------------------------------------------------------|-------------------------|-------------------------------------|--------------------------------------|-------------------------------------|-------------------------------------|------------------------|--------------------------|
| ($                in thousands)                         |                    | 0                -                3 | 3                -                12 | 1                -                3 | 3                -                5 | Over                5  |                     |
|                                                    | Immediate               | Months                              | Months                               | Years                               | Years                               | Years                  | Total                    |
| **Interest-earning                assets**              |                    |                                |                                 |                                |                                |                   |                     |
| Investment                securities                    | $                -      | $                4,589              | $                7,426               | $                15,650             | $                15,373             | $                1,934 | $                44,972  |
| Interest-bearing                deposits                | 5,885                   | -                                   | -                                    | -                                   | -                                   | -                      | 5,885                    |
| Federal                funds sold                       | 11,847                  | -                                   | -                                    | -                                   | -                                   | -                      | 11,847                   |
| Loans                held for sale                      | -                       | 8,487                               | 1,986                                | -                                   | -                                   | -                      | 10,473                   |
| Loans                - fixed rates                      | -                       | 28,387                              | 74,334                               | 129,324                             | 32,364                              | 5,740                  | 270,149                  |
| Loans                - variable rates                   | -                       | 287,606                             | 13,570                               | 12,776                              | 27,422                              | 831                    | 342,205                  |
|  Total                interest-earning assets      |  17,732            |  329,069                       |  97,316                         |  157,750                       |  75,159                        |  8,505            |  685,531            |
| **Interest-bearing                liabilities**         |                    |                                |                                 |                                |                                |                   |                     |
| NOW                and savings **                       | -                       | 5,644                               | 11,289                               | 28,222                              | 33,866                              | 33,866                 | 112,887                  |
| Money                market accounts **                 | -                       | 17,762                              | 41,444                               | 23,682                              | 35,523                              | -                      | 118,411                  |
| Time                deposits                            | -                       | 54,802                              | 132,996                              | 76,476                              | 11,804                              | 52                     | 276,130                  |
| Federal                Home Loan Bank advances          | -                       | 81                                  | 268                                  | 1,599                               | 11,528                              | 11,000                 | 24,476                   |
| Other                borrowings                         | 884                     | 15,018                              | -                                    | -                                   | -                                   | -                      | 15,902                   |
| Subordinated                debt                        | -                       | 10,310                              | -                                    | -                                   | -                                   | -                      | 10,310                   |
|  Total                interest-bearing liabilities |  884               |  103,617                       |  185,997                        |  129,979                       |  92,721                        |  44,918           |  558,116            |
|                                                    |                    |                                |                                 |                                |                                |                   |                     |
| **GAP-Excess                Assets (Liabilities)**      | 16,848                  | 225,452                             | (88,681)                             | 27,771                              | (17,562)                            | (36,413)               | 127,415                  |
|                                                    |                    |                                |                                 |                                |                                |                   |                     |
| **GAP-Cumulative**                                      | $                16,848 | $                242,300            | $                153,619             | $                181,390            | $                163,828            | $127,415               | $                127,415 |
|  **Cumulative                sensitivity ratio *** |  20.06             |  3.32                          |  1.53                           |  1.43                          |  1.32                          |  1.23             |  1.23               |

*The          Savannah Bancorp, Inc. - 2005 Annual          Report*

----

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

----

**Table      7 - Average Balance Sheet and Rate/Volume Analysis - 2005 and      2004**

|                                |                                |   |   | Taxable-Equivalent              |                                         | (a)                Variance     |
|-------------------------------------|-------------------------------------|--------|--------|---------------------------------|----------------------------------------------|---------------------------------|
| Average                Balance      | Average                Rate         |   |   | Interest                (b)     | Vari-                                        | Attributable                to  |
| 2005                      | 2004                      | 2005   | 2004   |                            |                                         | 2005                            | 2004 | ance | Rate | Volume |
| ($                in thousands)     | (%)                                 |   |   | ($                in thousands) |                                         | ($                in thousands) |
|                                |                                |   |   |                            | **Assets**                                   |                            |   |   |   |   |
| $                14,747   | $                14,418   | 3.21   | 1.39   |                            | Interest-bearing                deposits     | $                473            | $                201 | $                272 | $                263 | $                9 |
| 36,999                    | 35,010                    | 3.93   | 3.98   |                            | Investments                - taxable         | 1,453                           | 1,393 | 60 | (18) | 78 |
| 4,301                     | 5,693                     | 9.39   | 9.17   |                            | Investments                - non-taxable     | 404                             | 522 | (118) | 13 | (131) |
| 11,421                    | 7,965                     | 3.29   | 1.27   |                            | Federal                funds sold            | 376                             | 101 | 275 | 159 | 116 |
| 23,033                    | 27,209                    | 5.80   | 5.26   |                            | Loans                held for sale           | 1,335                           | 1,432 | (97) | 147 | (244) |
| 565,131                   | 441,421                   | 6.81   | 5.73   |                            | Loans                (c)                     | 38,503                          | 25,298 | 13,205 | 4,767 | 8,438 |
| 655,632                   | 531,716                   | 6.49   | 5.44   |                            | Total                interest-earning assets | 42,544                          | 28,947 | 13,597 | 5,331 | 8,266 |
| 29,531                    | 25,758                    |   |   |                            | Noninterest-earning                assets    |                            |   |   |   |   |
| $685,163                  | $557,474                  |   |   |                            | Total                assets                  |                            |   |   |   |   |
|                                |                                |   |   |                            |                                         |                            |   |   |   |   |
|                                |                                |   |   |                            | **Liabilities                and equity**    |                            |   |   |   |   |
|                                |                                |   |   |                            | Deposits                                     |                            |   |   |   |   |
| $                89,963   | $                85,824   | 0.77   | 0.36   |                            | NOW                accounts                  | 697                             | 306 | 391 | 352 | 39 |
| 20,020                    | 18,828                    | 0.93   | 0.50   |                            | Savings                accounts              | 187                             | 94 | 93 | 81 | 12 |
| 104,023                   | 76,748                    | 2.35   | 1.15   |                            | Money                market accounts         | 2,443                           | 879 | 1,564 | 921 | 643 |
| 76,661                    | 64,278                    | 3.45   | 2.76   |                            | CDs,                $100M or more            | 2,642                           | 1,775 | 867 | 444 | 423 |
| 112,347                   | 48,798                    | 3.24   | 2.83   |                            | CDs,                broker                   | 3,640                           | 1,381 | 2,259 | 200 | 2,059 |
| 84,479                    | 77,401                    | 3.27   | 2.62   |                            | Other                time deposits           | 2,764                           | 2,027 | 737 | 503 | 234 |
|                                |                                |   |   |                            | Total                interest-bearing        |                            |   |   |   |   |
| 487,493                   | 371,877                   | 2.54   | 1.74   |                            |                  deposits               | 12,373                          | 6,462 | 5,911 | 2,501 | 3,410 |
| 20,669                    | 20,837                    | 4.88   | 4.91   |                            | FHLB                advances - long-term     | 1,009                           | 1,023 | (14) | (6) | (8) |
| 24,276                    | 39,061                    | 2.78   | 1.57   |                            | Short-term                borrowings         | 675                             | 614 | 61 | 473 | (412) |
| 10,310                    | 7,455                     | 6.03   | 4.40   |                            | Subordinated                debt             | 622                             | 328 | 294 | 122 | 172 |
|                                |                                |   |   |                            | Total                interest-bearing        |                            |   |   |   |   |
| 542,748                   | 439,230                   | 2.70   | 1.92   |                            |                  liabilities            | 14,679                          | 8,427 | 6,252 | 3,090 | 3,162 |
| 89,386                    | 76,593                    |   |   |                            | Noninterest-bearing                deposits  |                            |   |   |   |   |
| 5,601                     | 3,525                     |   |   |                            | Other                liabilities             |                            |   |   |   |   |
| 47,428                    | 38,126                    |   |   |                            | Shareholders'                equity          |                            |   |   |   |   |
| $685,163                  | $557,474                  |   |   |                            | Liabilities                and equity        |                            |   |   |   |   |
|                                |                                | 3.79   | 3.52   |                            | Interest                rate spread          |                            |   |   |   |   |
|                                |                                | 4.25   | 3.86   |                            | Net                interest margin           |                            |   |   |   |   |
|                                |                                |   |   |                            | Net                interest income           | $27,865                         | $20,520 | $7,345 | $2,241 | $5,104 |
| $112,884                  | $92,486                   |   |   |                            | Net                earning assets            |                            |   |   |   |   |
| $576,879                  | $448,470                  |   |   |                            | Average                deposits              |                            |   |   |   |   |
|                                |                                | 2.14   | 1.44   |                            | Average                cost of deposits      |                            |   |   |   |   |
| 98%                  | 98%                  |   |   |                            | Average                loan to deposit ratio |                            |   |   |   |   |

*The            Savannah Bancorp, Inc. - 2005 Annual            Report*

----

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

----

**Table        8 - Average Balance Sheet and Rate/Volume Analysis - 2004 and        2003**

|                            |                        |   |   |                            |                                            | Taxable-Equivalent              |                 | (a)                Variance |
|---------------------------------|-----------------------------|--------|--------|---------------------------------|-------------------------------------------------|---------------------------------|----------------------|-----------------------------|
| Average                Balance  | Average                Rate |   |   | Interest                (b)     | Vari-                                           | Attributable                to  |
| 2004                            | 2003                        | 2004   | 2003   |                            |                                            | 2004                            | 2003                 | ance                        | Rate | Volume |
| ($                in thousands) | (%)                         |   |   | ($                in thousands) |                                            | ($                in thousands) |
|                            |                        |   |   |                            | **Assets**                                      |                            |                 |                        |   |   |
| $                14,418         | $                10,483     | 1.39   | 0.97   |                            | Interest-bearing                deposits        | $                201            | $                102 | $                99         | $                44 | $                55 |
| 35,010                          | 36,952                      | 3.98   | 4.55   |                            | Investments                - taxable            | 1,393                           | 1,681                | (288)                       | (211) | (77) |
| 5,693                           | 7,063                       | 9.17   | 8.99   |                            | Investments                - non-taxable        | 522                             | 635                  | (113)                       | 13 | (126) |   |
| 7,965                           | 10,715                      | 1.27   | 1.05   |                            | Federal                funds sold               | 101                             | 112                  | (11)                        | 24 | (35) |   |
| 27,209                          | 939                         | 5.26   | 4.15   |                            | Loans                held for sale              | 1,432                           | 39                   | 1,393                       | 10 | 1,383 |   |
| 441,421                         | 356,006                     | 5.73   | 5.80   |                            | Loans                (c)                        | 25,298                          | 20,644               | 4,654                       | (241) | 4,895 |
| 531,716                         | 422,158                     | 5.44   | 5.50   |                            | Total                interest-earning assets    | 28,947                          | 23,213               | 5,734                       | (230) | 5,964 |
| 25,758                          | 21,344                      |   |   |                            | Noninterest-earning                assets       |                            |                 |                        |   |   |
| $557,474                        | $443,502                    |   |   |                            | Total                assets                     |                            |                 |                        |   |   |
|                            |                        |   |   |                            |                                            |                            |                 |                        |   |   |
|                            |                        |   |   |                            |  **Liabilities                and equity** |                            |                 |                        |   |   |
|                            |                        |   |   |                            | Deposits                                        |                            |                 |                        |   |   |
| $                85,824         | $                75,952     | 0.36   | 0.37   |                            | NOW                accounts                     | 306                             | 280                  | 26                          | (9) | 35 |
| 18,828                          | 15,626                      | 0.50   | 0.61   |                            | Savings                accounts                 | 94                              | 96                   | (2)                         | (18) | 16 |
| 76,748                          | 66,472                      | 1.15   | 1.16   |                            | Money                market accounts            | 879                             | 773                  | 106                         | (12) | 118 |
| 64,278                          | 63,246                      | 2.76   | 3.00   |                            | CDs,                $100M or more               | 1,775                           | 1,897                | (122)                       | (150) | 28 |
| 48,798                          | *-*                         | 2.83   | *-*    |                            | CDs,                broker                      | 1,381                           | *-*                  | 1,381                       | *-* | 1,381 |
| 77,401                          | 79,059                      | 2.62   | 2.91   |                            | Other                time deposits              | 2,027                           | 2,300                | (273)                       | (230) | (43) |
|                            |                        |   |   |                            | Total                interest-bearing           |                            |                 |                        |   |   |
| 371,877                         | 300,355                     | 1.74   | 1.78   |                            |                  deposits                  | 6,462                           | 5,346                | 1,116                       | (127) | 1,243 |
| 20,837                          | 20,517                      | 4.91   | 4.99   |                            | FHLB                advances - long-term        | 1,023                           | 1,023                | *-*                         | (16) | 16 |
| 39,061                          | 17,738                      | 1.57   | 1.46   |                            | Short-term                borrowings            | 614                             | 259                  | 355                         | 20 | 335 |
| 7,455                           | 1,593                       | 4.40   | 4.21   |                            | Subordinated                debt                | 328                             | 67                   | 261                         | 3 | 258 |
|                            |                        |   |   |                            | Total                interest-bearing           |                            |                 |                        |   |   |
| 439,230                         | 340,203                     | 1.92   | 1.97   |                            |                  liabilities               | 8,427                           | 6,695                | 1,732                       | (168) | 1,900 |
| 76,593                          | 65,403                      |   |   |                            | Noninterest-bearing                deposits     |                            |                 |                        |   |   |
| 3,525                           | 2,156                       |   |   |                            | Other                liabilities                |                            |                 |                        |   |   |
| 38,126                          | 35,740                      |   |   |                            | Shareholders’                equity       |                            |                 |                        |   |   |
| $557,474                        | $443,502                    |   |   |                            | Liabilities                and equity           |                            |                 |                        |   |   |
|                            |                        | 3.52   | 3.53   |                            | Interest                rate spread             |                            |                 |                        |   |   |
|                            |                        | 3.86   | 3.91   |                            | Net                interest margin              |                            |                 |                        |   |   |
|                            |                        |   |   |                            | Net                interest income              | $20,520                         | $16,518              | $                4,002      | $                (62) | $                4,064 |
| $                92,486         | $                81,955     |   |   |                            | Net                earning assets               |                            |                 |                        |   |   |
| $448,470                        | $365,758                    |   |   |                            | Average                deposits                 |                            |                 |                        |   |   |
|                            |                        | 1.44   | 1.46   |                            | Average                cost of deposits         |                            |                 |                        |   |   |
| 98%                             | 97%                         |   |   |                            | Average                loan to deposit ratio    |                            |                 |                        |   |   |

*The            Savannah Bancorp, Inc. - 2005 Annual            Report*

----