**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      DC 20549





**FORM
      10-K**




**ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





**For
      the fiscal year ended December 31, 2006**





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





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





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





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




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


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





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes __ No X


Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or 15(d) of the Act. Yes __ No X





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


Yes X No_





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





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


Large
                accelerated filer __
            Accelerated
                filerX
            Non-accelerated
                filer __





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act) Yes __ No X





The
      aggregate market value of the voting and non-voting common equity at June 30,
      2006 held by non-affiliates, based on the price of the last trade of $30.26
      per
      share times 4,404,680 non-affiliated shares, was $133,285,617.





APPLICABLE
      ONLY TO CORPORATE REGISTRANTS


As
      of
      February 28 ,
      2007,
      the registrant had outstanding 5,781,063 shares of common stock.




-
            1 -




Portions
      of the 200 6
      Annual
      Report to Shareholders of Registrant are incorporated in Parts I, II and IV
      of
      this report. Portions of the Proxy Statement of Registrant dated March --16,
      2007 are incorporated in Part III of this report.





REGISTRANT'S
      DOCUMENTS INCORPORATED BY REFERENCE





**Document
                Incorporated by Reference**
            **Part
                Number and Item Number of Form**
              **10-K
                Into Which Incorporated**Page
                F-25 and F-26
              of
                Registrant's 2006 Annual Report to Shareholders
            Part
                II, Item 5, Market
              for
                Registrant's Common Equity
              and
                Related Shareholder MattersPages
                F-23-24, F-31, F-35-37
              of
                Registrant's 2006 Annual Report to Shareholders
            Part
                II, Item 6,
              Selected
                Financial DataPages
                F-23 through F-37
              of
                Registrant's 2006 Annual Report to Shareholders
            Part
                II, Item 7, Management's Discussion and
              Analysis
                of Financial Condition and Results of OperationsPages
                F-31 and F-35
              of
                Registrant's 2006 Annual Report to Shareholders
            Part
                II, Item 7A, Quantitative and Qualitative Disclosures about
              Market
                RiskPages
                F-3 through F-22
              of
                Registrant's 2006 Annual Report to Shareholders
            Part
                II, Item 8,
              Financial
                Statements and Supplementary DataPages
                4 through 15 of Registrant's Proxy Statement in connection with its
              Annual
                Shareholders' Meeting to be held April 20, 2007 (“2007 Proxy
                Statement”)
            Part
                III, Item 10,
              Directors
                and Executive OfficersPage
                12 and pages 15 through 21 of Registrant's 2007 Proxy
                Statement
            Part
                III, Item 11,
              Executive
                CompensationPages
                4 through 8 and page 22
              of
                Registrant's 2007 Proxy Statement
            Part
                III, Item 12,
              Security
                Ownership of Certain Beneficial Owners and Management
              and
                Related Shareholder MattersPage
                22 of Registrant's 2007 Proxy Statement
            Part
                III, Item 13,
              Certain
                Relationships and Related TransactionsPages
                22 and 23 of Registrant’s 2007 Proxy Statement
            Part
                III, Item 14,
              Principal
                Accountant Fees and ServicesPages
                F-1 through F-22
              of
                Registrant's 2006 Annual Report to Shareholders
            Part
                IV, Item 15,
              Exhibits
                and Financial Statement Schedules




-
          2 -


**THE
      SAVANNAH BANCORP, INC.**


**2006
      ANNUAL REPORT ON FORM 10-K**


TABLE
      OF CONTENTS





**PART
                I**
            PageItem
                1. Business
            5Item
                1A. Risk Factors
            19Item
                1B. Unresolved Staff Comments
            26Item
                2. Properties
            27Item
                3. Legal Proceedings
            28Item
                4. Submission of Matters to a Vote of Security Holders
            28**PART
                II**Item
                5. Market for Registrant's Common Equity and Related Shareholder
                Matters
            28Item
                6. Selected Financial Data
            28Item
                7. Management's Discussion and Analysis of Financial
                Conditionand
                Results of Operations
            28Item
                7A. Quantitative and Qualitative Disclosures about Market
                Risk
            28Item
                8. Financial Statements and Supplementary Data
            28Item
                9. Changes in and Disagreements with Accountantson
                Accounting and Financial Disclosure
            29Item
                9A. Controls and Procedures
            29Item
                9B. Other Information
            31**PART
                III**Item
                10. Directors and Executive Officers
            31Item
                11. Executive Compensation
            31Item
                12. Security Ownership of Certain Beneficial Owners and
                Managementand
                Related Shareholder Matters
            31Item
                13. Certain Relationships and Related Transactions
            31Item
                14. Principal Accountant Fees and Services
            31**PART
                IV**Item
                15. Exhibits and Financial Statement Schedules
            32Signature
                Page
            34


*SAVB
            2006 Form 10-K*
 -
            3 -


**PART
      I**





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





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


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


**Ø**
            **Inflation,
                interest rate, market and monetary
                fluctuations;**


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


**Ø**
            **Changes
                in United States foreign or military
                policy;**


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


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


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


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


**Ø**
            **Technological
                changes;**


**Ø**
            **Changes
                in consumer spending and saving
                habits;**


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


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


**Ø**
            **Unanticipated
                regulatory or judicial
                proceedings;**


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


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


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





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


*SAVB
            2006 Form 10-K*
 -
            4 -


**Item
      1. Business**





**(a)**  **General
      Development of Business**





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





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





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





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





As
      of
      December 31, 2006, Savannah had six full service offices, total assets of $591
      million, total loans of $508 million, total deposits of $494 million, total
      shareholders’ equity of $48.3 million and $8.3 million in 2006 net income. As of
      December 31, 2006, Bryan Bank had one full service office, total assets of
      $189
      million, total loans of $162 million, total deposits of $161 million, total
      shareholders’ equity of $16.6 million and net income of $4.0 million for the
      year then ended. Harbourside had one full service office, total assets of $66.2
      million, total loans of $50.7 million, total deposits of $52.5 million, total
      shareholders’ equity of $8.7 million and a net loss of $1.3 million for
      2006.





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





**(b)**  **Information
      about Industry Segments**





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




*SAVB
              2006 Form 10-K*
 -
              5 -




segments,
      commercial banking and mortgage banking. In
      2006,
      the Company discontinued the sale of loans on a servicing retained basis and
      reduced the related mortgage banking activities. Mortgage banking does not
      meet
      the criteria for segment reporting.





**(c)**  **Narrative
      Description of Business**





**General**





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





**Banking
      Services**





The
      Subsidiary Banks have approximately 195 full-time and 12 part-time employees
      and
      offer a full range of deposit services, including checking accounts, savings
      accounts and various time deposits ranging from daily money market accounts
      to
      long-term certificates of deposit. The transaction accounts and time deposits
      are tailored to the principal market areas at rates competitive with those
      offered in the area. In addition, retirement accounts such as Individual
      Retirement Accounts and Simplified Employee Pension accounts are offered. The
      FDIC insures all deposit accounts up
      to the
      maximum amount (currently $100,000 per non-retirement account or $250,000 for
      certain retirement accounts). The Subsidiary Banks solicit these accounts from
      individuals, businesses, foundations, organizations, and governmental
      authorities.





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





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





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





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





Harbourside’s
      activities in the mortgage banking area include originating, processing,
      underwriting, closing, warehousing, selling and servicing mortgage loans sold
      into the secondary market, sold to other banks or investors, or held in the
      Subsidiary Banks’ portfolios. Increased fee income at origination and servicing
      fee income over the life of the loan, offset by




*SAVB
              2006 Form 10-K*
 -
              6 -




additional
      costs associated with the expanded services, provide an opportunity for
      increased net earnings. Variations in mortgage origination volume, the value
      of
      loans held for sale, the initial valuation of servicing assets and the ongoing
      valuation of servicing assets for impairment result in the potential for both
      positive and negative earnings volatility.





**Credit
      Risk Management and Allowance for Credit Losses**





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





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





The
      allowance for credit losses is evaluated as described in the Management’s
      Discussion and Analysis of Financial Condition and Results of Operations
      (“MD&A”) section of the 2006 Annual Report to Shareholders (“2006 Annual
      Report”) on pages F-27 and 28.





**Other
      Banking Services**





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





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





**Location
      and Service Area**





The
      Subsidiary Banks’ primary service areas include the city of Savannah and
      surrounding Chatham County, the city of Richmond Hill (which is 20 miles
      southwest of downtown Savannah) and surrounding Bryan County and Hilton Head
      Island, Bluffton and southern Beaufort County in South Carolina. Their secondary
      service areas include Effingham and Liberty




*SAVB
              2006 Form 10-K*
 -
              7 -




Counties,
      Georgia and Jasper County, South Carolina. The Subsidiary Banks’ target
      customers are individuals and small to medium-sized businesses, including
      wholesale, retail and professional service businesses in the community. The
      Subsidiary Banks also target individuals who meet certain net worth and income
      requirements as potential customers for private banking services.





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





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





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





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





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





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





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





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





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





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


*SAVB
            2006 Form 10-K*
 -
            8 -





**Liquidity
      and Interest Rate Sensitivity Management**





Quantitative
      disclosures regarding the Company’s liquidity management are included on pages F-31
      to
      F-33 in the 2006 Annual Report.





**Interest
      Rate Risk**





Quantitative
      discussion of the Company’s interest rate risk is included on pages F-32
      to
      F-33 in the 2006 Annual Report.





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





Bank
      holding companies and commercial and federal savings banks are extensively
      regulated under both federal and state law. These laws and regulations delineate
      the nature and extent of the activities in which commercial and federal savings
      banks may engage. In particular, certain lending authority for federal savings
      banks, for example, commercial, non-residential real property loans and consumer
      loans, is limited to a specified percentage of the institution’s capital or
      assets. To the extent that the following information describes statutory and
      regulatory provisions, it is qualified in its entirety by reference to the
      particular statutory and regulatory provisions. Change in applicable laws or
      regulations may have a material effect on the business of the Company and its
      subsidiaries.





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





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





Regulators
      have adopted risk-based capital requirements that specify the minimum level
      for
      which no prompt corrective action is required. In addition, the FDIC adopts
      FDIC
      insurance assessment rates based on certain risk-based and equity capital
      ratios. The regulators have authority to establish higher capital requirements
      if they determine that the circumstances of a particular institution require
      it
      and to take certain supervisory actions against undercapitalized institutions,
      the severity of which depends upon the institution’s degree of
      undercapitalization. The table in Note 12 to the Consolidated Financial
      Statements in the 2006 Annual Report shows the capital ratios for the Company
      and Subsidiary Banks and the regulatory minimum capital ratios at December
      31,
      2006. The capital ratios of the Company and each Subsidiary Bank exceeded the
      ratios required to be considered "well-capitalized" by the FDIC.





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




*SAVB
              2006 Form 10-K*
 -
              9 -




to
      a bank
      charter. Harbourside passed the test in each of the last two quarters of 2006
      and does not anticipate any future concerns regarding the
      requirements.





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





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





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





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





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





*Affiliation
      Authority* **-** The
      Gramm-Leach-Bliley Act of 1999 (“GLB”) amended section 4 of the Act to provide a
      framework for engaging in new financial activities. Those bank holding companies
      ("BHCs") that qualify to engage in the new financial activities are designated
      as Financial Holding Companies (“FHCs”). Provisions of GLB permit BHCs that
      qualify as FHCs to engage in activities, and acquire companies engaged in
      activities, that are financial in nature or incidental to such financial
      activities. FHCs are also permitted to engage in activities that are
      "complementary" to financial activities if the Fed determines that the activity
      does not pose a substantial risk to the safety or soundness of the institution
      or the financial system in general.





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




*SAVB
              2006 Form 10-K*
 -
              10 -




Fed
      and
      Treasury to establish a consultative process that would negate the need for
      either agency to veto a proposal of the other agency.





*Federal
      Home Loan Bank Reform -* GLB
      reformed the Federal Home Loan Bank (“FHLB”) System, including expanding the
      collateral that a community bank can pledge against FHLB advances, thus giving
      smaller banks access to a substantial new liquidity source. FHLB
      members can also pledge small business and agricultural loans (or securities
      representing a whole interest in such loans) as collateral for
      advances.





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





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


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


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


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


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


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


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





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





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





A
      bank
      holding company and its subsidiaries are prohibited from engaging in certain
      tie-in arrangements in connection with the extension of credit or provision
      of
      any property or service. Thus, a bank may not extend credit, lease or sell
      property or furnish any service or fix or vary the consideration for such on
      the
      condition that (i) the customer should obtain or provide some additional credit,
      property or service from or to such bank (other than a loan, discount, deposit
      or trust service related to and usually provided in connection with a loan,
      discount, deposit or trust service), its bank holding company or any other
      subsidiary of its bank holding company or (ii) the customer may not obtain
      some
      other credit, property or service from a competitor, except to the extent
      reasonable conditions are imposed in a credit transaction to assure the
      soundness of the credit extended.




*SAVB
              2006 Form 10-K*
 -
              11 -





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





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





The
      Subsidiary Banks are members of the FHLB System, which consists of 12 regional
      FHLBs subject to supervision and regulation by the Federal Housing Finance
      Board. The FHLBs maintain central credit facilities primarily for member
      institutions. The Subsidiary Banks, as members of the FHLB of Atlanta, are
      required to hold shares of capital stock in the FHLB of Atlanta in an amount
      at
      least equal to the greater of: (i) 1 percent of the aggregate outstanding
      principal amount of its unpaid residential mortgage loans, home purchase
      contracts and similar obligations as of the beginning of each year, (ii) 4.5
      percent of its advances (borrowings) from the FHLB of Atlanta, or (iii)
      $500,000. Additionally, the FHLB of Atlanta imposed a maximum investment in
      its
      capital stock equal to $100,000 over the required minimum. The Subsidiary Banks
      are in compliance with this requirement at December 31, 2006.





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





**Community
      Reinvestment Act**





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





CRA
      regulations provide for certain disclosure obligations. In accordance with
      the
      CRA, each institution must post a CRA notice advising the public of the right
      to
      comment to the institution and its regulator on the institution's CRA
      performance and to review the CRA public file. Each lending institution must
      maintain for public inspection a public file that includes a listing of branch
      locations and services, a summary of lending activity, a map of its communities,
      and any written comments from the public on its performance in meeting community
      credit needs. Large institutions also are required to collect certain data,
      including the amount and location of originated and purchased small business,
      small farm, community development, and home mortgage loans, and to report this
      data to their regulatory agencies.





Public
      disclosure of written CRA evaluations of financial institutions made by
      regulatory agencies is required under the CRA. This promotes enforcement of
      CRA
      requirements by providing




*SAVB
              2006 Form 10-K*
 -
              12 -




the
      public with the status of a particular institution's community reinvestment
      record. Savannah and Bryan Bank received a "satisfactory" rating on the most
      recent performance evaluations of their CRA efforts by their respective banking
      regulatory agencies. Harbourside has not yet been evaluated.





**Fair
      Lending**





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





**Anti-Money
      Laundering**





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





**Rules
      Adopted by the SEC**





*Certification
      of Disclosure in Companies' Quarterly and Annual Reports* - As
      directed by Section 302(a) of the Sarbanes-Oxley Act of 2002 (“Sarbox”), the SEC
      adopted rules to require an issuer's principal executive and financial officers
      each to certify the financial and other information contained in the issuer's
      quarterly and annual reports. The rules also require these officers to certify
      that (i) they are responsible for establishing, maintaining and regularly
      evaluating the effectiveness of the issuer's internal controls; (ii) they have
      made certain disclosures to the issuer's auditors and the audit committee of
      the
      board of directors about the issuer's internal controls; and (iii) they have
      included information in the issuer's quarterly and annual reports about their
      evaluation and whether there have been significant changes in the issuer's
      internal controls or in other factors that could significantly affect internal
      controls subsequent to the evaluation. In addition, the SEC has adopted rules
      which require issuers to maintain and regularly evaluate the effectiveness
      of
      disclosure controls and procedures designed to ensure that the information
      required in reports filed under the Securities Exchange Act of 1934 is recorded,
      processed, summarized and reported on a timely basis. The effective date of
      this
      requirement was August 29, 2002. The Company has implemented procedures and
      reporting tools to meet the requirements of the SEC certification
      rules.





*Disclosure
      Required by Sections 406 and 407 of Sarbox* -
      The SEC
      adopted rules and amendments requiring publicly traded companies to include
      two
      new types of disclosures in their annual reports filed pursuant to the
      Securities Exchange Act of 1934. First, the rules require a company to disclose
      whether it has at least one "audit committee financial expert" serving on its
      audit committee, and if so, the name of the expert and whether the expert is
      independent of management. A company that does not have an audit committee
      financial expert must disclose this fact and explain why it has no such expert.
      Second, the rules require a company to disclose whether it has adopted a code
      of
      ethics that applies to the company's principal executive




*SAVB
              2006 Form 10-K*
 -
              13 -




officer,
      principal financial officer, principal accounting officer or controller, or
      persons performing similar functions. A company which has not adopted such
      a
      code must disclose this fact and explain why it has not done so. A company
      also
      will be required to promptly disclose amendments to, and waivers from, the
      code
      of ethics relating to any of those officers. The Company posts its Corporate
      Code of Business Ethics & Conduct, Audit Committee Charter and Nominating
      Committee Charter on its Corporate Website located at www.savb.com .





Sections
      302 and 404 of Sarbox specifically require public companies to establish,
      implement, document and evaluate their internal controls for purposes of
      financial statement reporting (i.e. ‘disclosure controls’) and operational
      integrity. In establishing rules to implement both sections 302 and 404, the
      SEC
      makes reference to existing auditing standards issued by the American Institute
      of Certified Public Accountants regarding auditing and internal
      controls.





As
      directed by Section 404 of Sarbox (‘Sarbox 404”), the SEC adopted rules on June
      6, 2003 requiring companies subject to the reporting requirements of the
      Securities Exchange Act of 1934 to include in their annual reports a report
      of
      management on the company's internal control over financial reporting. The
      internal control report must include (i) a statement of management's
      responsibility for establishing and maintaining adequate internal control over
      financial reporting for the company; (ii) management's assessment of the
      effectiveness of the company's internal control over financial reporting as
      of
      the end of the company's most recent fiscal year; (iii) a statement identifying
      the framework used by management to evaluate the effectiveness of the company's
      internal control over financial reporting; and (iv) a statement that the
      registered public accounting firm that audited the company's financial
      statements included in the annual report has issued an attestation report on
      management's assessment of the company's internal control over financial
      reporting. Under the rules, a company is required to file the registered public
      accounting firm's attestation report as part of the annual report. The SEC
      also
      added a requirement that management evaluate and disclose any change in the
      company's internal control over financial reporting that occurred during a
      fiscal quarter that has materially affected, or is reasonably likely to
      materially affect, the company's internal control over financial
      reporting.





Required
      implementation dates of Sarbox 404 have changed since the original rule was
      issued. The Company met the definition of an accelerated filer as of June 30,
      2005. Under current rules and conditions the Company was required to comply,
      and
      did comply, with Sarbox 404 as of December 31, 2006 and 2005. The SEC is
      currently in the process of receiving and evaluating proposals and
      recommendations related to the implementation of the Sarbox 404 requirements
      on
      smaller companies including the definition of smaller companies. There appears
      to be a reasonable probability that the Sarbox 404 implementation rules will
      include changes in the requirements for smaller companies that will lessen
      the
      compliance burden for future periods.





Companies
      must comply with the code of ethics disclosure requirements promulgated under
      Section 406 of Sarbox in their annual reports for fiscal years ending on or
      after July 15, 2003. They also must comply with the requirements regarding
      disclosure of amendments to, and waivers from, their ethics codes on or after
      the date on which they file their first annual report in which the code of
      ethics disclosure is required. Companies similarly must comply with the audit
      committee financial expert disclosure requirements promulgated under Section
      407
      of Sarbox in their annual reports for fiscal years ending on or after July
      15,
      2003. Mr. Charles Izlar was elected to the Company’s Board at the 2004 Annual
      Shareholder’s Meeting. Mr. Izlar was elected by the Board to serve on the Audit
      Committee and designated as the “financial expert.” Mr. Izlar is independent of
      management.





**Recent
      Banking Legislation**





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


*SAVB
            2006 Form 10-K*
 -
            14 -


**Competition**





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





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





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





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

























REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK












*SAVB
            2006 Form 10-K*
 -
            15 -


**SELECTED
      STATISTICAL INFORMATION FOR THE COMPANY**





**Investments**





**Table
      1 - Weighted Average Yields by Maturity**





The
      following table sets forth the amortized cost, fair value and tax-equivalent
      yields by investment type and maturity category at December 31,
      2006:





Amortized
            
            Fair
            
            Taxable
              EquivalentCost
            
            Value
            
            Yield
                (a)(Thousands)
            (%)**Securities
                available for sale:**U.S.
                Treasury, other U.S. Government
              Agencies
                and mortgage-backed:Within
                one year
            $
                12,402
            
            $
                12,325
            
            3.88One
                year to five years
            32,524
            
            32,324
            
            4.79Five
                years to ten years
            3,198
            
            3,178
            
            5.03Over
                ten years
            199
            
            199
            
            5.26Total
            48,323
            
            48,026
            
            4.58Other
                interest-earning investments:Within
                one year
            3,896
            
            3,931
            
            6.24One
                year to five years
            1,389
            
            1,401
            
            7.75Five
                years to ten years
            -
            
            -
            
            -Over
                ten years
            555
            
            559
            
            6.00Total
            5,840
            
            5,891
            
            6.57Total
                securities available for sale
            $
                54,163
            
            $
                53,917
            
            4.79


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








**Loans**





Following
      is certain information regarding the loan portfolio as of December 31, 2006
      on a
      consolidated basis.




**Table
      2 -** **Loan
      Repricing Opportunities**




The
      following table sets forth certain loan maturity and repricing information
      as of
      December 31, 2006. Loan renewals generally reprice relative to the prime rate
      in
      effect at the time of the renewal. Management expects that certain real estate
      mortgage loans which have maturities of one to three years with longer
      amortization periods will renew at maturity.





($
                in thousands)
              
              
              Loan
                Category
            One
              Year
              or
                Less
            After
              One
                Year
              Through
              Five
                years
            Over
              Five
              Years
            TotalReal
                estate-construction and development
            $
                141,745
            $
                19,793
            $
                4,634
            $
                166,172Commercial
            36,952
            19,685
            1,100
            57,737Total
            $178,697
            $39,478
            $5,734
            $223,909Loans
                with fixed rates
            $
                29,919
            $34,796
            $5,657
            $
                70,372Loans
                with floating and adjustable rates
            153,537
            -
            -
            153,537Total
            $183,456
            $34,796
            $
                5,657
            $223,909


*SAVB
              2006 Form 10-K*
 -
              16 -


**Nonaccrual,
      Past Due and Restructured Loans**





At
      December 31, 2006 and 2005, nonperforming loans were $2,231,000 and $1,357,000 ,
      respectively. At December 31, 2006, the Subsidiary Banks had nonaccruing loans
      of $825,000 and
      $1,313,000 in loans past due 90 days or more. Interest income of $23,000 was
      recognized from nonaccrual loans in 2006.





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





**Loan
      Concentrations**





Most
      of
      the Company’s business activity is with customers located within Chatham and
      Bryan County, Georgia and southern Beaufort County, South Carolina. Table 6
      on
      page F-31
      of
      the 2006 Annual Report provides details of the various real estate loan
      concentrations. The Company has no loans that are considered to be highly
      leveraged transactions or foreign credits.





**Table
      3 - Allowance for Credit Losses**





Changes
      in the allowance for credit losses from 2002 through 2006 are summarized as
      follows:





($
                in thousands)
            2006
            2005
            2004
            2003
            2002Balance
                at the beginning of the year
            $
                7,813
            $
                6,389
            $
                5,067
            $
                4,373
            $
                3,826Charge-offs
                - Commercial
            -
            (22)
            (143)
            (161)
            (67)Charge-offs
                - Consumer
            (125)
            (82)
            (112)
            (112)
            (191)Charge-offs
                - Real estate
            (381)
            (48)
            -
            (122)
            (35)Charge-offs
                - Total
            (506)
            (152)
            (255)
            (395)
            (293)Recoveries
                - Commercial
            6
            7
            26
            7
            11Recoveries
                - Consumer
            54
            53
            68
            70
            75Recoveries
                - Real estate
            2
            16
            33
            12
            4Recoveries
                - Total
            62
            76
            127
            89
            90Net
                charge-offs
            (444)
            (76)
            (128)
            (306)
            (203)Provision
                for creditlosses
            1,585
            1,500
            1,450
            1,000
            750Balance
                at the end of the year
            $
                8,954
            $
                7,813
            $
                6,389
            $
                5,067
            $
                4,373Ratio
                of net charge-offs to average loans
            0.08%
            0.01%
            0.09%
            0.13%
            0.09%








*SAVB
            2006 Form 10-K*
 -
            17 -


**Table
      4 - Allocation of Allowance for Credit Losses by Loan Type**





The
      allowance for credit losses is allocated by loan category based on management's
      assessment of risk within the various categories of loans. Loans are segregated
      by category and by credit risk rating within each category. The allowance for
      credit losses is allocated to each category by applying reserve percentages
      to
      each category. These percentages are based upon management's assessment of
      risk
      inherent within each category and the historical and anticipated loss rates
      within each category. The Company’s allocation of the allowance for credit
      losses is presented in the following table:





($
                in thousands)
            2006
            2005
            2004
            2003
            2002Commercial
            $
                900
            $
                700
            $
                650
            $
                600
            $
                650Real
                estate-constructionand
                development
            4,350
            3,750
            2,750
            1,650
            1,450Real
                estate-mortgage
            2,350
            1,900
            1,750
            1,300
            1,300Consumer
            400
            350
            400
            400
            500Unallocated
            954
            1,113
            839
            1,117
            473Total
                allowance forcredit
                losses
            $
                8,954
            $
                7,813
            $
                6,389
            $
                5,067
            $
                4,373





The
      composition of the loan portfolio as a percentage of total loans is presented
      below:





Loan
                Categories
            2006
            2005
            2004
            2003
            2002Commercial
            8.0%
            7.4%
            7.3%
            11.1%
            8.6%Real
                estate-constructionand
                development
            23.1
            23.6
            19.4
            13.4
            13.1Real
                estate-mortgage
            66.6
            66.7
            69.9
            71.1
            68.6Consumer
            2.3
            2.3
            3.4
            4.4
            9.7Total
                loans
            100.0%
            100.0%
            100.0%
            100.0%
            100.0%





Additional
      information regarding accounting estimates in the allowance for credit losses
      is
      included in the MD&A section of the 2006 Annual Report on page F-28 which is
      included as Exhibit 13 to this filing.





**Deposits**





**Deposit
      Average Balances and Rates Paid**





Tables
      8
      and 9 on pages F-36
      and
      F-37 summarize the average balances of the Company’s deposits and the average
      rates paid on such deposits during 2006, 2005 and 2004.





**Table
      5 - Long-term Obligations**





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





($
                in thousands)
            Payments
                Due by PeriodLess
                than
            1
                -
                3
            3
                -
                5
            More
                thanContractual
                Obligations
            Total
            1
                Year
            Years
            Years
            5
                YearsFHLB
                advances - long-term
            $
                13,309
            $
                340
            $
                2,807
            $
                10,011
            $
                151Subordinated
                debt
            10,310
            -
            -
            -
            10,310Operating
                leases - buildings
            11,512
            699
            1,645
            1,182
            7,986Total
            $
                35,131
            $
                1,039
            $
                4,452
            $
                11,193
            $
                18,447


*SAVB
            2006 Form 10-K*
 -
            18 -


**Item 1A.
      Risk Factors**





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





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





**Credit
      Risk**





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





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





Any
      adverse market or economic conditions in coastal Georgia and South Carolina
      may
      disproportionately increase the risk that our borrowers will be unable to make
      their loan payments. In addition, the market value of the real estate securing
      loans could be adversely affected by unfavorable changes in market and economic
      conditions. As of December 31, 2006, approximately 90% of our loans held for
      investment were secured by real estate. Of the commercial real estate loans
      in
      our portfolio, approximately 37% represent properties owned and occupied by
      businesses to which we have extended loans. Any sustained period of increased
      payment delinquencies, foreclosures or losses caused by adverse market or
      economic conditions in coastal Georgia and South Carolina could adversely affect
      the value of our assets, our revenues, results of operations and overall
      financial condition.





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





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





**If
      our allowance for credit losses is not sufficient to cover actual credit losses,
      our earnings could decrease.**





Our
      loan
      customers may not repay their loans according to the terms of these loans and
      the collateral securing the payment of these loans may be insufficient to assure
      repayment. We may experience significant credit losses which could have a
      material adverse effect on our operating results. Our management makes various
      assumptions and judgments about the collectibility of our loans, including
      the
      creditworthiness of our borrowers and the value of the real estate and other
      assets serving as collateral for the repayment of our loans. We maintain an
      allowance for credit losses in an attempt to cover any credit losses which
      may
      occur. In determining the size of the allowance, we rely on an analysis of
      our
      loan portfolio based on historical loss




*SAVB
              2006 Form 10-K*
 -
              19 -




experience,
      volume and types of loans, trends in classification, volume and trends in
      delinquencies and nonaccruals, national and local economic conditions and other
      pertinent information. As we expand into new markets, such as the coastal South
      Carolina market in which Harbourside operates, our determination of the size
      of
      the allowance could be understated due to our lack of familiarity with
      market-specific factors.





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





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





**Market
      Risk**





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





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





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





Changes
      in the level of interest rates also may negatively affect our ability to
      originate loans, the value of our assets and our ability to realize gains from
      the sale of our assets, all of which ultimately affect our earnings. A decline
      in the market value of our assets may limit our ability to borrow additional
      funds or result in our lenders requiring additional collateral from us under
      our
      loan agreements. As a result, we could be required to sell some of our loans
      and
      investments under adverse market conditions, upon terms that are less favorable
      to us, in order to maintain our liquidity. If those sales are made at prices
      lower than the amortized costs of the investments, we will incur losses. While
      rising interest rates since mid-2004 have been favorable to us, there can be
      no
      assurance or guarantee that rates will continue to be favorable to us or that
      we
      will be able to take measures to hedge, on favorable terms or at all, against
      unfavorable events, which could adversely affect our results of operations
      and
      financial condition.





**Monetary
      policies may adversely affect our business and earnings.**





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





*SAVB
            2006 Form 10-K*
 -
            20 -


**Liquidity
      Risk**





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





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





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





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





**Operational
      Risk**





**Our
      recent operating results may not be indicative of our future operating
      results.**





We
      may
      not be able to sustain our historical rate of growth. In addition, our recent
      growth may distort some of our historical financial ratios and statistics.
      For
      example, our earnings grew by 11% in 2006 and 58% in 2005 as compared to the
      prior periods. This can be attributed to a strong lending market in Savannah
      and
      Richmond Hill, Georgia and in Hilton Head Island, South Carolina. Rising
      interest rates have also been favorable to the Company since mid-2004 due to
      an
      ability to reprice interest-earning assets faster than interest-bearing
      liabilities. In the future we may not benefit from such a favorable interest
      rate environment, a beneficial residential mortgage market or expansion into
      neighboring communities. Various factors, such as economic conditions,
      regulatory and legislative considerations and competition, may impede or
      prohibit our ability to expand our market presence, which may adversely affect
      our results of operations.





**Future
      departures of our key personnel may impair our operations.**





We
      are,
      and for the foreseeable future will be, dependent on the services of John C.
      Helmken II, President and Chief Executive Officer of the Company and of
      Savannah; E. James Burnsed, Vice Chairman of the Company and Chairman and Chief
      Executive Officer of Bryan Bank; R. Stephen Stramm, Executive Vice President
      -
      Lending of the Company and of Savannah; Robert B. Briscoe, Executive Vice
      President and Chief Financial Officer of the Company and of Savannah; and Thomas
      W. Lennox, President and Chief Executive Officer of Harbourside. Should the
      services of any of Messrs. Helmken, Burnsed, Stramm, Briscoe or Lennox become
      unavailable, there can be no assurance that a suitable successor could be found
      who will be willing to be employed upon terms and conditions acceptable to
      us. A
      failure to replace any of these individuals promptly, should his services become
      unavailable, could have a material adverse effect on our results of operations
      and financial performance. These risks are heightened by the fact that neither
      the Company nor the Banks have entered into an employment agreement with any
      of
      these individuals. G. Mike Odom, Jr., CEO, resigned on November 17, 2006 to
      pursue other professional interests. An orderly management transition has been
      made in the CEO position; however, additional senior management personnel are
      needed to work with the executive management team.




*SAVB
              2006 Form 10-K*
 -
              21 -





**Our
      continued pace of growth may require us to raise additional capital in the
      future, but that capital may not be available when it is
      needed.**





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





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





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





Harbourside
      opened for business on March 1, 2006 and has a relatively short operating
      history as a bank. The President and CEO resigned on May 2, 2006. G. Mike Odom,
      Jr. served as interim President and CEO until mid-October when Thomas W. Lennox,
      President and CEO, filled the permanent position. Our operations at Harbourside
      are subject to the risks inherent in the establishment of any new business
      and,
      specifically, those of a new bank. Harbourside incurred substantial initial
      expenses and may not be profitable for several quarters, if ever.





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





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





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





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





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





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





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




*SAVB
              2006 Form 10-K*
 -
              22 -





**An
      extended disruption of vital infrastructure could negatively impact our
      business, results of operations, and financial condition.**





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





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





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





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





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





**Common
      Stock Marketability Risk**





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





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




*SAVB
              2006 Form 10-K*
 -
              23 -




classes
      of stock of the Company, and, if so, the conversion price(s), or the rate(s)
      of
      exchange, and the adjustments thereof, if any, at which such conversion or
      exchange may be made, and any other terms and conditions of such conversion
      and
      exchange; (vii) the price or other consideration for which the shares of such
      series shall be issued; (viii) whether the shares of such series which are
      redeemed or converted shall have the status of authorized but unissued shares
      of
      serial preferred stock and whether such shares may be reissued as shares of
      the
      same or any other series of serial preferred stock; and (ix) whether the shares
      of such series shall be entitled to other rights, preferences and privileges.
      Such preferred stock may provide our Board the ability to hinder or discourage
      any attempt to gain control of us by a merger, tender offer at a control premium
      price, proxy contest or otherwise. Consequently, the preferred stock could
      entrench our management. The market price of our common stock could be depressed
      to some extent by the existence of the preferred stock. Moreover, any preferred
      stock that is issued will rank ahead, in terms of dividends, priority and
      liquidation preferences and may have greater voting rights than our Company’s
      common stock. No shares of preferred stock have been issued as of December
      31,
      2006.





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





As
      of
      December 31, 2006, our directors and executive officers, collectively,
      beneficially owned approximately 23% of our outstanding common stock. As a
      result of their ownership, the directors and executive officers, as a group,
      have the ability to significantly influence the outcome of all matters submitted
      to our shareholders for approval, including the election of directors and the
      approval of mergers and other significant corporate transactions, even if their
      interests conflict with those of other shareholders, which could adversely
      affect the market price of our common stock.





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





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





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





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




*SAVB
              2006 Form 10-K*
 -
              24 -





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





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





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





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





We
      have
      various obligations to issue additional shares of common stock in the future.
      These obligations include non-qualified and incentive stock options as detailed
      in the table below.





Options
      outstanding at December 31, 2006 were as follows:





Outstanding
            ExercisableOutstandingCommon
                Options
            Remaining
              Contractual
              Number
            Weighted
              Average
              Life
            Weighted
              Average
              Price
            Number
            Weighted
              Average
              PriceRange
                of exercise prices$5.43
            8,895
            0.01
            $
                5.43
            8,895
            $
                5.43$9.98
                - $11.37
            52,957
            3.20
            10.33
            52,957
            10.33$12.63
                - $13.56
            64,088
            3.81
            13.22
            57,557
            13.24$15.76
                - $17.85
            97,656
            7.10
            16.93
            41,404
            16.55$22.20
                - $28.56
            47,634
            8.41
            23.72
            21,441
            24.78Total
                outstanding
            271,230
            5.56
            $
                15.58
            182,254
            $
                14.12





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





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





Any
      sales
      of large quantities of shares of our common stock, or the perception that any
      such sales are likely to occur, could reduce the market price of our common
      stock. In 2005, we issued 397,273 restricted shares to investors in a private
      placement of our shares which were registered with the SEC on October 21, 2005.
      When the registration statement covering the resale of those restricted shares
      became effective, the holders of those shares are able to offer to sell those
      shares from time to time at the current market price or at negotiated prices.
      If
      holders sell




*SAVB
              2006 Form 10-K*
 -
              25 -




large
      quantities of shares of our common stock, the market price of our common stock
      may decrease and the public market for our common stock may otherwise be
      adversely affected because of the additional shares available in the
      market.





**Our
      common stock has experienced only limited trading.**





Our
      common stock has been quoted and traded on the NASDAQ National Market in the
      United States under the symbol "SAVB" since 1998 and the NASDAQ SmallCap Market
      from 1990 to 1998. In 2006, the NASDAQ National Market was renamed the Global
      Market. The trading volume in our common stock has been relatively low when
      compared with larger companies quoted on the NASDAQ Global Market or listed
      on
      the stock exchanges. We cannot say with any certainty that a more active and
      liquid trading market for our common stock will develop. Because of this, it
      may
      be more difficult for you to sell a substantial number of shares for the same
      price at which you could sell a smaller number of shares.





We
      cannot
      predict the effect, if any, that future sales of our common stock in the market,
      or the availability of shares of common stock for sale in the market, will
      have
      on the market price of our common stock. We, therefore, can give no assurance
      that sales of substantial amounts of our common stock in the market, or the
      potential for large amounts of sales in the market, would not cause the market
      price of our common stock to decline or impair our future ability to raise
      capital through sales of our common stock. As of December 31, 2006, there were
      5,781,381 shares of common stock outstanding. The price of our common stock
      will
      be determined in the marketplace and may be influenced by many factors,
      including the following:





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


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


Ø
            General
                economic and market conditions;


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


Ø
            Earnings
                relative to securities analysts'
                estimates;


Ø
            Changes
                in financial estimates by securities
                analysts;


Ø
            Conditions,
                trends or announcements in the banking
                industry;


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


Ø
            Additions
                or departures of key personnel;


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


Ø
            Other
                factors and events beyond our
                control.





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





**The
      market price of our common stock has risen significantly in a relatively short
      period of time.**





Since
      January 1, 2005, the market price of our common stock has fluctuated from a
      low
      of $21.20 per share to a high of $30.40 per share and closed at $27.25 on
      December 31, 2006. These prices have been restated to reflect the effect of
      a
      5-for-4 stock split in December 2006. There can be no guarantee or assurance
      that the market price of our common stock will remain at or near its current
      level.








**Item
      1B. Unresolved Staff Comments**





None


*SAVB
            2006 Form 10-K*
 -
            26 -


**Item
      2. Properties**





See
      Note
      5 and Note 13 of Notes to Consolidated Financial Statements on page F-13 and
      page F-18 of the Registrant's 2006 Annual Report, which is specifically
      incorporated herein by reference.





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





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





Savannah
      leases approximately 6,500 square feet on the first floor of a two-story
      building located at 400 Mall Boulevard, Savannah, Georgia. This space is used
      for a branch location and the mortgage and construction lending departments.
      The
      building is near the intersection of Mall Boulevard and Hodgson Memorial Drive,
      a location that is convenient to a significant concentration of commercial,
      service, and retail entities. The lease rate increases with the Consumer Price
      Index. The initial lease term was for five years and ended March 31, 1997.
      Savannah committed to exercise the second five-year lease option in February
      2002. There are two additional five-year renewal options included in the terms.
      Savannah is also responsible for its prorata share of increases in the cost
      of
      ad valorem taxes, insurance and maintenance of common areas. Savannah renovated
      the space, constructed a vault, and added a five lane drive-through teller
      facility adjacent to the building.





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





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





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





In
      March
      2002, Savannah entered into a lease agreement, effective May 1, 2002, for
      approximately 5,000 square feet of office space at 450 Mall Boulevard, adjacent
      to the existing branch office at 400 Mall Boulevard. This lease is an addition
      to an existing lease for space at 400 Mall Boulevard that contains renewal
      options through 2017. The operations center is located in this
      space.





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




*SAVB
              2006 Form 10-K*
 -
              27 -





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








**Item** **3.** **Legal
      Proceedings**





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








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





None







**PART
      II**





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





Incorporated
      herein by reference to sections entitled “Table 4 - Market for Registrant's
      Common Equity and Related Shareholder Matters” on page F-25 of the Financial
      Statement Section of the 2006 Annual Report.








**Item
      6. Selected Financial Data**





Incorporated
      herein by reference to sections entitled “Table 1- Selected Financial Condition
      Highlights - Five-Year Comparison,” “Table 2 - Selected Operating Highlights -
      Five-Year Comparison,” “Table 3 - Selected Quarterly Data,” “Table 6 - Loan
      Concentrations,” “Table 8 - Average Balance Sheet and Rate/Volume Analysis-2006
      and 2005” and “Table 9 - Average Balance Sheet and Rate/Volume Analysis-2005 and
      2004” in the Registrant’s MD&A on pages F-23 through F-37 of the Financial
      Statement Section of the 2006 Annual Report. Additional selected financial
      data
      is included on pages 16-18 of this Annual Report on Form 10-K.








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





The
      MD&A on pages F-23 through F-37 of the Financial Statement Section of the
      2006 Annual Report are incorporated herein by reference.








**Item
      7A. Quantitative and Qualitative Disclosures about Market
      Risk**





Incorporated
      herein by reference to the sections entitled “Liquidity and Interest Rate
      Sensitivity Management” and “Table 7 - Cash Flow/Maturity Gap and Repricing
      Data” in the Registrant’s MD&A on pages F-32, F-33 and F-35 of the Financial
      Statement Section of the 2006 Annual Report.








**Item
      8. Financial Statements and Supplementary Data**





(a)


1.
       Financial Statements - See listing in Item 15


2.
            Financial
                Statement Schedules - See Item 15




*SAVB
              2006 Form 10-K*
 -
              28 -





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





None








**Item
      9A. Controls and Procedures**





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





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





Management
      conducted an evaluation of the effectiveness of our internal control over
      financial reporting based on criteria established in *Internal
      Control - Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission. Based
      on this evaluation, management concluded that the Company’s internal control
      over financial reporting was effective as of December 31, 2006. BDO Seidman,
      LLP
      has audited this assessment of our internal control over financial reporting
      and
      their report is included below.





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





*SAVB
            2006 Form 10-K*
 -
            29 -


**Report
      of Independent Registered Public Accounting Firm**





To
      the
      Board of Directors


The
      Savannah Bancorp, Inc.:





We
      have
      audited management’s assessment, included in the accompanying Report of
      Management on Internal Control over Financial Reporting included in Item 9A,
      that The Savannah Bancorp, Inc. and subsidiaries (the “Company”) maintained
      effective internal control over financial reporting as of December 31, 2006,
      based on criteria established in *Internal
      Control -- Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission (the
      “COSO criteria”). The Company’s management is responsible for maintaining
      effective internal control over financial reporting and for its assessment
      of
      the effectiveness of internal control over financial reporting. Our
      responsibility is to express an opinion on management’s assessment and an
      opinion on the effectiveness of The Savannah Bancorp, Inc.’s internal control
      over financial reporting based on our audit.




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




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




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




In
      our
      opinion, management’s assessment that The Savannah Bancorp, Inc. maintained
      effective internal control over financial reporting as of December 31, 2006
      is
      fairly stated, in all material respects, based on the COSO criteria. Also in
      our
      opinion, The Savannah Bancorp, Inc. maintained, in all material respects,
      effective internal control over financial reporting as of December 31, 2006,
      based on the COSO criteria.




We
      have
      also audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheets of The Savannah
      Bancorp, Inc. and subsidiaries as of December 31, 2006 and 2005 and the related
      consolidated statements of income, changes in shareholders’ equity and cash
      flows for each of the three years in the period ended December 31, 2006 and
      our
      report dated March 8, 2007 expressed an unqualified opinion
      thereon.








/s/  BDO
      Seidman, LLP




Atlanta,
      GA


March
      8,
      2007


*SAVB
            2006 Form 10-K*
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            30 -


**Item
      9B. Other Information**





None








**PART
      III**





**Item
      10. Directors and Executive Officers**





Incorporated
      herein by reference to the sections entitled "Election of Directors,"
“Information about the Board of Directors and Certain Committees” and "Executive
      Compensation and Benefits" in the Registrant’s Proxy Statement dated March 16,
      2007 and filed on March 9, 2007. All transactions required pursuant to the
      insider trading regulations were filed on either Form 4 or Form 5 of the SEC
      except as disclosed in the Proxy Statement on page 4. The required Code of
      Ethics disclosures are also incorporated by reference to the section entitled
      “Code of Business Conduct and Ethics” in the Registrant’s Proxy Statement dated
      March 16, 2007.








**Item
      11. Executive Compensation**





Incorporated
      herein by reference to the sections entitled “Information about the Board of
      Directors and Certain Committees” under the caption “Compensation Committee” and
      "Executive Compensation and Benefits" in the Registrant’s Proxy Statement dated
      March 16, 2007 and filed on March 9, 2007.








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





Incorporated
      herein by reference to the sections entitled "Election of Directors" and
      "Ownership of Equity Securities" in the Registrant’s Proxy Statement dated March
      16, 2007 and filed on March 9, 2007.








**Item
      13. Certain Relationships and Related Transactions**





Incorporated
      by reference, the information contained in Note 4 to the Consolidated Financial
      Statements and under the caption "Certain Transactions" in the Registrant’s
      Proxy Statement dated March 16, 2007 and filed on March 9, 2007.








**Item** **14. P** **rincipal
      Accountant Fees and Services**





Incorporated
      herein by reference to the information under the caption entitled "Principal
      Accountant Fees and Services" in the Registrant’s Proxy Statement dated March
      16, 2007 and filed on March 9, 2007.


*SAVB
            2006 Form 10-K*
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            31 -


**PART
      IV**





**Item** **15.** **Exhibits
      and Financial Statement Schedules**





(a)
      The
      following documents are filed as part of this report:





1.
            Financial
                statements





Incorporated
      herein by reference to the financial statements, together with the applicable
      report of independent accountants, are included on pages F-3 through F-22 of
      the
      Financial Statement Section of the 2006 Annual Report. The index for the
      financial statements is as follows:





Financial Statement
            Page(i) Report of Independent Registered Public Accounting Firm
            F-2(ii) Consolidated Balance SheetsDecember
                31, 2006 and 2005
            F-3(iii) Consolidated Statements of Income for the YearsEnded
                December 31, 2006, 2005 and 2004
            F-4(iv) Consolidated Statements of Changes in Shareholders'
                Equityfor
                the Years Ended December 31, 2006, 2005 and 2004
            F-5(v) Consolidated Statements of Cash Flows for the YearsEnded
                December 31, 2006, 2005 and 2004
            F-6(vi) Notes to Consolidated Financial Statements
            F-7
                to F-22





2.
            Required
                financial statement schedules





Other
      schedules and exhibits are not required information or are inapplicable and,
      therefore, have been omitted.








3.  The exhibits listed in the accompanying index to exhibits are filed or
      incorporated by reference as part of this Annual Report on Form
      10-K.











*SAVB
            2006 Form 10-K*
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Index
      to
      Exhibits








Exhibit


Number  Description


3.1
              *
            Articles
              of Incorporation 3.2
              *
            By-laws
              as amended 10.1
              *
            Lease
              for Bank Site at 25 Bull Street and Assumption of
              Lease 10.5
              *
            Form
              of Organizers' Stock Option Agreement 10.6
              *
            Lease
              for Mall Boulevard Office dated February 14,
              1992 10.7
            The
                Savannah Bancorp, Inc. Incentive Stock Option Plan approved by
                shareholders on April 18, 1995


10.8
            Amendment
                to The Savannah Bancorp, Inc. Incentive Stock Option Plan approved
                by
                shareholders on April 16, 1996.


10.9
                *
            The
                Savannah Bancorp, Inc. 2005 Omnibus Stock Ownership and Long Term
                Incentive Plan approved by shareholders on April 21,
                2005.


10.10
                *
            Lease
                for Harbourside Community Bank main office dated February 24,
                2006.


11
            Computation
                of Earnings Per Share **


** Data
      required by Statement of Financial Accounting Standards No. 128, “Earnings per
      Share,” is provided in Note 1 to the consolidated


financial
      statements in the 2006 Annual Report.


13
            2006
              Annual Report to Shareholders


21
            Subsidiaries
                of Registrant


22
            Proxy
              Statement for Annual Meeting - filed in DEF 14A on March 9,
              2007


23.1
            Consent
                of BDO Seidman, LLP, Independent Registered Public Accounting
                Firm


31.1
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002


31.2
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002


32
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002





*Items
      3.1, 3.2, 10.1 and 10.5 were previously filed by the Company as Exhibits (with
      the same respective Exhibit Numbers as indicated herein) to the Company's
      Registration Statement (Registration No. 33-33405) filed in February 1990 and
      such documents are incorporated herein by reference.





Item
      10.6
      was filed as an exhibit with the 1992 Annual Report on Form 10-K in March
      1993.


Item
      10.9
      was filed as an exhibit with the DEF 14A on March 25, 2005.


Item
      10.10 was filed as an exhibit with the Form 8-K filed on March 3,
      2006.


*SAVB
            2006 Form 10-K*
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            33 -





**Signature
      Page**








Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this report to be signed on March 15,
      2007
      by the undersigned, thereunto duly authorized.





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














*SAVB
      2006 Form 10-K*


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