**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, 2005**




**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 Exchange Act


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





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Exchange 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 Exchange Act 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 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 12 b-2 of the
      Exchange Act. (Check
      one):


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





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





The
      aggregate market value of the voting and non-voting common equity at June 30,
      2005 held by non-affiliates, based on the price of the last trade of $30.95
      per
      share times 3,197,763 non-affiliated shares, was $98,970,765.





APPLICABLE
      ONLY TO CORPORATE REGISTRANTS


As
      of
      February 28, 2006, the registrant had outstanding 4 ,610,317
      shares of common stock.


Portions
      of the 2005 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, 2005 are incorporated in Part III of this report.





-1-


**Registrant's
      Documents Incorporated by Reference**





**Document****Incorporated****by
                Reference******
            **Part
                Number and Item****Number
                of**
              **Form
                10-K Into****Which
                Incorporated**Page
                F-24
              of
                Registrant's 2005 Annual
              Report
                to Shareholders
            Part
                II, Item 5, Market
              for
                Registrant's Common Equity
              and
                Related Shareholder MattersPages
                F-22-24, F-29, F-33-35
              of
                Registrant's 2005 Annual
              Report
                to Shareholders
            Part
                II, Item 6,
              Selected
                Financial DataPages
                F-22 through F-35
              of
                Registrant's 2005 Annual
              Report
                to Shareholders
            Part
                II, Item 7,
              Management's
                Discussion and
              Analysis
                of Financial Condition
              And
                Results of OperationsPages
                F-30 and F-33 of
              Registrant's
                2005 Annual
              Report
                to Shareholders
            Part
                II, Item 7A, Quantitative
              and
                Qualitative Disclosures
              About
                Market RiskPages
                F-1 through F-21
              of
                Registrant's 2005
              Annual
                Report to Shareholders
            Part
                II, Item 8,
              Financial
                Statements and
              Supplementary
                DataPages
                4 through 8, and page 18
              of
                Registrant's Proxy Statement in
              connection
                with its Annual Shareholders'
              Meeting
                to be held April 20, 2006
              (“2006
                Proxy Statement”)
            Part
                III, Item 10,
              Directors
                and Executive
              Officers
                of the RegistrantPages
                14 through 16
              of
                Registrant's 2006 Proxy Statement
            Part
                III, Item 11,
              Executive
                CompensationPages
                4 through 8, and page 18
              of
                Registrant's 2006 Proxy Statement
            Part
                III, Item 12,
              Security
                Ownership of Certain Beneficial Owners, Management and Related Shareholder
                MattersPage
                18 of Registrant's 2006 Proxy
              Statement
            Part
                III, Item 13,
              Certain
                Relationships
              and
                Related TransactionsPage
                18 of Registrant’s 2006 Proxy
              Statement
            Part
                III, Item 14,
              Principal
                Accountant Fees and ServicesPages
                F-1 through F-21
              of
                Registrant's 2005
              Annual
                Report to Shareholders
            Part
                IV, Item 15,
              Exhibits
                and Financial
              Statement
                Schedules




SAVB
          2005
          Form 10-K
 -2-


**THE
      SAVANNAH BANCORP, INC.**


**2005
      ANNUAL REPORT ON FORM 10-K**


**TABLE
      OF CONTENTS**







**PART
                I**
            PageItem
                1. Business
            5Item
                1A. Risk Factors
            18Item
                1B. Unresolved Staff Comments
            25Item
                2. Properties
            26Item
                3. Legal Proceedings
            27Item
                4. Submission of Matters to a Vote of Security Holders
            27**PART
                II**Item
                5. Market for Registrant's Common Equityand
                Related Shareholder Matters
            27Item
                6. Selected Financial Data
            27Item
                7. Management's Discussion and Analysisof
                Financial Condition and Results of Operations
            27Item
                7A. Quantitative and Qualitative Disclosures about Market
                Risk
            27Item
                8. Financial Statements and Supplementary Data
            27Item
                9. Changes in and Disagreements with Accountantson
                Accounting and Financial Disclosure
            28Item
                9A. Controls and Procedures
            28Item
                9B. Other Information
            29**PART
                III**Item
                10. Directors and Executive Officers of the Registrant
            30Item
                11. Executive Compensation
            30Item
                12. Security Ownership of Certain BeneficialOwners
                and Management and RelatedShareholder
                Matters
            30Item
                13. Certain Relationships and Related Transactions
            30Item
                14. Principal Accountant Fees and Services
            30**PART
                IV**Item
                15. Exhibits and Financial Statement Schedules
            31Signature
                page
            33




SAVB
            2005
            Form 10-K
 -3-


**PART
      I**





**THE
      SAVANNAH BANCORP, INC. (THE COMPANY) MAY, FROM TIME TO TIME, MAKE WRITTEN OR
      ORAL “FORWARD-LOOKING STATEMENTS”, INCLUDING STATEMENTS CONTAINED IN THE
      COMPANY’S FILINGS WITH THE SECURITIES AND EXCHANGE 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, WHICH ARE MADE IN
      GOOD
      FAITH BY THE COMPANY PURSUANT TO THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE
      SECURITIES LITIGATION REFORM ACT OF 1995.**





**THESE
      FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS
      OF THE COMPANY’S PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND INTENTIONS, THAT
      ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS (SOME OF WHICH ARE
      BEYOND THE COMPANY’S CONTROL). THE FOLLOWING FACTORS, AMONG OTHERS, COULD CAUSE
      THE COMPANY’S FINANCIAL PERFORMANCE TO DIFFER MATERIALLY FROM THE PLANS,
      OBJECTIVES, EXPECTATIONS, ESTIMATES AND INTENTIONS EXPRESSED IN SUCH
      FORWARD-LOOKING STATEMENTS: THE STRENGTH OF THE UNITED STATES ECONOMY IN GENERAL
      AND THE STRENGTH OF THE LOCAL ECONOMIES IN WHICH THE COMPANY CONDUCTS
      OPERATIONS; 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; INFLATION, INTEREST RATE, MARKET AND MONETARY
      FLUCTUATIONS; THE TIMELY DEVELOPMENT OF AND ACCEPTANCE OF NEW PRODUCTS AND
      SERVICES OF THE COMPANY AND THE PERCEIVED OVERALL VALUE OF THESE PRODUCTS AND
      SERVICES BY CUSTOMERS, INCLUDING THE FEATURES, PRICING AND QUALITY COMPARED
      TO
      COMPETITORS’ PRODUCTS AND SERVICES; THE WILLINGNESS OF CUSTOMERS TO SUBSTITUTE
      COMPETITORS’ PRODUCTS AND SERVICES FOR THE COMPANY’S PRODUCTS AND SERVICES; THE
      SUCCESS OF THE COMPANY IN GAINING REGULATORY APPROVAL OF ITS PRODUCTS AND
      SERVICES, WHEN REQUIRED; THE IMPACT OF CHANGES IN FINANCIAL SERVICES’ LAWS AND
      REGULATIONS (INCLUDING LAWS CONCERNING TAXES, BANKING, SECURITIES AND
      INSURANCE); TECHNOLOGICAL CHANGES; ACQUISITIONS; CHANGES IN CONSUMER SPENDING
      AND SAVING HABITS; AND 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
              2005
              Form 10-K
 -4-


**ITEM
      1.** **Business**





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





General





The
      Savannah Bancorp, Inc. (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 (the "Act") and the Georgia Bank Holding
      Company Act (the "Georgia Act") upon the acquisition of 100 percent of the
      common stock of The Savannah Bank, National Association, Savannah, Georgia
      (the
      "Savannah Bank") 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, FSB (“Harbourside”), a
      newly-formed federal stock savings bank, located on Hilton Head Island, SC.
      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 Bank opened a
      mortgage loan production office on Hilton Head Island. This mortgage banking
      expansion included the hiring of key managers, lenders and support
      personnel.





Savannah
      Bank, Bryan Bank and Harbourside (the “Subsidiary Banks” or “Banks”) currently
      are the only operating subsidiaries of the Company. The Savannah Bank, N.A.
      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 (the
      “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 (the "FDIC").





As
      of
      December 31, 2005, Savannah Bank had five full service offices, one loan
      production office, total assets of $540 million, total loans of $468 million,
      total deposits of $458 million, total shareholders’ equity of $43 million and
      $6.7 million in 2005 net income. As of December 31, 2005, Bryan Bank had one
      full service office, total assets of $173 million, total loans of $146 million,
      total deposits of $153 million, total shareholders’ equity of $13.4 million and
      net income of $3.1 million for the year then ended.





In
      September 2005, the Company formed SAVB Properties, LLC for the primary purpose
      of purchasing 50 percent interest in two real estate partnerships. Johnson
      Square Associates, a Georgia general partnership, owns the seven-story, 35,000
      square foot building at 25 Bull Street on Johnson Square in downtown Savannah.
      The Company currently leases a prime location of approximately 25 percent of
      this space for its corporate headquarters and the main office of Savannah Bank.
      Whitaker Street Associates, a Georgia Limited Partnership, owns 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
      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.





**(b)**  **Information
      About Industry Segments**





In
      June
      1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131,
      "Disclosures about Segments of an Enterprise and Related Information". The
      provisions of this statement require disclosure of financial and descriptive
      information about an enterprise’s operating segments in annual and interim
      financial reports issued to shareholders. The statement defines an operating
      segment as a component of an enterprise which engages in business activities
      that generate revenues and incur expenses, whose




SAVB
                2005
                Form 10-K
 -5-


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 operates as two commercial banks offering
      traditional banking services and, as of February 6, 2006, one federal savings
      bank offering mortgage banking and commercial banking services. Certain
      departmental revenues and asset and liability volumes are considered by
      executive management for performance and resource allocation purposes. The
      Company does not currently report financial results by business segment. The
      Company tests all business segments on a quarterly basis to determine whether
      any individual segment represents more than 10% of total assets of the Company
      or contributes more than 10% to the revenue or net income of the
      Company.





**(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 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 180 full-time and 20 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
      certificates are tailored to the principal market areas at rates competitive
      with those offered in the area. In addition, retirement accounts such as IRA
      (Individual Retirement Account) and SEP (Simplified Employee Pension) accounts
      are offered. The FDIC insures all deposit accounts up to the maximum amount
      (currently $100,000 per account). 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’ Boards of Directors.
      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 of Directors. 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 Bank, $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 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 the Subsidiary Banks'
      books.




SAVB
                2005
                Form 10-K
 -6-


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 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 mortgage servicing assets (MSAs) and the ongoing valuation
      of MSAs for impairment result in the potential for both positive and negative
      earnings volatility.





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





The
      Subsidiary Banks have a comprehensive program designed to control and
      continually monitor the credit risks inherent in the loan portfolios. This
      program includes a structured loan approval process in which the Board of
      Directors 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 of Directors, which approves the overall loan
      loss reserve 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. Loans that are delinquent 90 days (four payments) or longer
      generally are placed on nonaccrual status unless the collectibility of principal
      and accrued interest is assured beyond a reasonable doubt. In certain cases,
      loans less than 90 days (four payments) delinquent are placed on nonaccrual
      status when uncertainty exists as to the loan's collectibility. 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 MD&A section of
      the 2005 Annual Report on pages F-26 and 27.





**Other
      Banking Services**





Savannah
      Bank was granted trust powers by the OCC in 1996. The Trust Department 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 seven automated teller machines in the area and are members of the *STAR* networks
      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.





SAVB
          2005
          Form 10-K
 -7-


**Location
      and Service Area**





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





The
      Savannah Bank'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. The Savannah Bank 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. Three other community bank branch
      offices and one grocery store branch office are located in Richmond Hill.





In
      October 1992, Savannah Bank 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 Bank 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 significant 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 Bank 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 Bank’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 Bank opened a mortgage loan production office on Hilton
      Head Island, SC which operated as Harbourside Mortgage Company, a division
      of
      The Savannah Bank, N.A. This office was located at 23C Shelter Cove Lane in
      a
      commercial and retail area of the island. Harbourside Community Bank, FSB was
      chartered on February 6, 2006 and opened for business in its new main office
      building on March 1, 2006 at 852 William Hilton Parkway, the primary traffic
      artery on Hilton Head Island.





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 the 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
          2005
          Form 10-K
 -8-


**Liquidity
      and Interest Rate Sensitivity Management**





Quantitative
      disclosures regarding liquidity management are included on pages F-30 to F-33
      of
      the Company’s 2005 Annual Report to Shareholders (2005 Annual
      Report).





**Interest
      Rate Risk**





Quantitative
      discussion of the Company’s interest rate risk is included on pages F-30 to F-35
      in the 2005 Annual Report.





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





Bank
      holding companies and banks are extensively regulated under both federal and
      state law. Federal laws and regulations also govern the activities of federal
      savings banks. These laws and regulations delineate the nature and extent of
      the
      activities in which federal savings banks may engage. In particular, certain
      lending authority for federal savings banks, e.g., 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
      Bank 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 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 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 45 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
      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 to
      undercapitalization. The table in Note 12 to the Consolidated Financial
      Statements in the 2005 Annual Report shows the capital ratios for the Company
      and the regulatory minimum capital ratios at December 31, 2005. 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 to
      a
      bank charter.





The
      Subsidiary Banks are subject to applicable provisions of the Federal Reserve
      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




SAVB
            2005
            Form 10-K
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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 Federal Reserve Board, 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 Federal Reserve Board have had a significant effect on the
      operating results of commercial 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
      Federal Reserve Board and the Georgia Department of Banking and Finance. 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 Federal Reserve Board 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'' Community Reinvestment Act
      ("CRA'') rating at its most recent examination.





*Affiliation
      Authority* **-** The
      Graham/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 Board of Governors of the Federal
      Reserve Bank ("FRB Board") 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
      FRB
      Board 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 FRB Board must notify the 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 Board 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 Federal Reserve 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 System, including expanding the collateral
      that a community bank can pledge against FHLB System advances, thus giving
      smaller banks access to a substantial new liquidity source.




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            2005
            Form 10-K
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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
                these 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.





The
      Federal Reserve Board 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 the Savannah Bank may pay without




SAVB
            2005
            Form 10-K
 -11-


obtaining
      prior approval. Based on such regulatory restrictions without prior approval,
      the Savannah Bank 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. Dividend
      payout plans of the Subsidiary Banks give consideration to maintaining their
      “well-capitalized” status.





The
      Subsidiary Banks are members of the Federal Home Loan Bank (“FHLB”) System,
      which consists of 12 regional FHLBs subject to supervision and regulation by
      the
      Federal Housing Finance Board ("FHFB"). The FHLBs maintain central credit
      facilities primarily for member institutions. The Subsidiary Banks, as a member
      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, 2005.





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 of
      Directors. 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 and the purpose of the
      borrowing.





**Community
      Reinvestment Act**





The
      Community Reinvestment Act of 1977 ("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 the public with the status of a particular
      institution's community reinvestment record. The Subsidiary Banks received
      a
      "satisfactory" rating on the most recent performance evaluations of their CRA
      efforts by their respective banking regulatory agencies.





**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




SAVB
            2005
            Form 10-K
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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. Lenders are
      particularly uncertain about the application of the "disparate impact" criteria
      by virtue of the vague nature of the Policy Statement. The Policy Statement
      notes that "the precise contours of the law on disparate impact as it applies
      to
      lending discrimination are under development."





**Anti-Money
      Laundering**





The
      Uniting and Strengthening America by Providing Appropriate Tools Required to
      Intercept and Obstruct Terrorism Act of 2001 (referred to as the "USA PATRIOT
      Act") significantly expands the responsibilities of financial institutions
      in
      preventing the use of the U.S. financial system to fund terrorist activities.
      Title III of the USA PATRIOT Act provides for a significant overhaul of the
      U.S.
      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
      USA PATRIOT Act.





**Rules
      Adopted by the U.S. Securities and Exchange Commission (“SEC” or
“Commission”)**





*Certification
      of Disclosure in Companies' Quarterly and Annual Reports* - As
      directed by Section 302(a) of the Sarbanes-Oxley Act of 2002, 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:
      they
      are responsible for establishing, maintaining and regularly evaluating the
      effectiveness of the issuer's internal controls; 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 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.





*Strengthening
      the SEC’s Requirements Regarding Auditor Independence* - The
      SEC adopted amendments to its existing requirements regarding auditor
      independence to enhance the independence of accountants that audit and review
      financial statements and prepare attestation reports filed with the Commission.
      The final rules recognize the critical role played by audit committees in the
      financial reporting process and the unique position of audit committees in
      assuring auditor independence. Consistent with the direction of Section 208(a)
      of the Sarbanes-Oxley Act of 2002, the SEC adopted rules to: revise the
      Commission's regulations related to the non-audit services that, if provided
      to
      an audit client, would impair an accounting firm's independence; require that
      an
      issuer's audit committee pre-approve all audit and non-audit services provided
      to the issuer by the auditor of an issuer's financial statements; prohibit
      certain partners on the audit engagement team from providing audit services
      to
      the issuer for more than five or seven consecutive years, depending on the
      partner's involvement in the audit, except that certain small accounting firms
      may be exempted from this requirement; prohibit an accounting firm from auditing
      an issuer's financial statements if certain members of management of that issuer
      had been members of the accounting firm's audit engagement team within the
      one-year period preceding the commencement of audit procedures; require that
      the
      auditor of an issuer's financial statements report certain matters to the
      issuer's audit committee, including "critical" accounting policies used by
      the
      issuer; and require disclosures to investors of information related to audit
      and
      non-audit services provided by, and fees paid to, the auditor of the issuer's
      financial statements. In addition, under the final rules, an accountant would
      not be independent from an audit client if an audit partner received
      compensation based on selling engagements to that client for services other
      than
      audit, review and attest services.





*Disclosure
      Required by Sections 406 and 407 of the Sarbanes-Oxley Act of
      2002* - 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 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 .


SAVB
            2005
            Form 10-K
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*Sections
      302 and 404 of the Sarbanes-Oxley Act of 2002 (“SOX”)* 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 Securities and Exchange Commission
      (SEC) makes reference to existing auditing standards issued by the American
      Institute of Certified Public Accountants (AICPA) regarding auditing and
      internal controls.





As
      directed by Section 404 of the Sarbanes-Oxley Act of 2002 (‘SOX 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: a statement of management's
      responsibility for establishing and maintaining adequate internal control over
      financial reporting for the company; 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; a statement identifying the
      framework used by management to evaluate the effectiveness of the company's
      internal control over financial reporting; and 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 new 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, 2005 and intends to comply in
      subsequent periods. The SEC is currently in the process of receiving and
      evaluating proposals and recommendations related to the implementation of the
      SOX 404 requirements on smaller companies including the definition of smaller
      companies. There appears to be a reasonable probability that the SOX 404
      implementation rules will include some degree of change for smaller companies
      that may lessen the compliance burden for future periods.





Companies
      must comply with the code of ethics disclosure requirements promulgated under
      Section 406 of the Sarbanes-Oxley Act 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 the Sarbanes-Oxley Act in their annual reports for fiscal years ending on
      or
      after July 15, 2003. Mr. Charles Izlar, was elected to the Company’s Board of
      Directors at the 2004 Annual Shareholder’s Meeting. Mr. Izlar was elected by the
      Board of Directors 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
            2005
            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 generally benefit from regional bank mergers in the local
      market and experience the most competition from new local community bank
      entrants into the market area. New banking offices, representing eight 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 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.





**SELECTED
      STATISTICAL INFORMATION** **FOR
      THE COMPANY**





**Table
      1 - Investments - 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,
      2005.





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
            $
                3,612
            
            $
                3,561
            
            3.15One
                year to five years
            34,196
            
            33,642
            
            4.33Five
                years to ten years
            500
            
            480
            
            3.13Over
                ten years
            0
            
            0
            
            0.00Total
            38,308
            
            37,683
            
            4.20Other
                interest-earning investments:Within
                one year
            1,291
            
            1,295
            
            5.76One
                year to five years
            1,444
            
            1,485
            
            6.51Five
                years to ten years
            358
            
            366
            
            6.58Over
                ten years
            3,571
            
            3,609
            
            5.31Total
            6,664
            
            6,755
            
            5.73Total
                securities available-for-sale
            $
                44,972
            
            $
                44,438
            
            4.45


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


SAVB
          2005
          Form 10-K
 -15-


**Loans**





Following
      is certain information regarding the loan portfolio as of December 31, 2005
      on a
      consolidated basis.




**Table
      2 - Loan Repricing Opportunities**




The
      following table sets forth certain loan maturity and repricing information
      as of
      December 31, 2005. 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
            $
                135,450
            $
                8,674
            $
                608
            $
                144,732Commercial
            28,743
            15,213
            1,570
            45,526Total
            $164,193
            $23,887
            $2,178
            $190,258Loans
                with fixed rates
            $
                19,650
            $23,345
            $2,080
            $
                45,075Loans
                with floating and adjustable rates
            145,183
            0
            0
            145,183Total
            $164,833
            $23,345
            $
                2,080
            $190,258





**Nonaccrual,
      Past Due and Restructured Loans**





At
      December 31, 2005 and 2004, nonperforming loans were $1,357,000 and
      $538,000, respectively. Interest income of $48,000 was recognized from
      nonaccrual loans in 2005. At December 31, 2005, the Subsidiary Banks had $1,313,000 nonaccrual loans and had $44,000 in loans past due over 90 days.




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 appears
      doubtful. Interest receivable accrued in prior years and subsequently determined
      to have doubtful collectibility is charged to the allowance for possible loan
      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 the Chatham,
      Bryan and Beaufort County area. Table 5 on page F-29 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.


















SAVB
          2005
          Form 10-K
 -16-


**Table
      3 - Allowance for Credit Loan Losses**





Changes
      in the allowance for credit losses from 2000 through 2005 are summarized as
      follows:





($
                in thousands)
            2005
            2004
            2003
            2002
            2001Balance
                at the beginning of the year
            $
                6,389
            $
                5,067
            $
                4,373
            $
                3,826
            $
                3,369Charge-offs
                - Commercial
            (22)
            (143)
            (161)
            (67)
            (5)Charge-offs
                - Consumer
            (82)
            (112)
            (112)
            (191)
            (167)Charge-offs
                - Real estate
            (48)
            -
            (122)
            (35)
            (98)Charge-offs
                - Total
            (152)
            (255)
            (395)
            (293)
            (270)Recoveries
                - Commercial
            7
            26
            7
            11
            29Recoveries
                - Consumer
            53
            68
            70
            75
            76Recoveries
                - Real estate
            16
            33
            12
            4
            17Recoveries
                - Total
            76
            127
            89
            90
            122Net
                charge-offs
            (76)
            (128)
            (306)
            (203)
            (148)Provision
                for loan losses
            1,500
            1,450
            1,000
            750
            605Balance
                at the end of the year
            $
                7,813
            $
                6,389
            $
                5,067
            $
                4,373
            $
                3,826Ratio
                of net charge-offs to average loans
            0.01%
            0.09
                %
            0.13
                %
            0.09
                %
            0.06
                %





**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 tables:




($
                in thousands)
            
            %
                of
            
            %
                of
            
            %
                of
            
            %
                of
            
            %
                ofTotal
            
            Total
            
            Total
            
            Total
            
            TotalLoan
                Categories
            2005
            Loans
            2004
            Loans
            2003
            Loans
            2002
            Loans
            2001
            LoansCommercial
            $
                700
            .11
            $
                650
            .13
            $
                600
            .16
            $
                650
            .19
            $
                800
            .28Real
                estate-constructionand
                development
            3,750
            .61
            2,750
            .55
            1,650
            .43
            1,450
            .43
            1,100
            .39Real
                estate-mortgage
            1,900
            .31
            1,750
            .35
            1,300
            .34
            1,300
            .39
            1,100
            .39Consumer
            350
            .06
            400
            .08
            400
            .10
            500
            .15
            650
            .22Unallocated
            1,113
            .18
            859
            .17
            1,117
            .29
            473
            .14
            176
            .06Total
                allowance forloan
                losses
            $
                7,813
            1.27
            $6,389
            1.28
            $5,067
            1.31
            $4,373
            1.30
            $3,826
            1.34





Additional
      information regarding accounting estimates in the allowance for credit losses
      in
      included in Management’s Discussion and Analysis on page F- 26 of the Company’s
      2005 Annual Report to Shareholders which is included as Exhibit 13 to this
      filing.





**Deposits**





**Deposit
      Average Balances and Rates Paid**





Tables
      7
      and 8 on pages F-34 and F-35 summarize the average balances of the Company’s
      deposits and the average rates paid on such deposits during 2005, 2004 and
      2003.









SAVB
            2005
            Form 10-K
 -17-


**Item 1A:
      Risk Factors**





Like
      other financial companies, we are 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 a 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 as collateral could be adversely affected by unfavorable changes in market
      and economic conditions. As of December 31, 2005, approximately 90% of our
      loans
      held for investment were secured by real estate. Of the commercial real estate
      loans in our portfolio, approximately 35% 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
      Hilton Head Island, South Carolina.**





Currently,
      our lending and other business is concentrated in Chatham and Bryan Counties
      in
      Georgia and Hilton Head Island 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 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 loan losses is not sufficient to cover actual loan 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 loan 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 loan losses in an attempt to cover any loan losses which may
      occur. In determining the size of the allowance, we rely on an analysis of
      our
      loan portfolio based on historical loss experience, volume and types of loans,
      trends in classification, volume and trends in delinquencies and non-accruals,
      national and local economic conditions and other pertinent




SAVB
            2005
            Form 10-K
 -18-


information.
      As we expand into new markets, such as the coastal South Carolina market in
      which we intend for Harbourside to operate, 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 loan 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
      loan losses and may require us to increase our provision for loan losses or
      recognize further loan charge-offs, based on judgments different than those
      of
      our management. Any increase in our allowance for loan losses or loan
      charge-offs as required by these regulatory agencies could have a negative
      effect on our operating results.





**Market
      Risks**





**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 Board of Governors of the Federal Reserve System. Changes
      in
      interest rates can affect the number of loans we originate, as well as the
      value
      of our loans and other interest-earning 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
      non-performing assets could increase.





**Liquidity
      Risks**





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





We
      use
      wholesale and brokered deposits, uninsured local deposits and other borrowings,
      including repurchase agreements, Federal Funds purchased and Federal Home Loan
      Bank ("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




SAVB
            2005
            Form 10-K
 -19-


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 Federal Deposit Insurance Corporation (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 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
      Risks**





**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 24% in 2004 and during 2005 as compared to the
      prior periods. This can be attributed to a strong lending market in Savannah
      and
      Richmond Hill, Georgia as well as the successful activities of Harbourside
      Mortgage Company in Hilton Head Island, South Carolina. Rising interest rates
      have also been favorable to us since mid-2004 due to an ability to reprice
      interest bearing 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 G. Mike
      Odom, Jr., Chief Executive Officer of the Company; John C. Helmken II, President
      of the Company and President and Chief Executive Officer of Savannah Bank;
      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 Bank; Robert B. Briscoe, Executive Vice President
      and Chief Financial Officer of the Company and of Savannah Bank; and Edward
      J.
      Brown, Jr., President and Chief Executive Officer of Harbourside. Should the
      services of any of Messrs. Odom, Helmken, Burnsed, Stramm, Briscoe or Brown
      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 of the Banks has entered into an employment
      agreement with any of these individuals, other than Mr. Brown.





**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




SAVB
            2005
            Form 10-K
 -20-


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 no operating history for Harbourside upon which to base an estimate of
      our
      future financial performance.**





Harbourside
      opened for business on March 1, 2006 and does not have an operating history
      as a
      bank. Our contemplated operations at Harbourside are subject to the risks
      inherent in the establishment of any new business and, specifically, those
      of a
      new bank. We expect that Harbourside will incur substantial initial expenses
      and
      may not be profitable for several quarters, if ever.





**Our
      business 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 Office of the Comptroller of the
      Company (the "OCC"), the OTS, the FDIC, the Georgia Department of Banking and
      Finance and the Federal Reserve. 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.





**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.





SAVB
          2005
          Form 10-K
 -21-


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





The
      USA
      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 U.S. Treasury
      Department’s Office of Financial Crimes Enforcement Network. 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
      Federal Reserve Board may require the Company to commit capital resources to
      support the Subsidiary Banks.**





The
      Federal Reserve, 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
      Federal Reserve 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 Risks**





**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 of Directors, 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 of Directors stating
      (i)
      the dividend rate or the amount of dividends to be paid thereon, whether
      dividends shall be cumulative and, if so, from which date(s), the payment
      date(s) for dividends, and the participating or other special rights, if any,
      with respect to dividends; (ii) the voting powers, full or limited, if any,
      of
      shares of such series; (iii) whether the shares of such series shall be
      redeemable and, if so, the price(s) at which, and the terms and conditions
      on
      which, such shares may be redeemed; (iv) the amount(s) payable upon the shares
      of such series in the event of voluntary or involuntary liquidation, dissolution
      or winding up of the Company; (v) whether the shares of such series shall be
      entitled to the benefit of a sinking or retirement fund to be applied to the
      purchase or redemption of such shares, and if so entitled, the amount of such
      fund and the manner of its application, including the price or prices at which
      such shares may be redeemed or purchased through the application of such funds;
      (vi) whether the shares of such series shall be convertible into, or
      exchangeable for, shares of any other class or classes of stock of the Company,
      and, if so, the 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 of Directors 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 this
      date.




SAVB
            2005
            Form 10-K
 -22-


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





As
      of
      December 31, 2005, our directors and executive officers, collectively,
      beneficially owned approximately 25.1% 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,
      GDF and the OTS 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 Bank’s ability to transfer assets, make shareholder distributions,
      and redeem preferred securities or pay dividends to the parent company as
      discussed in the “Regulatory Matters” section below.





**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 of Directors 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 of
      Directors 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.





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 of Directors at any regular or special meeting of the Company's Board
      of Directors.





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.




SAVB
            2005
            Form 10-K
 -23-


**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, 2005 were as follows:





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







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 of Directors will determine the timing and size of the
      issuances and grants and the consideration or services required therefor. Our
      Board of Directors 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. We recently issued 397,273 restricted shares to investors in a private
      placement of our shares which shares were registered for sale with the SEC
      on
      October 21, 2005. When the registration statement covering the resale of those
      restricted shares becomes effective, the holders of those shares may offer
      to
      sell those shares from time to time at the current market price or at negotiated
      prices. If holders sell large quantities of shares of our common stock, the
      market price of our common stock may decrease and the public market for our
      common stock may otherwise be adversely affected because of the additional
      shares available in the market.





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





Our
      common stock 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. The trading volume in our common stock has been relatively
      low when compared with larger companies quoted on the Nasdaq National 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.




SAVB
            2005
            Form 10-K
 -24-


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 August 31, 2005, there were
      4,591,042 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:





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


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


*  General
      economic and market conditions;


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


*  Earnings
      relative to securities analysts' estimates;


*  Changes
      in financial estimates by securities analysts;


*  Conditions,
      trends or announcements in the banking industry;


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


*  Additions
      or departures of key personnel;


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


*  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, you (due to personal
      circumstances) may be required to sell your 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, 2004, the market price of our common stock increased from $23.20
      per
      share to up to $35.48 per share on December 31, 2005. 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
            2005
            Form 10-K
 -25-
 **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 2005 Annual Report to Shareholders, which is
      specifically incorporated herein by reference.





Savannah
      Bank'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 Bank 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
      6 th floor
      lease in 2003 approximately additional 2500 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
      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 bank personnel are housed in this
      location.





Savannah
      Bank 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 Savannah Bank's branch location and the mortgage and construction lending
      departments. The building is located near the corner 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. The Savannah Bank committed to exercise the
      second five-year lease option in February 2002. There are two additional
      five-year renewal options included in the terms. The Company is also responsible
      for its prorata share of increases in the cost of ad volorem taxes, insurance
      and maintenance of common areas. The bank renovated the space, constructed
      a
      vault, and added a five lane drive-through teller facility adjacent to the
      building.





During
      1995, Savannah Bank entered into a five-year ground lease with seven five-year
      renewal options on land located at 100 Chatham Parkway. Savannah Bank 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. The Savannah Bank 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 Bank 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 Bank 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 Bank 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, SC. The lease is on a new building for
      a
      20-year initial lease term with three five-year renewal options. Harbourside
      Community Bank’s main banking office is located on the ground floor. The
      mortgage banking and executive offices are located on the second floor. The
      lease is accounted for as an operating lease.





In
      November, 2003, Savannah Bank entered into a lease agreement for approximately
      5,000 sq. ft. of office space on Shelter Cove Lane, Hilton Head Island, South
      Carolina. This lease is for one year with two one-year renewal options. In
      April
      2004, The Savannah Bank entered into a lease agreement for approximately 1,500
      sq. ft. of additional office on Shelter Cove Lane, Hilton Head Island, South
      Carolina on a month to month basis. Harbourside Mortgage Company was located
      in
      this space. These leases will be cancelled on March 31, 2006.




SAVB
            2005
            Form 10-K
 -26-


**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-24 of the Financial
      Statement Section of the 2005 Annual Report to Shareholders.








**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”
and “Table 3 - Selected Quarterly Data,” “Table 6 - Loan Concentrations,” “Table
      7 - Average Balance Sheet and Rate/Volume Analysis-2005 and 2004” and “Table 8 -
      Average Balance Sheet and Rate/Volume Analysis-2004 and 2003” in the
      Registrant’s Management’s Discussion and Analysis of Financial Condition and
      Results of Operations on pages F-22 through F-35 of the Financial Statement
      Section of the 2005 Annual Report to Shareholders. Additional Selected Financial
      Data is included on pages 18-20 of this Annual Report on Form 10-K.








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





Incorporated
      herein by reference to the sections entitled “Management's Discussion and
      Analysis of Financial Condition and Results of Operations” on pages F-22 through
      F-35 of the Financial Statement Section of the 2005 Annual Report to
      Shareholders.








**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 5 - Cash Flow/Maturity Gap and Repricing
      Data” in the Registrant’s Management's Discussion and Analysis of Financial
      Condition and Results of Operations on pages F-30 and F-33 of the Financial
      Statement Section of the 2005 Annual Report to Shareholders.








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





(a)


1.
      Financial Statements - See listing in Item 15


2.
Financial
      Statement Schedules - See Item 15













SAVB
          2005
          Form 10-K
 -27-


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





None








**ITEM
      9A. Controls and Procedures**





**REPORT
      OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**





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 on a timely basis. 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 the framework 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,
      2005.
      BDO Seidman, LLP has audited this assessment of our internal control over
      financial reporting; their report is included below.











**Report
      of Independent Registered Public Accounting Firm on**


**Internal
      Control Over Financial Reporting**







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 above, that
      The
      Savannah Bancorp, Inc. and subsidiaries (the “Company”) maintained effective
      internal control over financial reporting as of December 31, 2005, 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 Company’s internal control over financial reporting based
      on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audit included obtaining an understanding of internal control
      over
      financial reporting, 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 by, or
      under the supervision of, the company’s principal executive and principal
      financial officers, or persons performing similar functions, and effected by
      the
      company’s board of directors, management, and other personnel to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of




SAVB
              2005
              Form 10-K
 -28-


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





Because
      of the inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of the
      effectiveness to future periods are subject to the risk that the 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 Company maintained effective internal
      control over financial reporting as of December 31, 2005 is fairly stated,
      in
      all material respects, based on the COSO criteria. Also in our opinion, the
      Company maintained, in all material respects, effective internal control over
      financial reporting as of December 31, 2005, based on the criteria established
      in *Internal
      Control - Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway
      Commission.





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, 2005 and 2004 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, 2005 and
      our
      report dated February 28, 2006 expressed an unqualified opinion
      thereon.







/s/    BDO
      Seidman, LLP




Atlanta,
      GA


February
      28, 2005

















**ITEM
      9B. Other Information**





None

















SAVB
            2005
            Form 10-K
 -29-


**PART
      III**




**ITEM
      10. Directors and Executive Officers of the Registrant**





Incorporated
      herein by reference to the sections entitled "Election of Directors" and
      "Executive Compensation and Benefits" in the Registrant’s Proxy Statement dated
      March 8, 2006 and filed on March 9, 2006. All transactions required pursuant
      to
      the insider trading regulations were filed on either Form 4 or Form 5 of the
      U.S. Securities and Exchange Commission 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 8, 2006.








**ITEM
      11. Executive Compensation**





Incorporated
      herein by reference to the sections entitled "Executive Compensation and
      Benefits" in the Registrant’s Proxy Statement dated March 8, 2006 and filed on
      March 9, 2006.








**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
      8, 2006 and filed on March 9, 2006.








**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 8, 2006 and filed on March 9, 2006.








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





Incorporated
      herein by reference to the sections entitled "Principal Accountant Fees and
      Services" in the Registrant’s Proxy Statement dated March 8, 2006 and filed on
      March 9, 2006.












SAVB
          2005
          Form 10-K
 -30-


**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-21 of
      the
      Financial Statement Section of the 2005 Annual Report to Shareholders. The
      index
      for the financial statements is as follows:





Financial
                Statement
            Page(i)
                Consolidated Financial Highlights for 2005 and 2004
            F-1(ii)
                Report of Independent Registered Public Accounting Firm
            F-2(iii)
                Consolidated Balance SheetsDecember
                31, 2005 and 2004
            F-3(i)
                Consolidated Statements of Income for the YearsEnded
                December 31, 2005, 2004 and 2003
            F-4(v)
                Consolidated Statements of Changes in Shareholders' Equityfor
                the Years Ended December 31, 2005, 2004 and 2003
            F-5(vi)
                Consolidated Statements of Cash Flows for the YearsEnded
                December 31, 2005, 2004 and 2003
            F-6(vii)
                Notes to Consolidated Financial Statements
            F-7





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 and Annual Report on Form 10-K.















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          2005
          Form 10-K
 -31-


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*
            Lease
                for Harbourside Community Bank, FSB 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 this
      report.


13  2005
      Annual Report to Shareholders


21
            Subsidiaries
                of Registrant


22*  Proxy
      Statement for Annual Meeting - filed in DEF 14A on March 9, 2006


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


23.2
            Consent
                of BDO Seidman, LLP, Independent Registered Public Accounting
                Firm


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


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


31.3
            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, 10.5, 10.7 and 10.8 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 Form 8-K filed on March 3, 2006


























SAVB
          2005
          Form 10-K
 -32-


**SIGNATURES**





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 8-13,
      2006 by the undersigned, thereunto duly authorized.








**THE
                SAVANNAH BANCORP, INC.**/s/
                G. MIKE ODOM, JR.
              G.
                Mike Odom, Jr.
              Chief
                Executive Officer
              (Principal
                Executive Officer)
            /s/
                JOHN C. HELMKEN II
              John
                C. Helmken II
              President
            /s/
                ROBERT B. BRISCOE
              Robert
                B. Briscoe
              Chief
                Financial Officer
              (Principal
                Financial and Accounting Officer)**Directors:**/s/
                J. WILEY ELLIS
              J.
                Wiley Ellis
              Chairman
                of the Board
            /s/
                JOHN C. HELMKEN II
              John
                C. Helmken II
            /s/
                G. MIKE ODOM, JR.
              G.
                Mike Odom, Jr./s/
              E.
                James Burnsed
              Vice
                Chairman
            /s/
                CHARLES E. IZLAR
              Charles
                E. Izlar
            /
              J.
                Toby Roberts, Sr./s/
                RUSSELL W. CARPENTER
              Russell
                W. Carpenter
            /s/
                JACK M. JONES
              Jack
                M. Jones
            /s/
              James
                W. Royal, Sr./s/
                ARCHIE H. DAVIS
              Archie
                H. Davis
            /s/
                AARON M. LEVY
              Aaron
                M. Levy
            /s/
                ROBERT T. THOMPSON, JR.
              Robert
                T. Thompson, Jr./s/
                ROBERT H. DEMERE, JR.
              Robert
                H. Demere, Jr.
            /s/
                J. CURTIS LEWIS III
              J.
                Curtis Lewis III/s/
                L. CARLTON GILL
              L.
                Carlton Gill
            /s/
              M.
                Lane Morrison








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          2005
          Form 10-K
 -33-