UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report ~~Pursuant to Section 13 or 15(d) of~~

~~the~~Pursuant ~~Securities~~to ~~Exchange~~Section 13 ~~Act~~or 15(d) of ~~1934~~the

~~For~~Securities ~~the~~Exchange ~~Quarterly~~Act ~~Period Ended~~of ~~March 31,~~1934 ~~2011~~

For the Quarterly Period Ended June 30, 2011

Commission File Number 000-32627

LOGO

(Exact name of registrant as specified in its charter)

Georgia

58-1423423

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

P. O. Box 455, 1010 North Way, Darien, Georgia 31305

(Address of principal executive offices) (Zip Code)

(912) 437-4141

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceeding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

As of ~~May~~ August 2315, 2011, 3,129,388 shares of the Registrant’s common stock, par value $1.25 per share, were outstanding.

Table of Contents

	Page
Part I – Financial Information
Part I – Financial Information
			Page
Item 1. Financial Statements:
Item 1.	Consolidated Financial Statements:
~~Consolidated Balance Sheets~~	Consolidated Balance Sheets	3		2
~~Consolidated Statements of Operations~~	Consolidated Statements of Operations	4		3
~~Consolidated Statements of Shareholders’ Equity~~	Consolidated Statements of Shareholders’ Equity	5		4
~~Consolidated Statements of Cash Flows~~	Consolidated Statements of Cash Flows	6		5
~~Notes to Consolidated Financial Statements~~	Notes to Consolidated Financial Statements	7		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.			22
Item 3. Quantitative and Qualitative Disclosures about Market Risk		44
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.			43
Item 4. Controls and Procedures		44
Item 4.	Controls and Procedures.			44
Part II – Other Information
Item 1. Legal Proceedings		46
Item 1.	Legal Proceedings.			45
Item 1A. Risk Factors		46
Item 1A.	Risk Factors.			45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.			45
Item 3. Defaults upon Senior Securities		46
Item 3.	Defaults upon Senior Securities.			45
Item 4. (Removed and Reserved)		46
Item 4.	(Removed and Reserved).			45
Item 5. Other Information		46
Item 5.	Other Information.			45
Item 6. Exhibits		46
Item 6.	Exhibits.			45
Signatures		47		46

2 1

Part I - Financial Information

Item 1. Financial Statements.

Southeastern Banking Corporation

Consolidated Balance Sheets

	(Unaudited)March 31,2011			December 31,2010
	(Unaudited)June 30,2011			December 31,2010
Assets
Cash and due from banks	$	98,~~459~~233,~~545~~104		$	8,206,514
Interest-bearing deposits in other banks		8283,~~015~~466,~~008~~750			70,511,991
Federal funds sold		2,150,000			2,150,000
Cash and cash equivalents		93,~~624~~849,~~553~~854			80,868,505
Investment securities:
Available-for-sale, at market value (amortized cost of $75,374,654 and $73,893,247 at March 31, 2011 and December 31, 2010)		75,841,661			74,299,903
Available-for-sale, at market value (amortized cost of $73,451,414 and $73,893,247 at June 30, 2011 and December 31, 2010)		74,369,036			74,299,903
Loans, gross		~~235~~229,~~703~~772,~~640~~913			245,688,555
Unearned income		(6058,~~873~~504	)		(65,007	)
Allowance for loan losses		(8,~~370~~603,~~191~~770	)		(9,915,559	)
Net loans		~~227~~221,~~272~~110,~~576~~639			235,707,989
Premises and equipment, net		11,~~984~~947,~~017~~192			12,107,464
Bank-owned life insurance, at cash surrender value		5,~~796~~855,~~561~~123			5,738,642
Other real estate		1215,~~914~~781,~~943~~066			11,636,290
Other assets		6,~~933~~719,~~291~~501			7,274,264
Total Assets	$	~~434~~429,~~367~~632,~~602~~411		$	427,633,057
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Noninterest-bearing demand deposits	$	5658,~~965~~154,~~413~~429		$	55,377,519
Interest-bearing demand, savings, and time deposits		~~324~~318,~~622~~516,~~920~~326			319,817,600
Total deposits		~~381~~376,~~588~~670,~~333~~755			375,195,119
U. S. Treasury demand note		1889,~~042,509~~547			762,782
Federal Home Loan Bank advances		5,000,000			5,000,000
Other liabilities		12,~~853~~105,~~843~~752			1,869,597
Total liabilities		~~389~~384,~~484~~666,~~685~~054			382,827,498
Shareholders’ Equity
Common stock, $1.25 par value		4,475,996			4,475,996
Additional paid-in-capital		1,~~507~~518,~~008~~347			1,495,668
Retained earnings		47,~~486~~260,~~150~~845			47,459,963
Treasury stock, at cost		(8,894,461	)		(8,894,461	)
Accumulated other comprehensive income		~~308~~605,~~224~~630			268,393
Total shareholders’ equity		44,~~882~~966,~~917~~357			44,805,559
Total Liabilities and Shareholders’ Equity	$	~~434~~429,~~367~~632,~~602~~411		$	427,633,057
Common shares issued		3,580,797			3,580,797
Common shares authorized		10,000,000			10,000,000
Common shares outstanding		3,129,388			3,129,388
Treasury shares		451,409			451,409

See accompanying Notes to Consolidated Financial Statements.

3 2

Southeastern Banking Corporation

Consolidated Statements of Operations

(Unaudited)

Three Months Ended March 31,	2011			2010
	Three Months						Six Months
Interest income:
Period Ended June 30,	2011			2010			2011			2010
Interest and fees on loans	$	3,377,795		$	3,653,226
Interest income:
Interest on investment securities:
Interest and fees on loans	$	3,255,496		$	3,605,263		$	6,633,291		$	7,258,489
Taxable		455,343			662,416
Interest on investment securities:
Tax-exempt		146,520			204,414
Taxable		417,652			597,533			872,995			1,259,949
Other interest income		51,186			23,653
Tax-exempt		132,040			195,971			278,560			400,385
Total interest income		4,030,844			4,543,709
Other interest income		58,656			36,874			109,842			60,527
Interest expense:
Total interest income		3,863,844			4,435,641			7,894,688			8,979,350
Interest on deposits		917,767			1,181,509
Interest expense:
Interest on Federal Home Loan Bank advances		32,301			93,968
Interest on deposits		809,140			1,178,013			1,726,907			2,359,522
Total interest expense		950,068			1,275,477
Interest on Federal Home Loan Bank advances		32,661			32,660			64,962			126,628
Net interest income		3,080,776			3,268,232
Interest on other borrowings		—			313			—			313
Provision for loan losses		660,000			2,985,000
Total interest expense		841,801			1,210,986			1,791,869			2,486,463
Net interest income after provision for loan losses		2,420,776			283,232
Net interest income		3,022,043			3,224,655			6,102,819			6,492,887
Noninterest income:
Provision for loan losses		900,000			3,135,000			1,560,000			6,120,000
Service charges on deposit accounts		550,877			641,912
Net interest income after provision for loan losses		2,122,043			89,655			4,542,819			372,887
Net loss on sales of investment securities available-for-sale		(18,191	)		—
Noninterest income:
Other noninterest income		337,434			337,114
Service charges on deposit accounts		584,563			704,041			1,135,440			1,345,953
Total noninterest income		870,120			979,026
Net loss on sales of investment securities available-for-sale		—			(143,408	)		(18,191	)		(143,408	)
Noninterest expense:
Other noninterest income		349,344			352,205			686,778			689,319
Salaries and employee benefits		1,682,707			1,826,314
Total noninterest income		933,907			912,838			1,804,027			1,891,864
Occupancy and equipment expense, net		612,777			694,070
Noninterest expense:
Net gain on sales of other real estate		(22,029	)		(3,820	)
Salaries and employee benefits		1,679,524			1,791,445			3,362,231			3,617,759
Write-downs on other real estate		161,127			—
Occupancy and equipment expense, net		651,118			660,478			1,263,895			1,354,548
Other noninterest expense		830,127			794,712
Other-than-temporary impairment loss on debt security		—			45,059			—			45,059
Total noninterest expense		3,264,709			3,311,276
Net (gain) loss on sales of other real estate		45			2,315			(21,984	)		(1,505	)
Income (loss) before income tax expense (benefit)		26,187			(2,049,018	)
Write-downs on other real estate		82,485			909,569			243,612			909,569
Income tax expense (benefit)		—			(876,609	)
Other noninterest expense		868,083			1,032,514			1,698,210			1,827,226
Net income (loss)	$	26,187		$	(1,172,409	)
Total noninterest expense		3,281,255			4,441,380			6,545,964			7,752,656
Basic and diluted earnings (loss) per common share	$	0.01		$	(0.37	)
Loss before income tax benefit		(225,305	)		(3,438,887	)		(199,118	)		(5,487,905	)
Basic and diluted weighted average common shares outstanding		3,129,388			3,138,531
Income tax benefit		—			(1,386,877	)		—			(2,263,486	)
Net loss	$	(225,305	)	$	(2,052,010	)	$	(199,118	)	$	(3,224,419	)
Basic and diluted loss per common share	$	(0.07	)	$	(0.66	)	$	(0.06	)	$	(1.03	)
Basic and diluted weighted average common shares outstanding		3,129,388			3,129,388			3,129,388			3,133,934

See accompanying Notes to Consolidated Financial Statements.

4 3

Southeastern Banking Corporation

Consolidated Statements of ~~Stockholders~~Shareholders’ Equity

(Unaudited)

	Common Stock					AdditionalPaid-InCapital		RetainedEarnings			~~Treasury Stock~~TreasuryStock			AccumulatedOtherComprehensive Income (Loss)			Total
	Shares			StatedValue
Balance, December 31, 2009		3,138,531		$	4,475,996	$	1,449,696	$	60,512,342		$	(8,803,031	)	$	(1,076,320	)	$	56,558,683
Comprehensive loss:
Net loss		—			—		—		(13,~~172~~224,~~409~~419	)		—			—			(13,~~172~~224,~~409~~419	)
Unrealized holding gains (losses) on investment securities available-for-sale arising during the period, net of tax (benefit) of $553,088		—			—		—		—			—			1,073,642			1,073,642
Unrealized holding gains (losses) on investment securities available-for-sale arising during the period, net of tax (benefit) of $848,303		—			—		—		—			—			1,646,709			1,646,709
Total comprehensive loss																		(98,767	)
Reclassification adjustment for net (gain) loss on sales of investment securities available-for-sale included in net loss, net of tax (benefit) of $(48,759)		—			—		—		—			—			94,649			94,649
Cash dividends declared, $0.065 per share		—			—		—		(204,005	)		—			—			(204,005	)
Reclassification adjustment for other-than-temporary impairment loss on debt security included in net loss, net of tax (benefit) of $(15,321)		—			—		—		—			—			29,738			29,738
Stock-based compensation		—			—		13,541		—			—			—			13,541
Total comprehensive loss																		(1,453,323	)
Balance, March 31, 2010		3,138,531		$	4,475,996	$	1,463,237	$	59,135,928		$	(8,803,031	)	$	(2,678	)	$	56,269,452
Cash dividends declared, $0.13 per share		—			—		—		(407,416	)		—			—			(407,416	)
Stock-based compensation		—			—		23,029		—			—			—			23,029
Purchase of treasury stock		(9,143	)		—		—		—			(91,430	)		—			(91,430	)
Balance, June 30, 2010		3,129,388		$	4,475,996	$	1,472,725	$	56,880,507		$	(8,894,461	)	$	694,776		$	54,629,543
Balance, December 31, 2010		3,129,388		$	4,475,996	$	1,495,668	$	47,459,963		$	(8,894,461	)	$	268,393		$	44,805,559
Comprehensive income:
Net income		—			—		—		26,187			—			—			26,187
Net loss		—			—		—		(199,118	)		—			—			(199,118	)
Unrealized holding gains (losses) on investment securities available-for-sale arising during the period, net of tax (benefit) of $14,334		—			—		—		—			—			27,825			27,825
Unrealized holding gains on investment securities available-for-sale arising during the period, net of tax of $167,543		—			—		—		—			—			325,231			325,231
Reclassification adjustment for net (gain) loss on sales of investment securities available-for-sale included in net income, net of tax (benefit) of $(6,185)		—			—		—		—			—			12,006			12,006
Reclassification adjustment for net loss on sales of investment securities available-for-sale included in net income, net of tax benefit of $6,185		—			—		—		—			—			12,006			12,006
Total comprehensive income																		66138,~~018~~119
Stock-based compensation		—			—		1122,~~340~~679		—			—			—			1122,~~340~~679
Balance, March 31, 2011		3,129,388		$	4,475,996	$	1,507,008	$	47,486,150		$	(8,894,461	)	$	308,224		$	44,882,917
Balance, June 30, 2011		3,129,388		$	4,475,996	$	1,518,347	$	47,260,845		$	(8,894,461	)	$	605,630		$	44,966,357

See accompanying Notes to Consolidated Financial Statements.

5 4

Southeastern Banking Corporation

Consolidated Statements of Cash Flows

(Unaudited)

Three Months Ended March 31,	2011			2010
Six Months Ended June 30,	2011			2010
Cash flows from operating activities:
Net income (loss)	$	26,187		$	(1,172,409	)
Net loss	$	(199,118	)	$	(3,224,419	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		~~174~~350,~~972~~076			~~209~~387,~~850~~821
Amortization and accretion, net		1740,~~539~~490			62132,~~544~~217
Provision for loan losses		~~660~~1,560,000			26,~~985~~120,000
Deferred income tax expense		—			~~327~~36,~~684~~360
Net loss on sales of investment securities available-for-sale		18,191			—143,408
Increase in cash surrender value of bank-owned life insurance		(57,919	)		(58,815	)
Other-than-temporary impairment loss on debt security		—			45,059
Net gain on sales of other real estate		(22,029	)		(3,820	)
Increase in cash surrender value of bank-owned life insurance		(116,481	)		(118,282	)
Write-downs on other real estate		161,127			—
Net gain on sales of other real estate		(21,984	)		(1,505	)
Stock-based compensation		11,340			13,541
Write-downs on other real estate		243,612			909,569
Decrease in interest receivable		100,213			192,104
Stock-based compensation		22,679			23,029
Decrease in interest payable		(102,013	)		(78,001	)
Decrease in interest receivable		143,594			307,406
Net change in income tax receivable or payable		9,953			(1,209,543	)
Decrease in interest payable		(201,401	)		(103,209	)
Decrease in prepaid FDIC assessments		189,000			134,267
Net change in income tax receivable or payable		9,953			(2,307,576	)
Net decrease (increase) in other assets		36,557			(92,721	)
Decrease in prepaid FDIC assessments		323,000			412,428
Net increase in other liabilities		65,740			208,285
Net increase in other assets		(35,584	)		(288,819	)
Net cash provided by operating activities		1,288,858			1,517,966
Net increase in other liabilities		263,827			249,298
Net cash provided by operating activities		2,400,854			2,722,785
Cash flows from investing activities:
Purchase of investment securities available-for-sale		(~~152~~249,~~101~~420,~~435~~560	)		—
Proceeds from sales of investment securities available-for-sale		474,000			—4,146,930
Proceeds from maturities, calls, and paydowns of investment securities available-for-sale		~~150~~249,~~115~~340,~~547~~212			36,~~268~~687,~~134~~763
Net decrease in loans		5,742,537			12,029,706
Redemption of restricted equity securities		103,300			—
Capital expenditures, net		(51,525	)		(37,879	)
Net decrease in loans		7,977,401			16,288,381
Proceeds from sales of other real estate		615,125			113,528
Capital expenditures, net		(189,804	)		(168,663	)
Net cash provided by investing activities		4,794,249			15,373,489
Proceeds from sales of other real estate		693,545			246,482
Net cash provided by investing activities		8,978,094			27,200,893
Cash flows from financing activities:
Net increase in deposits		61,~~393~~475,~~214~~636			1122,~~136~~599,~~025~~804
Net increase in U. S. Treasury demand note		~~279~~126,~~727~~765			~~422~~176,~~421~~693
Repayment of advances from Federal Home Loan Bank		—			(5,000,000	)
Dividends paid		—			(204,005	)
Purchase of treasury stock		—			(91,430	)
Net cash provided by financing activities		6,672,941			6,354,441
Dividends paid		—			(407,416	)
Net increase in cash and cash equivalents		12,756,048			23,245,896
Net cash provided by financing activities		1,602,401			17,277,651
Net increase in cash and cash equivalents		12,981,349			47,201,329
Cash and cash equivalents at beginning of period		80,868,505			42,632,459
Cash and cash equivalents at end of period	$	93,~~624~~849,~~553~~854		$	6589,~~878~~833,~~355~~788
Supplemental disclosure of cash flow information:
Cash paid (received) during the year for:
Interest	$	1,~~052~~993,~~081~~270		$	12,~~353~~589,~~478~~672
Income taxes paid (refunded), net	$	(9,953	)	$	—
Noncash investing and financing transactions:
Change in unrealized gains (losses) on investment securities available-for-sale	$	60510,~~350~~966		$	12,~~626~~683,~~728~~479
Loans charged-off to allowance for loan losses	$	2,~~245~~975,~~855~~568		$	35,~~563~~577,~~225~~920
Real estate acquired through foreclosure	$	25,~~032~~059,~~875~~949		$	12,~~962~~386,~~779~~049
Loans made in connection with sales of other real estate	$	—3,500		$	257,718

See accompanying Notes to Consolidated Financial Statements.

6 5

Southeastern Banking Corporation

Notes to Consolidated Financial Statements

(Unaudited)

1.	BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Southeastern Banking Corporation and subsidiary (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

The accounting and reporting policies followed in the presentation of the accompanying ~~unaudited~~ unaudited consolidated financial statements are consistent with those described in ~~note~~Note 1 of the notes to the consolidated financial statements included in the Company’s 2010 Form 10-K, as updated by the information contained in this Form 10-Q. In the opinion of management, these consolidated financial statements reflect all adjustments necessary to fairly present such information for the periods and dates indicated. Such adjustments, which include transactions typically determined or settled at year-end, are normal and recurring in nature. All significant intercompany accounts and transactions have been eliminated. The consolidated balance sheet as of December 31, 2010 has been extracted from the audited consolidated balance sheet included in the Company’s 2010 Form 10-K. Certain reclassifications, with no effect on total assets or net operating results, have been made to prior period amounts to conform to the current period presentation.

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Results of operations for interim periods are not necessarily indicative of ~~trend~~trends or results to be expected for the full year, due in part to seasonal variations and unusual or infrequently occurring items.

Earnings (Loss) Per Share

Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding during each period. Diluted earnings per share are based on the weighted average number of common shares outstanding adjusted to include the effect of potentially dilutive common shares. Potentially dilutive common shares include incremental shares issuable upon exercise of outstanding stock options using the treasury stock method. In any periods of net loss, diluted loss per share is calculated in the same manner as basic earnings per share. Since they were non-dilutive, 70,250 and 83,500 equivalent shares related to stock options were excluded from the computation of diluted earnings (loss) per share at ~~March~~June 3130, 2011 and 2010, respectively.

2.	NEW ACCOUNTING PRONOUNCEMENTS

In January 2010, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update requiring additional disclosures on transfers in and out of the fair value hierarchy and activity within level 3 financial instruments. This update also provides clarification on classification of financial instruments and the discussion of inputs and valuation techniques. The new disclosures and clarification were effective for the Company as of December 31, 2009, except for disclosures related to activity within level 3 financial instruments. The level 3 disclosures were effective in the interim reporting period ending March 31, 2011. Adoption of the new disclosure requirements has not ~~affected~~had a material impact on the Company’s financial position or results of operations.

In6 May 2011, the FASB issued additional guidance on fair value measurement. The new guidance results in common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards. The amendments do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amendments clarify the proper application of the highest and best use and valuation premise concepts and the fair value measurement of an instrument classified in shareholders’ equity. Additionally, the amendments permit a reporting entity that manages financial instruments on the basis of its net exposure, rather than gross exposure, to measure the underlying financial

Southeastern Banking Corporation

Notes to Consolidated Financial Statements

(Unaudited)

In May 2011, the FASB issued additional guidance on fair value measurement. The new guidance results in common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards. The amendments do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amendments clarify the proper application of the highest and best use and valuation premise concepts and the fair value measurement of an instrument classified in shareholders’ equity. Additionally, the amendments permit a reporting entity that manages financial instruments on the basis of its net exposure, rather than gross exposure, to measure the underlying financial assets and liabilities at the price that would be received to sell a net asset position or transfer a net liability position for a particular risk in an orderly transaction between market participants at the measurement date and clarify that premiums and discounts in fair value measurements relate to the unit of account, and not size, as a characteristic of an entity’s holding. Expanded disclosure must be provided about valuation processes used for level 3 instruments, including quantitative information on unobservable inputs and sensitivity of fair value measurement to changes in unobservable inputs; use of nonfinancial assets if that use varies from its highest and best use, and that asset is measured at fair value on the balance sheets or its fair value is based on highest and best use; and categorization by level of the fair value hierarchy for items not measured at fair value on the balance sheets but for which fair value must be disclosed. The amendments are effective for interim and annual periods beginning after December 15, 2011. Adoption of the new guidance is not expected to have a material impact on the Company’s financial position or results of operations.

In July 2010, the FASB issued an accounting pronouncement requiring more robust disclosures about the credit quality of loans and the allowance for loan losses. The additional disclosures include a rollforward of the allowance for loan losses on a disaggregated basis and more information, by type of loan, on credit quality indicators including aging and troubled debt restructurings (“TDRs”) as well as any significant purchases and sales. Most of the new disclosure requirements were effective beginning December 31, 2010. In April 2011, the FASB issued an accounting standards update deferring the disclosure of TDR credit quality indicators until the third quarter of 2011. The new disclosure requirements have not had a material impact on the Company’s financial position or results of operations.

In December 2010, the FASB issued an accounting standards update addressing differences in the ways entities have disclosed pro forma revenue and earnings in a business combination. If an entity presents comparable financial statements, the guidance requires the entity to disclose revenue and earnings of the combined entity as if the business combination(s) occurring during the current year had occurred as of the beginning of the comparable prior annual reporting period. Supplemental pro forma disclosures must also be expanded to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination(s). The new requirements, which became effective as of January 1, 2011, have not had a material impact on the Company’s financial position, results of operations, or cash flows.

Southeastern Banking Corporation

Notes to Consolidated Financial Statements

(Unaudited)

assets and liabilities at the price that would be received to sell a net asset position or transfer a net liability position for a particular risk in an orderly transaction between market participants at the measurement date and clarify that premiums and discounts in fair value measurements relate to the unit of account, and not size, as a characteristic of an entity’s holding. Expanded disclosure must be provided about valuation processes used for level 3 instruments, including quantitative information on unobservable inputs and sensitivity of fair value measurement to changes in unobservable inputs; use of nonfinancial assets if that use varies from its highest and best use, and that asset is measured at fair value on the balance sheets or its fair value is based on highest and best use; and categorization by level of the fair value hierarchy for items not measured at fair value on the balance sheets but for which fair value must be disclosed. The amendments are effective for interim and annual periods beginning after December 15, 2011. Adoption of the new guidance will not impact the Company’s financial position or results of operations.

In July 2010, the FASB issued an accounting pronouncement requiring more robust disclosures about the credit quality of loans and the allowance for loan losses. The additional disclosures include a rollforward of the allowance for loan losses on a disaggregated basis and more information, by type of loan, on credit quality indicators including aging and troubled debt restructurings (“TDRs”) as well as any significant purchases and sales. Most of the new disclosure requirements were effective beginning December 31, 2010. Disclosures about activity that occurs during a reporting period are effective the first quarter of 2011 and are included in note 4. In April 2011, the FASB issued an accounting standards update deferring the disclosure of TDR credit quality indicators until the third quarter of 2011. The new disclosure requirements have not affected the Company’s financial position or results of operations.

In December 2010, the FASB issued an accounting standards update addressing differences in the ways entities have disclosed pro forma revenue and earnings in a business combination. If an entity presents comparable financial statements, the guidance requires the entity to disclose revenue and earnings of the combined entity as if the business combination(s) occurring during the current year had occurred as of the beginning of the comparable prior annual reporting period. Supplemental pro forma disclosures must also be expanded to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination(s). The new requirements, which became effective as of January 1, 2011, have not affected the Company’s financial position, results of operations, or cash flows.

3.	INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities as of June 30, 2011 and December 31, 2010 are summarized below:.

March 31, 2011	AmortizedCost		GrossUnrealizedGains		GrossUnrealizedLosses		FairValue
June 30, 2011	AmortizedCost		GrossUnrealizedGains		GrossUnrealizedLosses		FairValue
Available-for-sale:
Debt securities:
U. S. Government and agency securities	$	10,194,154	$	197,177	$	2	$	10,391,329
U. S. Government and federal agency securities	$	4,259,693	$	161,912	$	582	$	4,421,023
U. S. Government-sponsored enterprise securities		26,305,316		126,161		4		26,431,473
U. S. Government-sponsored enterprise securities		32,820,493		79,219		5,060		32,894,652
Agency residential mortgage-backed securities		14,229,330		777,407		—		15,006,737
Agency residential mortgage-backed securities		15,264,089		619,510		5,224		15,878,375
Obligations of states and political subdivisions		14,341,518		428,126		58,397		14,711,247
Obligations of states and political subdivisions		14,644,318		343,651		117,704		14,870,265
Corporate debt obligations		8,381,096		111,438		664,284		7,828,250
Corporate debt obligations		8,386,061		64,333		673,048		7,777,346
Total investment securities	$	73,451,414	$	1,640,309	$	722,687	$	74,369,036
Total investment securities	$	75,374,654	$	1,268,625	$	801,618	$	75,841,661
December 31, 2010	AmortizedCost		GrossUnrealizedGains		GrossUnrealizedLosses		FairValue
Available-for-sale:
U. S. Government and agency securities	$	4,551,010	$	187,524	$	—	$	4,738,534
U. S. Government-sponsored enterprise securities		33,549,865		118,203		31		33,668,037
Agency residential mortgage-backed securities		10,323,420		642,201		—		10,965,621
Obligations of states and political subdivisions		16,587,458		370,210		136,664		16,821,004
Corporate debt obligations		8,881,494		20,710		795,497		8,106,707
Total investment securities	$	73,893,247	$	1,338,848	$	932,192	$	74,299,903

The amortized cost and fair value of debt securities by contractual maturity at June 30, 2011 are shown in the table below. In some cases, issuers may have the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date. Agency-issued mortgage-backed securities and U.S. Small Business Administration (“SBA”) participation certificates (included in U. S. Government and federal agency securities) are shown separately from other debt securities due to customary prepayment features which cause average lives to differ significantly from contractual maturities.


	Available-for-Sale
*June 30, 2011*	Amortized Cost		Fair Value
Due within one year	$	27,435,312	$	27,472,305
Due from one to five years		12,250,805		12,583,691
Due from five to ten years		4,576,692		4,727,238
Due after ten years		10,765,037		10,187,649

		55,027,846		54,970,883
Agency residential mortgage-backed securities		14,229,330		15,006,737
SBA participation certificates		4,194,239		4,391,416

Total investment securities	$	73,451,415	$	74,369,036

Southeastern Banking Corporation

Notes to Consolidated Financial Statements

(Unaudited)

December 31, 2010	AmortizedCost		GrossUnrealizedGains		GrossUnrealizedLosses		FairValue
Available-for-sale:
Debt securities:
U. S. Government and federal agency securities	$	4,551,010	$	187,524	$	—	$	4,738,534
U. S. Government-sponsored enterprise securities		33,549,865		118,203		31		33,668,037
Agency residential mortgage-backed securities		10,323,420		642,201		—		10,965,621
Obligations of states and political subdivisions		16,587,458		370,210		136,664		16,821,004
Corporate debt obligations		8,881,494		20,710		795,497		8,106,707
Total investment securities	$	73,893,247	$	1,338,848	$	932,192	$	74,299,903

Securities with carrying values of $67,116,011 and $65,127,641 at June 30, 2011 and December 31, 2010, respectively, were pledged to secure public deposits as required by law and certain borrowing arrangements.

~~The~~Gains ~~amortized~~and ~~cost~~losses ~~and~~on ~~fair~~sales ~~value~~and calls of ~~debt~~investment securities byfor ~~contractual~~the ~~maturity~~three atmonths ~~March 31,~~and ~~2011~~six ~~are shown~~months inended ~~the table below. In some cases~~June 30, ~~issuers~~2011 ~~may~~and ~~have~~2010 ~~the~~consist ~~right~~of ~~to call or prepay obligations without call or prepayment penalties prior to~~ the ~~contractual~~following: maturity date. Mortgage-backed securities are shown separately from other debt securities due to customary prepayment features which cause average lives to differ significantly from contractual maturities.

	Available-for-Sale
	Three Months					Six Months
March 31, 2011	AmortizedCost		FairValue
Period Ended June 30,	2011		2010			2011			2010
Due within one year	$	25,164,654	$	25,185,949
Gross realized gains	$	—	$	—		$	—		$	—
Due from one to five years		14,538,569		14,782,871
Gross realized losses		—		(143,408	)		(18,191	)		(143,408	)
Due from five to ten years		8,607,954		8,892,739
Net realized gain (loss)	$	—	$	(143,408	)	$	(18,191	)	$	(143,408	)
Due after ten years		11,799,388		11,101,727
		60,110,565		59,963,286
Agency residential mortgage-backed securities		15,264,089		15,878,375
Total investment securities	$	75,374,654	$	75,841,661

~~Securities~~The ~~with~~following ~~carrying~~table ~~values~~shows ofthe ~~$68,462,091~~gross unrealized losses and ~~$65,127,641~~fair atvalue ~~March 31,~~of ~~2011~~the ~~and~~Company’s ~~December 31,~~investments ~~2010,~~with ~~respectively,~~unrealized ~~were~~losses ~~pledged~~that are not deemed to ~~secure~~be ~~public~~other-than-temporarily ~~deposits~~impaired, aggregated by investment category and ~~other~~length ~~borrowings~~of astime ~~required~~that byindividual ~~law~~securities have been in a continuous unrealized loss position at June 30, 2011 and December 31, 2010.

Year-to-date, the Company sold one “B+” rated corporate debt obligation, recording an $18,191 loss on proceeds totaling $474,000. In fiscal 2010, the Company sold four “B+” holdings of this same issuer, recognizing a $141,088 loss on sales and also recording a $45,069 other-than-temporary impairment charge, which is further discussed in the Company’s 2010 Form 10-K. The Company had no residual holdings of this issuer at March 31, 2011. The 2011 year-to-date sales activity is further enumerated in the next table.


	Less Than Twelve Months				Over Twelve Months				Total Unrealized Losses
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Total Unrealized Losses
*June 30, 2011*
Available-for-sale:
U.S. Government and federal agency securities	$	5,999,913	$	2	$	—	$	—	$	2
U.S. Government-sponsored enterprise securities		19,499,983		4		—		—		4
Agency residential mortgage-backed securities		—		—		—		—		—
Obligations of states and political subdivisions		—		—		883,961		58,397		58,397
Corporate debt obligations		2,360,195		92,412		3,878,199		571,872		664,284

Total investment securities	$	27,860,091	$	92,418	$	4,762,160	$	630,269	$	722,687


December 31, 2010
Available-for-sale:
U.S. Government and federal agency securities	$	—	$	—	$	—	$	—	$	—
U.S. Government-sponsored enterprise securities		22,099,730		31		—		—		31
Agency residential mortgage-backed securities		—		—		—		—		—
Obligations of states and political subdivisions		978,233		28,015		834,049		108,649		136,664
Corporate debt obligations		2,325,199		132,946		4,284,304		662,551		795,497

Total investment securities	$	25,403,162	$	160,992	$	5,118,353	$	771,200	$	932,192

Southeastern Banking Corporation

Notes to Consolidated Financial Statements

(Unaudited)

Three Months Ended March 31, 2011
Gross realized gains	$	—
Gross realized losses		18,191
Net realized loss	$	(18,191	)
Proceeds from sales	$	474,000

Management evaluates investment securities for other-than-temporary impairment on a quarterly basis, and more frequently when conditions warrant. This analysis requires management to consider various factors, including the duration and magnitude of the decline in value; the financial condition of the issuer or issuers; structure of the security; and, notwithstanding classification of the portfolio as available-for-sale, the Company’s intent to sell the security or whether it’s more likely than not that the Company would be required to sell the security before the anticipated recovery in market value. At June 30, 2011, management reviewed securities with an unrealized loss and concluded that no material individual securities were other-than-temporarily impaired. Impairment charges on the Company’s holdings could become necessary in the future if the economic crisis facing the banking industry does not fully abate and various issuers’ financial condition weakens.

The ~~cost~~Company held stock in the Federal Home Loan Bank of ~~investment~~Atlanta ~~securities~~(“FHLB”) ~~sold~~totaling $1,070,400 ~~and~~at June 30, 2011. The Company carries the ~~resultant~~stock, ~~gain~~which oris ~~loss~~included in other assets, ~~were~~at cost and evaluates it for impairment based on ~~the~~ultimate ~~specific identification~~recoverability ~~method~~of par value. NoThe ~~securities~~Company ~~were~~evaluated ~~sold~~its ~~during~~holding ~~the~~in ~~three~~FHLB ~~months~~stock ~~ended~~at ~~March~~June 3130, ~~2010~~2011 and believes its holdings are recoverable at par. ~~Additionally~~In addition, nothe ~~other-than-temporary~~Company ~~impairment~~does ~~losses~~not ~~were~~have ~~recognized~~operational ~~during~~or liquidity needs that would require a redemption of the ~~three~~stock ~~months~~in ~~ended~~the ~~March 31,~~foreseeable ~~2011~~future and ~~March 31,~~therefore ~~2010~~determined that the stock was not other-than-temporarily impaired.

~~Securities~~4. ~~with~~LOANS ~~unrealized~~AND ~~losses~~ALLOWANCE ~~that~~FOR ~~were~~LOAN ~~not deemed other-than-temporarily impaired at March 31, 2011 and December 31, 2010 are shown in the table on the next page.~~ LOSSES

The composition of the Company’s loan portfolio at June 30, 2011 and December 31, 2010 is shown below:


	June 30, 2011						December 31, 2010
	Balance			Percent of Total			Balance			Percent of Total
Commercial real estate:
Construction and development	$	77,177,722			33.6	%	$	86,972,052			35.4	%
Owner-occupied		36,406,066			15.8			35,300,711			14.4
Non owner-occupied		28,624,341			12.5			29,523,640			12.0
Residential real estate - mortgage		47,383,175			20.6			48,686,595			19.8
Other commercial, financial, and agricultural		29,720,218			12.9			33,504,726			13.6
Consumer, including credit cards		10,461,391			4.6			11,700,831			4.8

Loans, gross		229,772,913			100.0	%		245,688,555			100.0	%

Unearned income		(58,504	)					(65,007	)
Allowance for loan losses		(8,603,770	)					(9,915,559	)

Net loans	$	221,110,639					$	235,707,989

Commercial real estate loans represented approximately 62% of the total loan portfolio at both June 30, 2011 and December 31, 2010. Due to continued instability of real estate values, loans in the commercial real estate portfolio may have a greater risk of uncollectibility than other loans. Additionally, because a substantial portion of the loan portfolio is secured by real estate in southeast Georgia and northeast Florida, the loan portfolio is particularly susceptible to changes in market conditions in those areas. Refer to Part I, Item 2 of this Form 10-Q for additional disclosure on loan concentrations.

Southeastern Banking Corporation

Notes to Consolidated Financial Statements

(Unaudited)

	Less than Twelve Months				Twelve Months or More				Total
March 31, 2011	FairValue		GrossUnrealizedLosses		FairValue		GrossUnrealizedLosses		FairValue		GrossUnrealizedLosses
Available-for-sale:
Debt securities:
U. S. Government and federal agency securities	$	1,025,034	$	582	$	—	$	—	$	1,025,034	$	582
U. S. Government-sponsored enterprise securities		26,994,700		5,060		—		—		26,994,700		5,060
Agency residential mortgage-backed securities		1,982,899		5,224		—		—		1,982,899		5,224
Obligations of states and political subdivisions		1,038,899		17,679		842,520		100,025		1,881,419		117,704
Corporate debt obligations		2,308,030		147,344		3,927,378		525,704		6,235,408		673,048
Total temporarily impaired securities	$	33,349,562	$	175,889	$	4,769,898	$	625,729	$	38,119,460	$	801,618
	Less than Twelve Months				Twelve Months or More				Total
December 31, 2010	FairValue		GrossUnrealizedLosses		FairValue		GrossUnrealizedLosses		FairValue		GrossUnrealizedLosses
Available-for-sale:
Debt securities:
U. S. Government and federal agency securities	$	—	$	—	$	—	$	—	$	—	$	—
U. S. Government-sponsored enterprise securities		22,099,730		31		—		—		22,099,730		31
Agency residential mortgage-backed securities		—		—		—		—		—		—
Obligations of states and political subdivisions		978,233		28,015		834,049		108,649		1,812,282		136,664
Corporate debt obligations		2,325,199		132,946		4,284,304		662,551		6,609,503		795,497
Total temporarily impaired securities	$	25,403,162	$	160,992	$	5,118,353	$	771,200	$	30,521,515	$	932,192

In accordance with U.S. GAAP, the loan portfolio was disaggregated into four segments and further disaggregated into classes for certain disclosures. A portfolio segment is defined as the level in which an entity develops and documents a systematic method for determining its allowance for loan losses. The segments used in the portfolio include commercial real estate; residential real estate – mortgage; other commercial, financial, agricultural; and consumer. Commercial real estate has been divided into three classes, including construction and development, owner-occupied, and non owner-occupied credits. All land and lot development loans have been included in the construction and development class, regardless of whether the underlying real estate is zoned commercial or residential. This classification of construction and development loans corresponds with definitions used by banking regulators for examination and other purposes.

Aging of past due loans is presented by segment in the next table. Balances presented are based on book balance, or recorded investment.


*June 30, 2011*	Current		Accruing 30 – 89 Days Past Due		Accruing 90+ Days Past Due		Total Accruing Past Due		Nonaccrual		Total
Commercial real estate:
Construction and development	$	52,965,538	$	645,321	$	16,928	$	662,249	$	23,549,935	$	77,177,722
Owner-occupied		35,008,244		876,952		—		876,952		520,870		36,406,066
Non owner-occupied		28,092,017		526,749		—		526,749		5,575		28,624,341
Residential real estate - mortgage		41,995,104		856,171		25,536		881,707		4,506,364		47,383,175
Other commercial, financial, and agricultural		29,095,469		335,265		—		335,265		289,484		29,720,218
Consumer, including credit cards		9,790,008		372,324		22,876		395,200		276,183		10,461,391

Loans, gross	$	196,946,380	$	3,612,782	$	65,340	$	3,678,122	$	29,148,411	$	229,772,913


December 31, 2010	Current		Accruing 30 – 89 Days Past Due		Accruing 90+ Days Past Due		Total Accruing Past Due		Nonaccrual		Total
Commercial real estate:
Construction and development	$	64,560,275	$	553,271	$	18,555	$	571,826	$	21,839,951	$	86,972,052
Owner-occupied		33,422,584		1,197,251		—		1,197,251		680,876		35,300,711
Non owner-occupied		28,745,303		81,151		—		81,151		697,186		29,523,640
Residential real estate - mortgage		43,425,467		678,612		75,848		754,460		4,506,668		48,686,595
Other commercial, financial, and agricultural		32,925,618		155,384		—		155,384		423,724		33,504,726
Consumer, including credit cards		10,890,188		410,570		26,536		437,106		373,537		11,700,831

Loans, gross	$	213,969,435	$	3,076,239	$	120,939	$	3,197,178	$	28,521,942	$	245,688,555

Within accruing loans 30 - 89 days past due, $2,250,048 of the total was past due 30 to 59 days, and $1,362,734 were 60 to 89 days past due at June 30, 2011 compared to $2,442,451 accruing loans past due 30 to 59 days and $633,788 accruing loans past due 60 to 89 days at December 31, 2010.

Southeastern Banking Corporation

Notes to Consolidated Financial Statements

(Unaudited)

On March 31, 2011, the Company held certain investment securities having unrealized loss positions. Market changes in interest rates and credit spreads will result in temporary unrealized losses as the market price of securities fluctuates. The turmoil and illiquidity in the financial markets during 2010 and 2011 year-to-date increased market yields on certain securities as a result of credit spreads widening. This shift in market yields resulted in unrealized losses on certain securities within the Company’s portfolio.

Unrealized losses continued to be concentrated in corporate debt obligations at March 31, 2011. The unrealized loss of $673,048 related to five corporate debt obligations was attributable exclusively to issues of banks or bank holding companies domiciled in the southeastern United States. At March 31, 2011, two holdings, both pertaining to the same issuer, with fair values of $3,153,500 and unrealized losses of $284,050, were rated “BB.” Three non-rated trust preferred securities had an aggregate carrying value of $3,081,908 and unrealized loss of $388,998 at March 31, 2011. The total unrealized loss on these five corporate securities, including the trust preferred holdings, is largely reflective of the illiquidity and risk premiums reflected in the market for bank-issued securities due to pervasive capital, asset quality, and other issues which have continued to affect the banking industry. Although a) major rating agencies downgraded certain of these securities during the last 12 months and b) recent profitability and near-term profit forecasts by industry analysts reflect continuing pressure due to loan losses and other issues, the Company currently expects the issuers to settle the securities at par. In particular, the issuer of the “BB” rated securities was a recipient of government capital and continues to meet its obligations. However, management’s position regarding the impairment of these securities is subject to change as circumstances evolve.

Within the municipal portfolio, three or $842,520 of total holdings had been in a continuous unrealized loss position for twelve months or more at March 31, 2011 and four or $1,038,899 in a continuous loss position less than twelve months. These municipals were all rated “A1” or higher by at least one nationally recognized rating agency except for three non-rated securities. The unrealized loss position on these seven securities resulted primarily from changes in market yields and/or withdrawn ratings on municipals that had received credit support from bond insurance. Ratings withdrawals were widespread during the recent economic crisis as many bond insurers faltered. As discussed further below, the Company does not rely solely on bond insurance in making investment decisions and did not consider these particular securities to be impaired at March 31, 2011. Other than fourteen non-rated issues with fair values aggregating $3,409,157, all holdings in the municipal portfolio comprised rated, investment grade securities. The majority, or 79%, of the non-rated issues were based in Georgia. In analyzing non-rated municipals, management considers debt service coverage and whether the bonds support essential services such as water/sewer systems and education.

Within a) U.S. Government and federal agency securities, which comprise U.S. Small Business Administration participation certificates; b) U.S. Government-sponsored enterprise securities, which principally comprise Federal Home Loan Bank (“FHLB”), Fannie Mae, and Federal Farm Credit Bank obligations; and c) agency residential mortgage-backed securities, which comprise Fannie Mae, Freddie Mac, and Ginnie Mae issues, the cumulative unrealized loss position totaled $10,866, or less than 1%, on a carrying value of $30,002,633 at March 31, 2011. These particular securities all carried an “Aaa” or “AAA” rating from the rating agencies. The Company does not own any private label mortgage-backed securities.

Management evaluates investment securities for other-than-temporary impairment on a quarterly basis, and more frequently when conditions warrant. This analysis requires management to consider various factors, including the duration and magnitude of the decline in value; the financial condition of the issuer or issuers; structure of the security; and, notwithstanding classification of the portfolio as available-for-sale, the Company’s intent to sell the security or whether it’s more likely than not that the Company would be required to sell the security before the anticipated recovery in market value. At March 31, 2011, management reviewed securities with an unrealized loss and concluded that no material individual securities were other-than-temporarily impaired. Impairment charges on the Company’s holdings could become necessary in the future if the economic crisis facing the banking industry does not fully abate and various issuers’ financial condition weakens.

Southeastern Banking Corporation

Notes to Consolidated Financial Statements

(Unaudited)

The Company held stock in the FHLB of Atlanta totaling $1,173,700 at March 31, 2011. The Company carries the stock, which is included in other assets, at cost and evaluates it for impairment based on ultimate recoverability of par value. The Company evaluated its holding in FHLB stock at March 31, 2011 and believes its holdings are recoverable at par. In addition, the Company does not have operational or liquidity needs that would require a redemption of the stock in the foreseeable future and therefore determined that the stock was not other-than-temporarily impaired.

Concentrations of credit risk pertaining to investment securities are discussed in other sections of this Form 10-Q.

4. LOANS AND ALLOWANCE FOR LOAN LOSSES

The composition of the Company’s loan portfolio at March 31, 2011 and December 31, 2010 is shown below:

	March 31, 2011						December 31, 2010
	Balance			Percentof Total			Balance			Percentof Total
Commercial real estate:
Construction and development	$	80,361,545			34.09	%	$	86,972,052			35.39	%
Owner-occupied		36,197,929			15.36			35,300,711			14.37
Non owner-occupied		28,975,443			12.29			29,523,640			12.02
Residential real estate - mortgage		47,971,601			20.35			48,686,595			19.82
Other commercial, financial, and agricultural		31,380,986			13.32			33,504,726			13.64
Consumer, including credit cards		10,816,136			4.59			11,700,831			4.76
Loans, gross		235,703,640			100.00	%		245,688,555			100.00	%
Unearned income		(60,873	)					(65,007	)
Allowance for loan losses		(8,370,191	)					(9,915,559	)
Net loans	$	227,272,576					$	235,707,989

Commercial real estate loans represented approximately 62% of the total loan portfolio at both March 31, 2011 and December 31, 2010. Due to continued instability of real estate values, loans in the commercial real estate portfolio may have a greater risk of uncollectibility than other loans. Additionally, because a substantial portion of the loan portfolio is secured by real estate in southeast Georgia and northeast Florida, the loan portfolio is particularly susceptible to changes in market conditions in those areas. Refer to Part I, Item 2 of this Form 10-Q for additional disclosure on loan concentrations.

In accordance with GAAP, the loan portfolio was disaggregated into four segments and further disaggregated into classes for certain disclosures. A portfolio segment is defined as the level in which an entity develops and documents a systematic method for determining its allowance for loan losses. The segments used in the portfolio include commercial real estate; residential real estate – mortgage; other commercial, financial, agricultural; and consumer. Commercial real estate has been divided into three classes, including construction and development, owner-occupied, and non owner-occupied credits. All land and lot development loans have been included in the construction and development class, regardless of whether the underlying real estate is zoned commercial or residential. This classification of construction and development loans corresponds with definitions used by banking regulators for examination and other purposes.

Southeastern Banking Corporation

Notes to Consolidated Financial Statements

(Unaudited)

Aging of past due loans is presented by segment in the next table. Balances presented are based on book balance, or recorded investment.

March 31, 2011	Current		Accruing30 – 89 DaysPast Due		Accruing 90Days or MorePast Due		Total AccruingPast Due		Nonaccrual		Total
Commercial real estate:
Construction and development	$	58,749,183	$	985,820	$	17,728	$	1,003,548	$	20,608,814	$	80,361,545
Owner-occupied		35,470,903		350,001		—		350,001		377,025		36,197,929
Non owner-occupied		28,164,303		278,142		—		278,142		532,998		28,975,443
Residential real estate - mortgage		42,225,945		1,181,375		26,191		1,207,566		4,538,090		47,971,601
Other commercial, financial, and agricultural		30,516,038		527,233		—		527,233		337,715		31,380,986
Consumer, including credit cards		10,226,975		307,189		24,365		331,554		257,607		10,816,136
Loans, gross	$	205,353,347	$	3,629,760	$	68,284	$	3,698,044	$	26,652,249	$	235,703,640
December 31, 2010	Current		Accruing30 – 89 DaysPast Due		Accruing 90Days or MorePast Due		Total AccruingPast Due		Nonaccrual		Total
Commercial real estate:
Construction and development	$	64,560,275	$	553,271	$	18,555	$	571,826	$	21,839,951	$	86,972,052
Owner-occupied		33,422,584		1,197,251		—		1,197,251		680,876		35,300,711
Non owner-occupied		28,745,303		81,151		—		81,151		697,186		29,523,640
Residential real estate - mortgage		43,425,467		678,612		75,848		754,460		4,506,668		48,686,595
Other commercial, financial, and agricultural		32,925,618		155,384		—		155,384		423,724		33,504,726
Consumer, including credit cards		10,890,188		410,570		26,536		437,106		373,537		11,700,831
Loans, gross	$	213,969,435	$	3,076,239	$	120,939	$	3,197,178	$	28,521,942	$	245,688,555

Within accruing loans 30 - 89 days past due, $2,592,201 of the total was past due 30 - 59 days, and $1,037,559, 60 – 89 days, at March 31, 2011; accruing loans past due 30 – 59 days and 60 – 89 days totaled $2,442,451 and $633,788 at December 31, 2010.

Southeastern Banking Corporation

Notes to Consolidated Financial Statements

(Unaudited)

Internal risk-ratings, or grades, are assigned to each loan based on an analysis of the financial strength, collateral, and other credit attributes underlying each loan. Management analyzes the resulting ratings, as well as other external statistics and factors such as delinquency, to track the migration performance of the portfolio balances. The rating methodology complies with the asset classification system promulgated by the federal banking agencies. Loan grades range from one to eight, with one-graded loans having the least credit risk, as defined below:

Pass (Grades 1 -4) - Loans included in or migrating towards a “pass” grade of one to four carry the lowest risk of loss. Such loans are well-protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less selling costs, of underlying collateral.

Special Mention (Grade 5) – Loans in this category have potential weaknesses requiring additional monitoring. These loans are not adversely classified and do not currently have sufficient risk to warrant adverse classification. Substantially all special mention loans are performing.

Substandard (Grade 6) – These loans are inadequately supported by the current worth and paying capacity of the obligor or collateral pledged, if any. A distinct possibility of loss exists if the underlying deficiencies are not corrected. At ~~March~~June 3130, 2011 and December 31, 2010, all nonaccrual loans were graded substandard.

Doubtful (Grade 7) – These loans have all the weaknesses of a substandard loan with the added detriment that full collection or liquidation is highly questionable and improbable on the basis of currently known facts, conditions, and values.

Loss (Grade 8) – These loans are deemed uncollectible and have, at best, nominal value. Maintaining these loans on the books, without establishment of specific valuation allowances, is not warranted.

Loans considered doubtful or loss are normally charged-off upon such determination and hence, no balances apply to these categories. Risk ratings of the loan portfolio are shown in the next table.

March 31, 2011

Pass(1 – 4)

Special Mention(5)

Substandard(6)

Doubtful(7)

Loss(8)

Total

June 30, 2011

Pass(1 – 4)

SpecialMention(5)

Substandard(6)

Doubtful(7)

Loss(8)

Total

Commercial real estate:

Construction and development

3432,~~056~~891,~~253~~648

2115,~~433~~997,~~587~~253

2428,~~871~~288,~~705~~821

—

8077,~~361~~177,~~545~~722

Owner-occupied

3233,~~921~~496,~~186~~246

1,~~872~~364,~~774~~184

1,~~403~~545,~~969~~636

—

36,~~197~~406,~~929~~066

Non owner-occupied

16,~~910~~752,~~475~~866

8,~~609~~484,~~053~~365

3,~~455~~387,~~915~~110

—

28,~~975~~624,~~443~~341

Residential real estate - mortgage

3536,~~897~~270,~~373~~559

43,~~221~~457,~~038~~848

7,~~853~~654,~~190~~768

—

47,~~971~~383,~~601~~175

Other commercial, financial, and agricultural

3028,~~161~~584,~~684~~406

~~722~~672,~~151~~649

~~497~~463,~~151~~163

—

3129,~~380~~720,~~986~~218

Consumer, including credit cards

109,~~322~~948,~~020~~584

~~163~~132,~~715~~098

~~330~~380,~~401~~709

—

10,~~816~~461,~~136~~391

Loans, gross

~~160~~157,~~268~~944,~~991~~309

3730,~~022~~108,~~318~~397

3841,~~412~~720,~~331~~207

—

~~235~~229,~~703~~772,~~640~~913

15 12

Southeastern Banking Corporation

Notes to Consolidated Financial Statements

(Unaudited)

December 31, 2010	Pass(1 – 4)		~~Special Mention~~SpecialMention(5)		Substandard(6)		Doubtful(7)		Loss(8)		Total
Commercial real estate:
Construction and development	$	35,170,540	$	21,525,120	$	30,276,392	$	—	$	—	$	86,972,052
Owner-occupied		31,702,978		2,649,760		947,973		—		—		35,300,711
Non owner-occupied		22,531,694		3,242,934		3,749,012		—		—		29,523,640
Residential real estate - mortgage		35,813,611		5,194,612		7,678,372		—		—		48,686,595
Other commercial, financial, and agricultural		30,000,682		610,926		2,893,118		—		—		33,504,726
Consumer, including credit cards		10,988,957		240,987		470,887		—		—		11,700,831
Loans, gross	$	166,208,462	$	33,464,339	$	46,015,754	$	—	$	—	$	245,688,555

Activity in the allowance for loan losses is summarized by loan segment below:

As of and for the Three Months Ended March 31, 2011	CommercialReal Estate			ResidentialReal Estate			OtherCommercial,Financial, &Agricultural			Consumer			Unallocated			Total
As of and for the Six Months Ended June 30, 2011	CommercialReal Estate			ResidentialReal Estate			OtherCommercial,Financial, &Agricultural			Consumer			Unallocated			Total
Allowance for loan losses:
Balance, beginning of year	$	7,442,941		$	1,747,843		$	405,830		$	262,223		$	56,722		$	9,915,559
Provision for loan losses		~~211~~893,~~790~~268			~~445~~703,~~255~~070			~~(49~~83,~~913~~242	)		(5226,~~295~~409	)		~~105~~(93,~~163~~171	)		~~660~~1,560,000
Charge-offs		(2,~~016~~442,~~469~~716	)		(~~180~~383,~~426~~881	)		(1254,~~849~~901	)		(3694,~~111~~070	)		—			(2,~~245~~975,~~855~~568	)
Recoveries		~~287~~17,787			714,~~081~~210			413,~~394~~758			2858,~~725~~024			—			40103,~~487~~779
Ending balance	$	5,~~638~~911,~~549~~280		$	2,~~019~~081,~~753~~242		$	~~347~~447,~~462~~929		$	~~202~~199,~~542~~768		$	~~161~~(36,~~885~~449	)	$	8,~~370~~603,~~191~~770
Ending balance, loans individually evaluated for impairment	$	1,123,722		$	1,277,339		$	562		$	—		$	—		$	2,401,623
Ending balance, allocated to loans individually evaluated for impairment	$	2,295,497		$	1,354,756		$	31,937		$	5,322			n/a		$	3,687,512
Loans:
Loans, gross	$	142,208,129		$	47,383,175		$	29,720,218		$	10,461,391			n/a		$	229,772,913
Gross ending balance	$	145,534,917		$	47,971,601		$	31,380,986			10,816,136		$	—		$	235,703,640
Gross loans individually evaluated for impairment	$	32,592,538		$	6,137,654		$	94,303		$	26,610			n/a		$	38,851,105
Ending balance, gross loans individually evaluated for impairment	$	28,221,913		$	6,362,967		$	18,741		$	26,610		$	—		$	34,630,231

16 13

Southeastern Banking Corporation

Notes to Consolidated Financial Statements

(Unaudited)

Within the commercial real estate classes specifically, activity included:

As of & for the Three Months Ended March 31, 2011	Construction&Development			Owner-Occupied			Non Owner-Occupied			TotalCommercialReal Estate
As of & for the Six Months Ended June 30, 2011	Construction&Development			Owner-Occupied			Non Owner-Occupied			TotalCommercialReal Estate
Allowance for loan losses:
Balance, beginning of year	$	7,133,461		$	124,729		$	184,751		$	7,442,941
Provision for loan losses		(4553,~~043~~567	)		51135,~~372~~006			~~164~~204,~~461~~695			~~211~~893,~~790~~268
Charge-offs		(12,~~852~~266,~~280~~270	)		—(6,015	)		(~~164~~170,~~189~~431	)		(2,~~016~~442,~~469~~716	)
Recoveries		~~287~~17,787			—			—			~~287~~17,787
Ending balance	$	5,~~277~~438,~~425~~545		$	~~176~~253,~~101~~720		$	~~185~~219,~~023~~015		$	5,~~638~~911,~~549~~280
Ending balance, loans individually evaluated for impairment	$	966,023		$	55,106		$	102,593		$	1,123,722
Ending balance, allocated to loans individually evaluated for impairment	$	2,006,981		$	144,798		$	143,718		$	2,295,497
Loans:
Loans, gross	$	77,177,722		$	36,406,066		$	28,624,341		$	142,208,129
Gross ending balance	$	80,361,545		$	36,197,929		$	28,975,443		$	145,534,917
Gross loans individually evaluated for impairment	$	27,137,521		$	2,125,908		$	3,329,109		$	32,592,538
Ending balance, gross loans individually evaluated for impairment	$	23,538,459		$	1,263,690		$	3,419,764		$	28,221,913

A loan is considered impaired when it is probable, based on current information and events, the Company ~~will~~ will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Impaired loans include loans placed on nonaccrual status as well as troubled debt restructurings (“TDRs”), loans past due 90 days or more and still accruing, and other accruing loans individually evaluated for impairment. All of the Company’s impaired loans have a valuation allowance. Impaired loans comprised the following at ~~March~~June 3130, 2011 and December 31, 2010:

	March 31, 2011		December 31, 2010
	June 30, 2011		December 31, 2010
Nonaccrual loans	$	2629,~~652~~148,~~249~~411	$	28,521,942
Troubled debt restructurings not included above		56,~~669~~780,~~751~~732		12,669,230
Loans past due 90 days or more and still accruing		6865,~~284~~340		120,939
Other accruing loans individually evaluated for impairment		56,~~075~~340,~~932~~007		4,520,331
Total impaired loans	$	3742,~~466~~334,~~216~~490	$	45,832,442
Valuation allowance related to total impaired loans	$	23,~~497~~808,~~413~~242	$	3,580,409

Southeastern Banking Corporation

Notes to Consolidated Financial Statements

(Unaudited)

Total impaired loans are disaggregated by segment and class below:

As of & for the Three Months Ended March 31, 2011

RecordedInvestment

UnpaidPrincipalBalance

RelatedAllowance

As of & for the Six Months Ended June 30, 2011

RecordedInvestment

UnpaidPrincipalBalance

RelatedAllowance

Impaired loans with a valuation allowance:

Commercial real estate:

Construction and development

2428,~~411~~440,~~874~~851

3537,~~336~~144,~~124~~944

12,~~030~~095,~~344~~389

Owner-occupied

12,~~428~~448,~~915~~193

12,~~569~~605,~~961~~410

55146,~~665~~647

Non owner-occupied

3,~~419~~334,~~764~~684

3,~~704~~334,~~149~~684

~~102~~142,~~593~~876

Residential real estate - mortgage

7,~~585~~446,~~975~~657

8,~~663~~534,~~368~~113

1,~~298~~377,~~247~~430

Other commercial, financial, and agricultural

~~337~~365,~~715~~046

~~480~~498,~~818~~809

737,~~085~~978

Consumer, including credit cards

~~281~~299,~~973~~059

~~664~~692,~~671~~783

37,~~479~~922

Total impaired loans

3742,~~466~~334,~~216~~490

5052,~~419~~810,~~091~~743

23,~~497~~808,~~413~~242

Average investment in impaired loans

40,~~690~~435,~~240~~574

December 31, 2010

RecordedInvestment

UnpaidPrincipalBalance

RelatedAllowance

Impaired loans with a valuation allowance:

Commercial real estate:

Construction and development

30,017,176

39,673,998

2,459,478

Owner-occupied

1,337,701

1,483,080

35,631

Non owner-occupied

3,749,011

3,869,208

117,131

Residential real estate - mortgage

7,544,914

8,558,866

881,587

Other commercial, financial, and agricultural

2,751,545

2,882,978

80,651

Consumer, including credit cards

432,095

812,241

5,931

Total impaired loans

45,832,442

57,280,371

3,580,409

17Impaired loans with a valuation allowance include pools of impaired loans. At June 30, 2011, these pools had a recorded investment, or book balance, of $3,483,385, unpaid principal balance of $4,570,576, and related allowance of $120,730. The recorded investment, unpaid principal and related allowance in such pools totaled $3,135,061, $4,179,940, and $106,737, respectively, at December 31, 2010. Cash basis interest income actually recognized on nonaccrual loans approximated $29,793. Nonaccrual and TDRs included in impaired loans averaged approximately $35,363,208 in the first six months of 2011.

Southeastern Banking Corporation

Notes to Consolidated Financial Statements

(Unaudited)

December 31, 2010	RecordedInvestment		UnpaidPrincipalBalance		RelatedAllowance
Impaired loans with a valuation allowance:
Commercial real estate:
Construction and development	$	30,017,176	$	39,673,998	$	2,459,478
Owner-occupied		1,337,701		1,483,080		35,631
Non owner-occupied		3,749,011		3,869,208		117,131
Residential real estate - mortgage		7,544,914		8,558,866		881,587
Other commercial, financial, and agricultural		2,751,545		2,882,978		80,651
Consumer, including credit cards		432,095		812,241		5,931
Total impaired loans	$	45,832,442	$	57,280,371	$	3,580,409

5.	FAIR VALUE

Impaired loans with a valuation allowance include pools of impaired loans. At March 31, 2011, these pools had a recorded investment, or book balance, of $2,835,985, unpaid principal balance of $3,966,802, and related allowance of $95,790. The recorded investment, unpaid principal, and related allowance in such pools totaled $3,135,061, $4,179,940, and $106,737, respectively, at December 31, 2010. The gross amount of interest income that would have been recorded on nonaccrual loans and TDRs, if all such loans had been accruing interest at their contractual rates, approximated $410,000 during the first quarter of 2011. Cash basis interest income actually recognized on nonaccrual loans approximated $15,000. Nonaccrual and TDRs included in impaired loans averaged approximately $36,229,000 in 2011 year-to-date.

5. Fair Value

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and for disclosure purposes. Accounting guidance on fair value measurements and disclosures specifies that the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best defined using quoted market prices, but in many instances, quoted market prices for the Company’s various financial instruments may not be available. Under these circumstances, fair values are estimated using present value or other variation techniques. Those techniques are significantly affected by the underlying assumptions, including the discount rate and estimates of future cash flows; accordingly, the resulting fair value estimate may not be realized in an immediate settlement of the instrument.

Recent fair value guidance clarifies that exit prices based on orderly transactions between market participants under current market conditions, not forced liquidations or distressed sales, should be the basis for determining fair value. If the volume and level of activity for the asset or liability has declined significantly, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In this instance, determining the price at which willing market participants would transact depends on the various facts and circumstances and requires significant judgment. The resulting fair value is a reasonable point within the determined range that best indicates fair value under current conditions.

Fair Value Hierarchy

In accordance with accounting guidance, the Company groups its financial assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities trade and the reliability of the assumptions used to determine fair value:

Level 1 – Valuation is based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level 1 assets and liabilities generally include debt and equity securities that are traded on an active exchange. Valuations are obtained from readily available pricing sources for market transactions involving such assets or liabilities.

18Level 2 – Valuation is based on inputs other than level 1 prices that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. Level 2 inputs may incorporate interest rates and yield curves that are observable at commonly quoted intervals, volatilities, prepayment speeds, credit risks, and default rates.

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments whose valuation requires significant management judgment or estimation. Level 3 valuation also includes observable inputs for single dealer nonbinding quotes not corroborated by observable market data.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Risk premiums that a market participant would require must be considered.

Southeastern Banking Corporation

Notes to Consolidated Financial Statements

(Unaudited)

Level 2 – Valuation is based on inputs other than level 1 prices that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. Level 2 inputs may incorporate interest rates and yield curves that are observable at commonly quoted intervals, volatilities, prepayment speeds, credit risks, and default rates.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Fair value is the primary basis of accounting for investment securities available-for-sale. The Company does not currently measure any other assets or liabilities at fair value on a recurring basis. When quoted market prices for identical securities are available in an active market, these securities are classified within level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, such as U.S. Treasury notes or exchange-traded equities. If quoted market prices for identical securities are not available, then fair values are estimated using matrix models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of such instruments, which would generally be classified within level 2, include U.S. Government-sponsored enterprise securities, agency mortgage-backed securities, obligations of states and political subdivisions, and certain corporate debt obligations. Due to limited activity and less transparency regarding input factors, one corporate debt obligation was classified in level 3 at ~~March~~June 3130, 2011 and December 31, 2010.

Securities measured at fair value on a recurring basis are presented in the next table.

	Fair Value Measurements Using
March 31, 2011	Quoted Prices inActive Marketsfor IdenticalAssets(Level 1)		SignificantOtherObservableInputs (Level 2)		SignificantUnobservableInputs(Level 3)		TotalCarryingValue
June 30, 2011	Quoted Prices inActive Marketsfor IdenticalAssets(Level 1)		SignificantOtherObservableInputs (Level 2)		SignificantUnobservableInputs(Level 3)		TotalCarryingValue
Investment securities available-for-sale:
Debt securities:
U. S. Government and federal agency securities	$	—	$	4,421,023	$	—	$	4,421,023
U. S. Government and agency securities	$	5,999,913	$	4,391,416	$	—	$	10,391,329
U. S. Government-sponsored enterprise securities		—		3226,~~894~~431,~~652~~473		—		3226,~~894~~431,~~652~~473
Agency residential mortgage-backed securities		—		15,~~878~~006,~~375~~737		—		15,~~878~~006,~~375~~737
Obligations of states and political subdivisions		—		14,~~870~~711,~~265~~247		—		14,~~870~~711,~~265~~247
Corporate debt obligations		—		7,~~277~~328,~~346~~250		500,000		7,~~777~~828,~~346~~250
Total investment securities	$	—5,999,913	$	7567,~~341~~869,~~661~~123	$	500,000	$	7574,~~841~~369,~~661~~036
	Fair Value Measurements Using
December 31, 2010	Quoted Prices inActive Marketsfor IdenticalAssets(Level 1)		SignificantOtherObservableInputs(Level 2)		SignificantUnobservableInputs(Level 3)		TotalCarryingValue
Investment securities available-for-sale:
Debt securities:
U. S. Government and agency securities	$	—	$	4,738,534	$	—	$	4,738,534
U. S. Government-sponsored enterprise securities		—		33,668,037		—		33,668,037
Agency residential mortgage-backed securities		—		10,965,621		—		10,965,621
Obligations of states and political subdivisions		—		16,821,004		—		16,821,004
Corporate debt obligations		—		7,606,707		500,000		8,106,707
Total investment securities	$	—	$	73,799,903	$	500,000	$	74,299,903

19 17

Southeastern Banking Corporation

Notes to Consolidated Financial Statements

(Unaudited)

	Fair Value Measurements Using
December 31, 2010	Quoted Prices inActive Marketsfor IdenticalAssets(Level 1)		SignificantOtherObservableInputs(Level 2)		SignificantUnobservableInputs(Level 3)		TotalCarryingValue
Investment securities available-for-sale:
Debt securities:
U. S. Government and federal agency securities	$	—	$	4,738,534	$	—	$	4,738,534
U. S. Government-sponsored enterprise securities		—		33,668,037		—		33,668,037
Agency residential mortgage-backed securities		—		10,965,621		—		10,965,621
Obligations of states and political subdivisions		—		16,821,004		—		16,821,004
Corporate debt obligations		—		7,606,707		500,000		8,106,707
Total investment securities	$	—	$	73,799,903	$	500,000	$	74,299,903

The corporate debt obligation measured at fair value using level 3 inputs at June 30, 2011 and December 31, 2010 comprised one trust preferred security with a cost basis of $500,000, for which there is currently no active market. Like the Company’s other corporate debt holdings, this security is also an issue of a bank/bank holding company domiciled in the southeastern United States. No transfers or activity involving other securities occurred within the level 3 category during the first six months of 2011. Should transparency in input factors diminish, additional obligations could be classified as level 3 assets in the future. No transfers were made between level 1 or 2 assets measured at fair value on a recurring basis during the first six months of 2011.

The corporate debt obligation measured at fair value using level 3 inputs at March 31, 2011 and December 31, 2010 comprised one trust preferred security with a cost basis of $500,000, for which there is currently no active market. Like the Company’s other corporate debt holdings, this security is also an issue of a bank/bank holding company domiciled in the southeastern United States. No transfers or activity involving other securities occurred within the level 3 category during the first quarter of 2011. Should transparency in input factors diminish, additional obligations could be classified as level 3 assets in the future. No transfers were made between level 1 or 2 assets measured at fair value on a recurring basis during the first quarter.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain instruments are measured at fair value on a nonrecurring basis; in other words, these instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances – for example, when evidence of impairment exists. Such instruments include impaired loans and other real estate. Loan impairment is reported when full payment under the original loan terms is not expected. Impaired loans are carried at the present value of estimated future cash flows using the loan’s existing rate or the fair value of collateral if the loan is collateral-dependent. When management believes the uncollectibility of all or any portion of a loan is confirmed, a loss is charged against the allowance. Any necessary increase to the allowance resulting from impaired loans is recorded as a component of the provision for loan losses. During the ~~first~~six ~~quarter~~months of 2011, the Company recognized losses of $~~836~~2,~~916~~293,747 on impaired loans outstanding through the allowance for loan losses. At ~~March~~June 3130, 2011, impaired loans with an aggregate outstanding ~~principal~~book balance of $3742,~~466~~334,~~216~~490 were measured and reported net of specific allowances at a fair value of $3438,~~968~~526,~~803~~248. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the loan impairment as a level 2 instrument. When an appraised value is not available or management determines the fair value of the collateral is impaired beyond appraised value and no observable market price exists, the Company records the loan impairment in level 3. Given the current difficulties in obtaining comparable sales and other observable inputs due to high inventories and distressed sales prevalent in the market, particularly for certain real estate collateral, the Company classified all impaired loans in level 3 at ~~March~~June 3130, 2011.

20Other real estate is recorded at fair value upon transfer of the underlying loan to foreclosed balances. Fair value is based upon independent market prices, appraised values, or management’s estimate of collateral value. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company classifies other real estate as level 2; otherwise, other real estate is classified as level 3. Any write-down to fair value at foreclosure is charged to the allowance for loan losses while subsequent devaluations are included in noninterest expense. During the six months ended June 30, 2011, devaluations (or write-downs) of other real estate totaled $243,612. All foreclosed real estate balances were classified in level 3 at June 30, 2011.

Level 3 assets also include FHLB stock, which is only redeemable with the issuer at par and cannot be traded in the market; as such, no observable market data for this holding is available. The Company evaluated its holding in FHLB stock at June 30, 2011 and determined no impairment charge was necessary. Other assets are similarly evaluated under fair value accounting on a nonrecurring basis.

Southeastern Banking Corporation

Notes to Consolidated Financial Statements

(Unaudited)

~~Other~~The ~~real~~table ~~estate~~below ispresents ~~recorded~~the atCompany’s ~~fair~~outstanding ~~value~~assets ~~upon~~for ~~transfer~~which ofa ~~the underlying loan to~~nonrecurring ~~foreclosed~~change ~~balances.~~in ~~Fair~~fair value iswas ~~based~~recorded ~~upon~~during ~~independent~~the ~~market~~six ~~prices,~~months ~~appraised~~ended ~~values~~June 30, or2011, ~~management’s~~aggregated ~~estimate~~by ofthe ~~collateral~~level ~~value.~~in ~~When~~ the fair value ofhierarchy ~~the~~within ~~collateral~~which isthose ~~based~~measurements onfall. anAssets ~~observable~~reviewed ~~market~~for ~~price~~impairment orsuch ~~a current appraised value, the Company classifies other real estate~~ as level ~~2; otherwise, other real estate is classified as level~~ 3. ~~Any~~FHLB ~~write-down~~stock, tobut ~~fair value at foreclosure is charged to the allowance~~ for ~~loan~~which ~~losses while subsequent devaluations are included in~~no ~~noninterest~~corresponding ~~expense.~~impairment ~~During~~charge ~~the~~was ~~quarter ended March 31~~recorded, ~~2011,~~are ~~devaluations~~not ofincluded ~~other real estate currently outstanding totaled $161,127. All foreclosed real estate balances were classified~~ in ~~level~~these ~~3 at March 31, 2011~~totals.

Level 3 assets also include FHLB stock, which is only redeemable with the issuer at par and cannot be traded in the market; as such, no observable market data for this holding is available. The Company evaluated its holding in FHLB stock at March 31, 2011 and determined no impairment charge was necessary. Other assets are similarly evaluated under fair value accounting on a nonrecurring basis.

Fair Value Measurements Using

June 30, 2011

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Net
Carrying
Value

Total Gains
(Losses) for the
Six Months

Assets:

Impaired loans

—

38,526,248

(2,293,747

)

Other real estate

—

1,340,255

(243,612

)

Total fair value of assets on a nonrecurring basis

—

39,866,503

(2,537,359

)

~~The~~As ~~table~~disclosed ~~below~~on ~~presents~~the prior page, the ~~Company’s~~loss ~~outstanding~~amount ~~assets~~shown for ~~which~~impaired aloans ~~nonrecurring~~includes ~~change~~charge-offs inas ~~fair~~well as ~~value~~the ~~was~~provision ~~recorded~~allocated ~~during~~for these loans for the ~~three~~first six months ~~ended~~of ~~March 31,~~ 2011,. ~~aggregated~~The byloss ~~the~~amount ~~level~~for inother ~~the~~real ~~fair~~estate ~~value~~does ~~hierarchy~~not ~~within~~include ~~which~~charge-offs ~~those~~recognized ~~measurements~~on ~~fall.~~these ~~Assets~~credits ~~reviewed~~prior ~~for~~to ~~impairment~~foreclosure ~~such~~of asthe underlying collateral. No transfers were made between level 1, 2, and 3 ~~FHLB~~assets ~~stock,~~evaluated ~~but~~under ~~for~~fair ~~which~~value noaccounting ~~corresponding impairment~~on ~~charge~~a ~~was~~nonrecurring ~~recorded~~basis. Additionally, ~~are~~no ~~not~~nonrecurring ~~included~~change in ~~these~~fair ~~totals~~value was recognized on any liabilities during the first six months of 2011.

	Fair Value Measurements Using
March 31, 2011	Quoted Prices inActive Marketsfor IdenticalAssets(Level 1)		SignificantOtherObservableInputs (Level 2)		SignificantUnobservableInputs (Level 3)		NetCarryingValue		Total Gains(Losses) for theThree Months
Assets:
Impaired loans	$	—	$	—	$	37,466,216	$	37,466,216	$	(836,916	)
Other real estate		—		—		1,188,740		1,188,740		(161,127	)
Total fair value of assets on a nonrecurring basis	$	—	$	—	$	38,654,956	$	38,654,956	$	(998,043	)

As disclosed on the prior page, the loss amount shown for impaired loans includes charge-offs as well as the provision allocated for these loans during the first quarter. The loss amount for other real estate does not include charge-offs recognized on these credits prior to foreclosure of the underlying collateral; these charge-offs totaled $191,576 in 2011 year-to-date. No transfers were made between level 1, 2, and 3 assets evaluated under fair value accounting on a nonrecurring basis. Additionally, no nonrecurring change in fair value was recognized on any liabilities in 2011 year-to-date.

Fair Value of Financial Instruments

Methodologies for estimating the fair value of financial assets and liabilities that are measured at fair value on a recurring or nonrecurring basis are discussed above. For certain other financial assets and liabilities, fair value approximates carrying value due to the nature of the financial instrument. These instruments include cash and cash equivalents, demand and other non-maturity deposits, and overnight borrowings. The following methods and assumptions were used in estimating the fair value of other financial instruments:

•

Variable rate loans that reprice frequently and have no significant change in credit risk are fairly valued at their carrying amounts. For fixed rate loans, fair values are estimated based on discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The Company did not use an incremental market risk and liquidity discount in deriving loan fair values as management has no present intention to sell any portion of the loan portfolio. Impaired loans are valued using discounted cash flow analyses or underlying collateral values, as discussed.

21 • Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies current interest rates to a schedule of aggregated expected maturities. The intangible value of long-term relationships with depositors is not considered in estimating fair values.

•

The U. S. Treasury demand note and other variable rate borrowings are fairly valued at their carrying amounts. Fair values for other borrowings, including FHLB advances with fixed rates, are based on quoted market prices for similar instruments or estimated using discounted cash flow analysis and the Company’s current incremental borrowing rate for similar instruments.

•

The carrying amount of accrued interest and other financial assets approximates their fair values.

Southeastern Banking Corporation

Notes to Consolidated Financial Statements

(Unaudited)

• Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies current interest rates to a schedule of aggregated expected maturities. The intangible value of long-term relationships with depositors is not considered in estimating fair values.

• The U. S. Treasury demand note and other variable rate borrowings are fairly valued at their carrying amounts. Fair values for other borrowings, including FHLB advances with fixed rates, are based on quoted market prices for similar instruments or estimated using discounted cash flow analysis and the Company’s current incremental borrowing rate for similar instruments.

• The carrying amount of accrued interest and other financial assets approximates their fair values.

The table below presents the fair value of financial assets and liabilities carried on the Company’s consolidated balance sheet, including those financial assets and liabilities that are not measured and reported at fair value on a recurring or nonrecurring basis:

	March 31, 2011				December 31, 2010
	June 30, 2011				December 31, 2010
	CarryingAmount		FairValue		CarryingAmount		FairValue
Financial assets:
Cash and cash equivalents	$	93,~~624~~849,~~553~~854	$	93,~~624~~849,~~553~~854	$	80,868,505	$	80,868,505
Investment securities available-for-sale		7574,~~841~~369,~~661~~036		7574,~~841~~369,~~661~~036		74,299,903		74,299,903
Net loans		~~227~~221,~~272~~110,~~576~~639		~~227~~220,~~319~~047,~~418~~718		235,707,989		237,411,612
Accrued interest receivable		1,~~386~~343,~~913~~532		1,~~386~~343,~~913~~532		1,487,126		1,487,126
Other financial assets		1,~~173~~070,~~700~~400		1,~~173~~070,~~700~~400		1,173,700		1,173,700
Financial liabilities:
Deposits	$	~~381~~376,~~588~~670,~~333~~755	$	~~382~~377,~~860~~652,~~016~~988	$	375,195,119	$	376,619,703
U.S. Treasury demand note		1889,~~042,509~~547		1889,~~042,509~~547		762,782		762,782
FHLB advances		5,000,000		5,~~210~~234,~~330~~940		5,000,000		5,191,353
Accrued interest payable		1,~~185~~086,~~903~~515		1,~~185~~086,~~903~~515		1,287,916		1,287,916

Bank premises and equipment, customer relationships, deposit base, and other information needed to compute the Company’s aggregate fair- value are not included in the table above. Accordingly, the fair values above are not intended to represent the underlying market value of the Company.

22 20

~~Item~~CAUTIONARY 2.NOTICE ~~Management’s~~REGARDING ~~Discussion~~FORWARD-LOOKING ~~and~~STATEMENTS ~~Analysis of Financial Condition and Results of Operations.~~

~~This~~Certain ~~Analysis~~statements ~~should~~set beforth ~~read~~ in ~~conjunction~~this ~~with~~Quarterly ~~the 2010 Annual~~ Report on Form 10-KQ ~~and~~(this “Report”) or incorporated herein by reference, including matters discussed in Item 2 under the ~~consolidated~~caption ~~financial~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are “forward-looking statements &” ~~related~~within ~~notes~~the meaning of federal securities laws, including, without limitation, statements regarding the Company’s outlook on ~~pages~~earnings, 3stock –performance, 22asset ofquality, ~~this~~capital ~~quarterly~~position, ~~filing.~~plans ~~The~~regarding ~~Company~~nonperforming assets, economic conditions, real estate markets, and projected growth, and are based upon management’s ~~accounting~~beliefs ~~policies~~as well as assumptions based on data currently available to management. When words like “anticipate”, ~~which~~“believe”, “intend”, “plan”, “may”, “continue”, “project”, “would”, “expect”, “estimate”, “could”, “should”, “will”, and similar expressions are ~~described~~used, they should be considered forward-looking statements. These forward-looking statements are subject to significant risks and uncertainties. Investors are cautioned against placing undue reliance on such statements. Actual results may differ materially from those set forth in ~~detail~~forward-looking statements. Factors that could cause actual results to differ materially from those described in ~~Form~~the 10forward-Klooking statements include: (1) difficult economic conditions, ~~are~~both ~~integral~~generally toand ~~understanding~~in local markets, may persist, resulting in, among other things, further deterioration in credit quality, a reduction in demand for credit, or additional declines in real estate values; (2) the severe decline in the real estate and lending market, particularly in the Company’s coastal markets and primarily comprising acquisition and development loans, may continue to negatively affect financial results; ~~reported.~~(3) the ~~The~~allowance for loan losses may not be adequate to cover eventual loss; (4) future losses will be realized if proceeds received upon liquidation of nonperforming assets are less than carrying values of such assets; (5) restrictions or conditions imposed by regulators on the Company’s ~~accounting~~operations ~~policies~~may ~~require~~make it more difficult for the Company to achieve its goals; ~~management~~(6) the Company’s ~~judgment~~recovery of its deferred tax asset could be delayed for an extended period; (7) the Company’s ability to raise any needed capital in ~~valuing~~a ~~assets~~prolonged economic downturn may be impaired if market disruption and volatility continue or worsen; (8) legislative or regulatory changes, ~~liabilities~~including changes in accounting standards and compliance requirements, ~~commitments~~may adversely affect the Company’s business, revenue, and ~~contingencies.~~profit Amargins; ~~variety~~(9) poor offinancial results ~~factors~~may ~~could~~negatively affect liquidity, including liquidity from core deposits; (10) competitive pressures among depository and other financial institutions may increase significantly, resulting in lost business relationships or reduced margins; (11) changes in the ~~ultimate~~interest ~~value~~rate environment may reduce margins or the volumes or values of loans made; (12) competitors may have greater financial resources and develop products that isenable ~~obtained~~them ~~when~~to ~~earning~~compete ~~income,~~more ~~recognizing~~successfully; (13) the anCompany’s ~~expense~~ability to attract and retain key personnel can be affected by increased competition for experienced employees in the banking industry; (14) adverse changes may occur in the bond markets, ~~recovering~~affecting anportfolio valuation ~~asset~~and causing impairment; (15) war or terrorist activities may cause further deterioration in the economy or cause instability in credit markets; (16) economic, governmental, or ~~relieving~~other afactors may prevent growth in the ~~liability.~~Company’s ~~This~~markets; ~~Analysis~~(17) changes ~~contains~~in ~~forward-looking~~consumer ~~statements~~spending ~~with~~and ~~respect~~savings habits could impede the Company’s ability to ~~business~~grow its loan and ~~financial~~deposit ~~matters.~~portfolios; ~~Actual~~(18) the ~~results~~Company may ~~vary~~be ~~significantly~~unfavorably impacted by litigation, which depends on judicial interpretations of law and findings of juries; (19) the dividend suspension may adversely affect the market price of the Company’s stock; (20) third party vendors who provide key components of the Company’s business infrastructure may have system failures or other difficulties which could materially affect operations; and (21) the risk factors discussed from ~~those~~time ~~contained~~to time in ~~these~~the ~~forward-looking~~Company’s ~~statements.~~periodic ~~See~~reports filed with the ~~sections~~SEC, ~~entitled~~including ~~Critical~~but not limited ~~Accounting~~to, ~~Policies~~this Report. The Company undertakes no obligation to, and ~~Forward-Looking~~does ~~Statements~~not ~~within~~intend to, update or revise these statements following the date of this ~~Analysis~~filing, whether as a result of new information, future events or otherwise, except as may be required by law.

Item 2.

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

This Analysis should be read in conjunction with the 2010 Annual Report on Form 10-K and the Consolidated Financial Statements & related Notes included in this Report. The Company’s accounting policies, which are described in detail in Form 10-K, are integral to understanding the results reported. The Company’s accounting policies require management’s judgment in valuing assets, liabilities, commitments and contingencies. A variety of factors could affect the ultimate value that is obtained when earning income, recognizing an expense, recovering an asset or relieving a liability. This Analysis contains forward-looking statements with respect to business and financial matters. Actual results may vary significantly from those contained in these forward-looking statements. See the sections entitled “Critical Accounting Estimates” and “Cautionary Notice Regarding Forward-Looking Statements” within this Report.

Description of Business

Southeastern Banking Corporation, with assets exceeding $~~434~~429 million,~~367,000,~~ is a financial services company with operations in southeast Georgia and northeast Florida. Southeastern Bank (“SEB”), the Company’s wholly-owned commercial bank subsidiary chartered in 1888, offers a full line of commercial and retail services to meet the financial needs of its customer base through its ~~sixteen~~ 16 branch locations and ATM network. Services offered include traditional deposit and credit services, long-term mortgage originations, and credit cards. SEB also offers 24-hour delivery channels, including internet and telephone banking and through an affiliation with a third party broker-dealer, provides insurance and investment brokerage services.

~~Financial~~The ~~Condition~~table below provides a summary of SEB’s markets as of June 30, 2011.

Consolidated assets totaled $434,367,602 at March 31, 2011, up $6,734,545 or 1.57% from year-end 2010. A substantial increase in cash & cash equivalents offset by a 3.58% decline in net loans was the chief factor in the three-month results. Specifically, cash & cash equivalents, which include correspondent balances at the Federal Reserve and federal funds sold, increased $12,756,048 while investment securities and other real estate grew $1,541,758 and $1,278,653; net loans declined $8,435,413. A $6,393,214 increase in deposits precipitated the asset rise. Loans comprised approximately 59%, investment securities, 19%, and interest-bearing deposits in other banks, 21%, of earning assets at March 31, 2011 versus 62%, 19%, and 18%, at December 31, 2010. Overall, earning assets approximated 91% of total assets at March 31, 2011. During the year-earlier period, total assets grew $6,399,499 or 1.52%. A $23,245,896 increase in cash & cash equivalents and a $16,719,767 decline in net loans were the predominant factors in the 2010 results. Refer to the Liquidity section of this Analysis for details on deposits and other funding sources as well as the higher cash balances being maintained currently. Loans are discussed beginning on page 25.


Market/ County	Number of Offices		Total Loans¹		Total Deposits¹		Market Share (%)²		Market Share Rank²

Georgia
McIntosh		2	$	84,076	$	64,918		71.8		1
Brantley		2		17,522		59,033		69.9		1
Bryan		1		14,388		6,639		1.9		6
Camden		3		28,237		61,521		17.9		2
Charlton		1		2,646		52,668		58.3		1
Coffee		2		5,210		20,696		3.2		9
Glynn		1		52,249		20,684		1.0		14
Jeff Davis		1		2,912		22,039		17.0		3

		13	$	207,240	$	308,198


Florida
Nassau		3	$	22,475	$	68,473		6.8		5

¹	Dollar amounts are presented in thousands as of June 30, 2011.

²	Based on the FDIC Summary of Deposits report as of June 30, 2010.

FINANCIAL CONDITION

Overview

Consolidated assets totaled $429,632,411 at June 30, 2011, up $1,999,354 (or 0.5%) since the end of 2010. Although total assets remained relatively constant, the Company realized a significant shift in its asset mix in the first six months of 2011. Net loans decreased $14,597,350 (or 6.2%) and cash and cash equivalents increased $12,981,349 (or 16.1%) since December 31, 2010. The Company elected to retain liquidity rather than reinvest its funds in riskier financial assets during this weakened economic environment. This shift from higher-yielding loans to lower-yielding earning assets had a detrimental impact on the Company’s net interest margin and earnings. The elevated level of nonperforming assets further hampered the Company’s profitability in the first six months of 2011, and this factor is expected to continue to create a drag on earnings through the remainder of 2011.

Total deposits increased by $1,475,636 (or 0.4%) since year end to $376,670,755 at June 30, 2011. Noninterest-bearing demand deposits increased $2,776,910 (or 5.0%) while interest-bearing demand, savings and time deposits decreased $1,301,274 (0.4%) during the first six months of 2011. At June 30, 2011, noninterest-bearing demand deposits represented 15.4% of total deposits compared to 14.8% at December 31, 2010. Shareholders’ equity increased $160,798 (or 0.4%) during the first six months of 2011. At June 30, 2011, shareholders’ equity represented 10.5% of total assets which was consistent with the Company’s capital levels at year end. Refer to the “Liquidity and Capital Resources” section of this Analysis for details on deposits and other funding sources as well as the higher cash balances being maintained currently.

Investment Securities

~~Overall,~~The ~~investment~~amortized ~~securities~~cost ~~increased~~and ~~$1,541,758~~estimated orfair ~~2.08%~~value ~~since December 31, 2010. Purchases~~ of ~~securities~~investment ~~in the first three months of 2011~~securities, ~~primarily~~all ~~comprising short~~available-~~term securities with original maturities of 90 days or less~~for-sale, approximated $152,101,000, and redemptions, $150,590,000. The use of Agency discount notes and U.S. Treasury bills to collateralize public funds was the predominant factor in the 2011 purchase and redemption activity. Effective December 31, 2010, the FDIC amended its deposit insurance program to eliminate insurance coverage above $250,000 on NOW accounts, which are ~~the~~summarized ~~predominant account type used by public funds. The change~~ in ~~insurance coverage necessitated~~ the ~~purchase~~following ~~of securities to collateralize affected public funds~~table. ~~One security was sold year-to-date. Specifically, a corporate holding with a cost basis of $492,191 was sold at an $18,191 loss. The~~

Investment Securities by Category

June 30, 2011

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair
Value

(Dollars in thousands)

U. S. Government and agency securities

10,194

197

—

10,391

U. S. Government-sponsored enterprise securities

26,306

126

—

26,432

Agency residential mortgage-backed securities

14,229

778

—

15,007

Obligations of states and political subdivisions

14,342

428

14,711

Corporate debt obligations

8,381

111

664

7,828

Total investment securities

73,452

1,640

723

74,369

While the aggregate amount of funds invested in securities changed less than 0.01% during the first half of 2010, there was significant volume in trading activity within the portfolio during the period in Agency discount notes and short-term U.S. Treasury Bills acquired to collateralize public funds. Purchases of securities in the first six months of 2011 totaled $249,420,560 and redemptions totaled $249,340,212.

The effective repricing of redeemed securities in the low interest rate environment impacts current and future earnings results. On a tax-equivalent basis, the portfolio yielded approximately 3.49% during the first six months of 2011, down 174 basis points from the 5.23% average yield for the same period in 2010. Although not at the same pace, yields are expected to decline further during 2011 due largely to anticipated short-term investments and repricing of maturing securities in the low interest rate environment.

~~remaining~~Approximately ~~redemptions~~70% ~~were~~of ~~largely~~the ~~attributable~~carrying tovalue ~~various~~of ~~issuers~~the Company’s ~~exercise~~securities ofportfolio, ~~call~~including mortgage-backed ~~options~~securities, ~~and~~is ~~prepayments~~supported inby the ~~normal~~U.S. ~~course~~Government, ofa ~~business~~U.S. ~~and~~Government ~~also,~~agency ~~the~~or ~~relatively~~a ~~low~~U.S. Government-~~rate~~sponsored ~~interest environment~~enterprise at June 30, 2011. ~~The~~On ~~effective~~August 5, ~~repricing~~2011, Standard & Poor’s rating agency lowered the long-term rating of ~~redeemed~~the ~~securities~~U.S. ~~impacts~~Government, ~~current~~its federal agencies and ~~future~~U.S. ~~earnings~~Government-sponsored ~~results;~~enterprises ~~refer~~(“GSEs”) from “AAA” to “AA+”. The rating agency maintained the ~~Interest~~“AAA” ~~Rate~~rating ~~and~~for ~~Market~~short-term ~~Risk/Interest~~(one ~~Rate~~year ~~Sensitivity~~or less) obligations of the U.S. Government its federal agencies and ~~Operations~~GSEs. ~~sections~~Despite this downgrade, management believes the credit quality of ~~this~~the ~~Analysis~~investment ~~for~~portfolio ~~more~~remains ~~details~~fundamentally sound. ~~At March 31~~The Company does not own any collateralized debt obligations, widely ~~2011~~known as CDOs, ~~agency~~secured by subprime residential mortgage-backed securities. Additionally, ~~municipals~~the Company does not own any private label mortgage-backed securities. The Company held $14,863,984 residential mortgage-backed securities issued by Fannie Mae (“FNMA”) and ~~corporates~~Freddie ~~comprised~~Mac ~~21%~~(“FHLMC”), ~~20%~~both a GSE, at June 30, 2011. Residential mortgage-backed securities issued by FNMA and ~~10%~~FHLMC ofare collateralized foremost by the ~~portfolio;~~underlying ~~other~~mortgages ~~agency~~and secondly, by FNMA and FHLMC Uthemselves.S. ~~Government~~In ~~enterprise~~addition, ~~securities~~the ~~together~~Company ~~comprised~~held ~~49%. Overall~~$3,001,178 ~~securities~~in ~~comprised 19%~~bonds ofissued ~~earning~~by ~~assets~~FNMA at ~~March~~June 3130, 2011,. ~~virtually~~Management ~~unchanged~~continues ~~from~~to ~~year-end~~monitor ~~2010.~~the ~~The~~viability ~~portfolio~~of ~~yield~~both ~~approximated~~FNMA ~~3.51%~~and ~~during~~FHLMC ~~the~~as ~~first~~going ~~three~~concerns: ~~months~~In ofearly 2011, ~~down~~the ~~171~~U.S. ~~basis~~Treasury ~~points~~again ~~from~~reiterated ~~2010.~~its support ~~Yields~~for FNMA and FHLMC although changes are expected toin ~~decline~~the ~~further~~business ~~during~~model going forward. Besides FNMA and FHLMC, the Company also held $21,327,688 in bonds issued by FHLB, another GSE, at June 30, 2011. Credit concern surrounding the FHLB ~~due~~system ~~largely~~continues to ~~anticipated~~be ~~short-term~~widespread. ~~purchases~~Nonetheless, ~~and~~the ~~year-over-year~~Company ~~reductions~~reviewed inits ~~corporate~~holdings of FHLB debt securities; onand astock ~~weighted~~and ~~average~~concluded ~~basis,~~that ~~these~~its ~~corporate~~bond ~~securities~~and ~~had~~stock ~~higher~~holdings ~~yields~~are ~~than~~recoverable ~~many~~at par. The Company’s ownership of ~~the~~FHLB ~~other~~stock ~~holdings~~totaled $1,070,400 at June 30, 2011. This restricted equity security is included in ~~the~~other ~~portfolio~~assets and recorded at cost.

~~Management~~At ~~believes~~June 30, 2011, the ~~credit~~corporate ~~quality~~bond ~~of the investment~~ portfolio ~~remains~~comprised ~~fundamentally sound, with 70.14%~~ of ~~the~~issues ~~carrying value~~ of ~~debt~~banks ~~securities, including~~and ~~mortgage-backed~~bank ~~securities,~~holding ~~being~~companies ~~backed~~domiciled byin ~~U.S.~~the ~~Government~~southeastern ~~agency~~United ~~and U~~States.S. ~~Government-sponsored~~The ~~enterprises at March 31~~$552,846 ~~2011.~~net ~~The~~unrealized ~~Company~~loss ~~does~~on ~~not~~the ~~own~~corporate ~~any~~portfolio ~~collateralized~~is ~~debt~~largely ~~obligations,~~reflective ~~widely~~of ~~known~~the asilliquidity ~~CDOs,~~and ~~secured~~risk ~~by subprime~~premiums ~~residential~~reflected ~~mortgage-backed~~in ~~securities. Additionally,~~ the ~~Company~~market ~~does~~for ~~not own any private label mortgage~~bank-~~backed~~issued securities. ~~The~~due ~~Company~~to ~~held~~pervasive ~~$15~~capital,~~716,372~~ ~~residential~~asset ~~mortgage-backed~~quality, ~~securities~~and ~~issued~~other byissues ~~Fannie~~which ~~Mae~~have ~~(“FNMA”)~~continued ~~and~~to ~~Freddie~~afflict ~~Mac (“FHLMC”)~~the atbanking ~~March 31, 2011~~industry. ~~Residential~~Although ~~mortgage-backed~~a) ~~securities~~major ~~issued~~rating byagencies ~~FNMA~~have ~~and~~downgraded ~~FHLMC~~certain ~~are~~of ~~collateralized~~these ~~foremost~~securities by during the ~~underlying~~last ~~mortgages~~12 months and ~~secondly,~~b) byrecent ~~FNMA~~profitability and ~~FHLMC~~near-term ~~themselves.~~profit ~~Management~~forecasts ~~continues~~by toindustry ~~monitor~~analysts ~~the viability~~reflect ofcontinuing ~~both~~pressure ~~FNMA~~due ~~and~~to ~~FHLMC~~loan aslosses ~~going~~and ~~concerns:~~other ~~In early 2011~~issues, the ~~U.S.~~Company ~~Treasury~~currently ~~again~~expects ~~reiterated~~the ~~its~~issuers ~~support~~to ~~for~~settle ~~FNMA and FHLMC although changes are expected in~~ the ~~business~~securities ~~model~~at ~~going forward~~par. ~~Besides~~Since ~~FNMA and FHLMC~~year end, the ~~Company~~net ~~also~~unrealized ~~owned Ginnie~~loss ~~Mae~~position ~~residential~~in ~~mortgage~~the ~~securities~~portfolio ~~with~~improved ~~a carrying value of~~ $~~162~~221,~~003 at March 31~~941, ~~2011.~~or U28.S6%. ~~Government~~During ~~and~~2011, ~~federal~~the ~~agency~~Company ~~holdings~~sold ~~comprised~~one ~~U.S.~~“B+” ~~Small~~rated ~~Business~~corporate ~~Administration~~debt ~~obligations,~~obligation ~~and~~for ~~U.S. Government-sponsored enterprise holdings comprised FHLB~~$474,000 ~~FNMA, FHLMC,~~ and ~~Federal~~recorded ~~Farm~~an ~~Credit~~$18,191 ~~Bank~~loss ~~obligations~~on atthe ~~March 31, 2011~~sale. ~~Credit~~In ~~concern~~2010, ~~surrounding~~ the ~~FHLB~~Company ~~system~~sold four ~~continues~~“B+” toholdings beof ~~widespread.~~this ~~The~~same ~~FHLB~~issuer ~~obligations~~and ~~owned~~recorded bya ~~the~~$141,088 ~~Company~~loss ~~carry~~on the ~~highest~~sales. ~~rating available~~Also, ~~from~~in ~~Moody’s and Standard and Poor’s. Nonetheless~~2010, the Company ~~reviewed~~recorded ~~its~~a ~~holdings~~$45,059 ofother-than-temporary ~~FHLB~~impairment ~~debt~~charge ~~securities~~in ~~and stock and concluded that~~ its ~~bond~~holdings ~~and~~to ~~stock~~this ~~holdings~~same ~~are~~issuer, ~~recoverable~~which atis ~~par.~~further ~~The~~discussed in the Company’s ~~ownership~~2010 ~~of FHLB~~Form ~~stock,~~10-K. ~~which~~The ~~totaled~~Company ~~$1,173,700~~held atno ~~March 31,~~residual ~~2011,~~investments ~~is included~~ in ~~other~~obligations ~~assets~~of ~~and~~this ~~recorded~~issuer at ~~cost~~June 30, 2011.

At ~~March~~June 3130, ~~2011 and~~ ~~also~~2011, ~~year-end~~all ~~2010,~~holdings ~~the entire corporate portfolio comprised issues of banks and bank holding companies domiciled~~ in the ~~southeastern~~municipal ~~United~~bond ~~States.~~portfolio ~~These corporate debt obligations~~ were ~~all~~ rated ~~“BB”~~investment orgrade ~~higher~~securities ~~by at least one nationally recognized rating agency at March 31, 2011~~ except for ~~three~~thirteen non-rated trust preferred securities with an aggregate carrying value of $3,081,908 and unrealized loss of $388,998. The $673,048 net unrealized loss on the total corporate portfolio, down $122,449 or 15.39% from year-end 2010, including the trust preferred holdings, is largely reflective of the illiquidity and risk premiums reflected in the market for bank-issued securities due to pervasive capital, asset quality, and other issues which have continued to afflict the banking industry. Although a) major rating agencies have downgraded certain of these securities during the last 12 months and b) recent profitability and near-term profit forecasts by industry analysts reflect continuing pressure due to loan losses and other issues, the Company currently expects the issuers to settle the securities at par. In particular, the issuer of the “BB” rated securities was a recipient of government capital and continues to meet its obligations. As discussed in note 3 to the consolidated financial statements, the Company sold a “B+” rated corporate and recognized an $18,191 loss during the first three months of 2011; the Company had no residual holdings of this particular issuer at March 31, 2011. Except for fourteen non-rated issues with fair values aggregating $3,~~409~~192,~~157, all holdings in the municipal portfolio were rated, investment grade securities~~136. The majority, or 7985%, of the non-rated issues were based in Georgia. In analyzing non-rated municipals, management considers debt service coverage and whether the bonds support essential services such as water/sewer systems and education.

Management evaluates investment securities for other-than-temporary impairment on a quarterly basis, and more frequently when conditions warrant. This analysis requires management to consider various factors, including the duration and magnitude of the decline in value; the financial condition of the issuer or issuers; structure of the security; and, notwithstanding classification of the portfolio as available-for-sale, the Company’s intent to sell the security or whether it’s more likely than not that the Company would be required to sell the security before the anticipated recovery in market value. At June 30, 2011, management reviewed securities with an unrealized loss and concluded that no material individual securities were other-than-temporarily impaired. Impairment charges could become necessary in the future if the economic crisis facing the banking industry does not fully abate and various issuers’ financial condition weakens.

Management evaluates investment securities for other-than-temporary impairment on a quarterly basis, and more frequently when conditions warrant. This analysis requires management to consider various factors, including the duration and magnitude of the decline in value; the financial condition of the issuer or issuers; structure of the security; and, notwithstanding classification of the portfolio as available-for-sale, the Company’s intent to sell the security or whether it’s more likely than not that the Company would be required to sell the security before the anticipated recovery in market value. At March 31, 2011, management reviewed securities with an unrealized loss and concluded that no material individual securities were other-than-temporarily impaired. Impairment charges could become necessary in the future if the economic crisis facing the banking industry does not fully abate and various issuers’ financial condition weakens.

The weighted average life of the portfolio approximated 2.59 years at March 31, 2011; management does not expect any material extension in duration during 2011. The amortized cost and estimated fair value of investment securities, all available-for-sale, are delineated in the next table.

Investment Securities by Category March 31, 2011	AmortizedCost		UnrealizedGains		UnrealizedLosses		FairValue
(Dollars in thousands)
U. S. Government and federal agency securities	$	4,260	$	162	$	1	$	4,421
U. S. Government-sponsored enterprise securities1		32,821		79		5		32,895
Agency residential mortgage-backed securities		15,264		620		5		15,879
Obligations of states and political subdivisions		14,644		344		118		14,870
Corporate debt obligations		8,386		64		673		7,777
Total investment securities	$	75,375	$	1,269	$	802		75,842

1 Includes agency discount notes with original maturities of three months or less, as applicable.

At March 31, 2011, the market value of the investment portfolio reflected $801,618 in gross unrealized losses, mostly in the corporate portfolio. Management continues to monitor these market values closely and hopes for an eventual recovery as issues facing banks and their affiliates are fully addressed. Capital raises and strategic initiatives enacted by these organizations have been positive developments for these corporate holdings; nonetheless, ratings downgrades and additional losses have occurred and may continue. For more details on investment securities and related fair value, refer to the Capital Adequacy section of this analysis.

The Company did not have a concentration in the obligations of any issuer at March 31, 2011 other than U.S. Government agencies, U.S. Government enterprises, and certain corporate holdings. At March 31, 2011, the Company held $5,461,530 in corporate securities issued by two separate regional bank holding companies; these holdings comprised 7.20% of the total securities portfolio and 70.22% of the corporate portfolio.

Loans

Loans, net of unearned income, ~~fell~~decreased 4$15,909,139 (or 6.065%) orsince the end of 2010 to $9229,~~980~~714,~~781~~409 ~~since~~at ~~year-end~~June 30, ~~2010~~2011. The net loans -to -deposits ratio aggregated 61.750% at ~~March~~June 3130, 2011 versus 65.475% at December 31, 2010 and 7167.223% a year ago. The ~~loan~~loans ~~categorization~~by category table below ~~reflects~~summarizes ~~declines~~the ofchanges ~~$6,610,507~~within inthe ~~real~~portfolio ~~estate~~since -the ~~construction~~end ~~balances,~~of ~~$1,774,719~~2010. inThe ~~the~~largest ~~commercial~~change within the portfolio, ~~$884,695~~is in ~~consumer~~construction and development loans, ~~and~~which declined $~~714~~9,~~994~~794,330 in(or ~~real~~11.3%) ~~estate~~due –primarily ~~residential~~to ~~mortgage balances~~foreclosures atand ~~March 31,~~charge-offs ~~2011~~of ~~compared~~delinquent toloans ~~year-end~~during ~~2010.~~the ~~The~~first ~~$6,610,507~~six ormonths 7of 2011.~~60%~~ ~~decline~~These inloans, ~~real~~which ~~estate~~are -primarily ~~construction~~loans ~~balances~~for ~~resulted~~the ~~from~~acquisition ~~multiple~~and ~~factors,~~development ~~including~~of ~~pay-downs~~residential properties, ~~and~~are concentrated ~~as further discussed~~ in the ~~next~~Company’s ~~two~~coastal ~~subsections,~~markets. ~~significant charge-offs~~With ~~and~~the ~~foreclosures.~~exception ~~These~~of ~~loans~~existing commitments, ~~widely~~the ~~known~~Company asis ~~acquisition~~only originating new construction and development loans to customers with extraordinary equity injections, ~~continued~~outside tofinancial bestrength, ~~predominantly~~or other ~~residential~~performance inmetrics ~~nature~~with low dependence on the underlying collateral.

25Due to economic uncertainties within the Company’s markets, particularly in the real estate sector, and resultant concerns regarding credit opportunities, management expects loan volumes to flatten or decline further the remainder of 2011. Additionally, as discussed in the next subsection of this Analysis, management expects problem asset volumes to remain elevated given the Company’s significant real estate portfolio. Loans outstanding are presented by type in the following table.


*Loans by Category*	June 30, 2011			December 31, 2010			June 30, 2010
(Dollars in thousands)

Commercial, financial, and agricultural¹	$	29,720		$	33,505		$	28,400
Real estate – construction³		77,178			86,972			99,285
Real estate – commercial mortgage		65,031			64,824			60,969
Real estate – residential mortgage^2,3		47,383			48,687			50,996
Consumer, including credit cards		10,461			11,701			12,226

Loans, gross		229,773			245,689			251,876
Unearned income		(58	)		(65	)		(83	)

Net loans	$	229,715		$	245,624		$	251,793

and concentrated in the Company’s coastal markets at March 31. These type loans are typically short-term and somewhat cyclical; swings in these account balances are normal and to be expected. Due to the current slowdown in real estate activity, overall duration of these particular loans has increased the last few years. The escalation in nonperforming assets attributable to these loans is expected to continue in 2011, albeit at a slower pace. With the exception of existing commitments, the Company is originating new acquisition and development loans only to customers with extraordinary equity injections, outside financial strength, or other performance metrics with low dependence on the underlying collateral. Although the Company, comparable to peer institutions of similar size, originates permanent mortgages for new construction, it historically has not held or serviced long-term mortgage loans of any volume in its own portfolio. Rather, permanent mortgages are typically brokered through a mortgage underwriter or government agency. The Company receives mortgage origination fees, which are included in other noninterest income, for its participation in these origination transactions. Overall, the commercial portfolio declined 1.80% or $1,774,719 year-to-date. Agricultural loans and tax-free government loans within this portfolio declined $241,196 and $1,936,040; nonfarm real estate loans and other commercial/industrial loans grew $349,021 and $53,496. The tax-free loans serve as a bridge for local government bodies anticipating property tax collections and are intended to be short-term. Tighter credit policies and less demand throughout SEB’s branches both contributed to the 7.56% and 1.47% declines in consumer and real estate – residential mortgage loans at March 31, 2011 compared to December 31, 2010.

Due to economic uncertainties within the Company’s markets, particularly in the real estate sector, and resultant concerns regarding credit opportunities, management expects loan volumes to flatten or decline further the remainder of 2011. Additionally, as further discussed in the next subsection of this Analysis, management expects problem asset volumes to remain elevated given the Company’s significant real estate portfolio. During the same period in 2010, net loans declined 6.26% or $17,259,892. The commercial and real estate – construction portfolios contributed most of the 2010 decline. Loans outstanding are presented by type in the following table.

Loans by Category	March 31,2011			December 31,2010			March 31,2010
(Dollars in thousands)
Commercial, financial, and agricultural1	$	96,554		$	98,329		$	89,677
Real estate – construction3		80,362			86,972			104,895
Real estate – residential mortgage2,3		47,972			48,687			51,682
Consumer, including credit cards		10,816			11,701			12,305
Loans, gross		235,704			245,689			258,559
Unearned income		(61	)		(65	)		(93	)
Net loans	$	235,643		$	245,624		$	258,466

Includes obligations of states and political subdivisions.

Typically have final maturities of 15 years or less.

3 To comply with recent regulatory guidelines, certain loans that formerly would have been classified as real estate – mortgage, are now being coded as real estate - construction. Comparable loans from prior periods have not been reclassified to reflect this change. The majority of real estate construction loans are residential in nature.

Many commercial and commercial real estate ~~credits~~loans with floating rates have reached their contractual floors. Additionally, many recent originations and ~~renewals~~ renewals have been priced at fixed rather than adjustable rates, unless floors applied. Loans with floating rates that had reached a contractual floor approximated $~~104~~101,~~900~~800,000 at ~~March 31~~June 30, 2011 compared to $105,800,000 at December 31, 2010 and $~~111~~104,~~900~~000,000 at ~~March~~June 3130, 2010. The average yield on these particular outstanding ~~balances~~loans, which included all loan types, was 5.5464%, or ~~229~~239 basis points above ~~New~~the ~~York~~Company’s prime rate of interest (3.25%), at ~~March~~June 3130, 2011. Management continues to shorten maturity options on commercial credits as feasible, a move that should mitigate the Company’s interest sensitivity position when the prime rate adjusts upward.

26Although the Company’s loan portfolio is diversified, significant portions of its loans are collateralized by real estate. At June 30, 2011, approximately 82.5% of the loan portfolio was comprised of loans with real estate as the primary collateral, including land tracts and lots. As required by policy, real estate loans are collateralized based on certain loan-to-appraised value ratios at origination. A geographic concentration in loans exists given the Company’s operations within a regional area of southeast Georgia and northeast

~~Although the Company’s loan portfolio is diversified, significant portions of its loans are~~ collateralized by real estate. At March 31, 2011, approximately 83.17% of the loan portfolio was comprised of loans with real estate as the primary collateral, including land tracts and lots. As required by policy, real estate loans are collateralized based on certain loan-to-appraised value ratios. A geographic concentration in loans arises given the Company’s operations within a regional area of northeast Florida ~~and particularly, southeast Georgia~~. The Company continues to closely monitor real estate valuations in its markets and consider any implications on the allowance for loan losses and the related provision. On an aggregate basis, commitments to extend credit and standby letters of credit approximated $28,~~616~~781,000 at ~~March~~June 3130, 2011, compared to $31,685,000 at year-end 2010 and $3941,~~585~~698,000 at ~~March~~June 3130, 2010. The decline in overall commitments results from the Company’s decision to reduce its exposure to higher risk areas, including acquisition and development lending, as well as customer decisions not to renew their lines. Because a substantial amount of these contracts expire without being drawn upon, total contractual amounts do not necessarily represent future credit exposure or liquidity requirements. ~~The Company has not funded or incurred any losses on letters of credit in 2011 year-to-date.~~

Nonperforming Assets

Nonperforming assets, which consist of nonaccrual loans, restructured loans, foreclosed real estate, and other repossessions, totaled $4451,~~665~~139,~~844~~755 at ~~March~~June 3130, 2011. Aggregate balances declined 142.501% orsince ~~$7,574,173 at March 31, 2011 from~~ December 31, 2010 ~~but~~and ~~increased $~~10.3~~,201,854~~% ~~from~~since ~~March~~June 3130, 2010. As a percent of total assets, nonperforming assets totaled 1011.289% at ~~March~~June 3130, 2011 versus 12.222% at December 31, 2010 and 913.701% at ~~March~~June 3130, 2010. Nonperforming assets materially and adversely affected the Company’s business, resources, and operating results during the first ~~three~~six months of 2011, and management expects continuing adverse effects until real estate markets, particularly coastal markets, improve. ~~Acquisition~~Construction and development loans secured by land tracts and lots remained the primary factor in the nonperforming trends. Summary information about nonperforming assets and accruing loans past due 90 days or more is provided in the following table~~; narrative discussing each major category begins thereafter~~.

Nonperforming Assets1	~~March~~June 3130,2011			December 31,2010			~~March~~June 3130,2010
(Dollars in thousands)
Nonaccrual loans:
Commercial, financial, and agricultural	$	~~1,248~~289		$	~~1,802~~424		$	~~1,723~~302
Real estate – construction		2023,~~609~~550			21,840			2126,~~845~~848
Real estate – mortgage		4,538			4,507			2,551
Real estate – commercial mortgage		527			1,378			1,638
Consumer, including credit cards		257			373			299
Real estate – residential mortgage		4,506			4,507			4,727
Total nonaccrual loans	$	26,652		$	28,522		$	26,418
Consumer, including credit cards		276			373			292
Troubled debt restructured loans2		5,670			12,669			5,467
Total nonaccrual loans		29,148		$	28,522			33,807
Total nonperforming loans	$	32,322		$	41,191		$	31,885
Troubled debt restructured loans2		6,781			12,669			14,240
Foreclosed real estate3		12,315			11,034			9,514
Total nonperforming loans		35,929		$	41,191			48,047
Other repossessed assets		28			15			65
Foreclosed real estate3		15,185			11,034			8,895
Total nonperforming assets	$	44,665		$	52,240		$	41,464
Other repossessed assets		26			15			91
Accruing loans past due 90 days or more	$	68		$	121		$	201
Total nonperforming assets	$	51,140		$	52,240		$	57,033
Accruing loans past due 90 days or more	$	65		$	121		$	59
Ratios:
Nonperforming loans to net loans4		1315.726	%		16.778	%		1219.341	%
Nonperforming assets to net loans4plus foreclosed/repossessed assets		18.01	%		20.35	%		15.47	%
Nonperforming assets to net loans4 plus foreclosed/repossessed assets		20.9	%		20.4	%		21.9	%

¹	See Note 4 to the consolidated financial statements for definitional variance between impaired and nonperforming loans and also, categorization differences resulting from disaggregation of loan portfolio required in footnote disclosure.

²	Does not include restructured loans reported as nonaccrual.

³	Includes only other real estate acquired through foreclosure or in settlement of debts previously contracted.

⁴	Net of unearned income.

Nonaccrual Loans

Nonaccrual loans increased $626,469 (or 2.2%) in the first six months of 2011. Approximately $11,437,000 of loans were placed on nonaccrual status since the end of 2010, $2,809,000 charged-off, $5,129,000 transferred out by foreclosure or repossession, $283,000 “upgraded” to performing loan status, and $2,590,000 reduced by payments or other activity.

Loans restructured in troubled debt restructurings that are on nonaccrual status at June 30, 2011 totaled $9,233,000, a 28% increase compared to $7,204,000 at December 31, 2010. The increase is due to management’s efforts to work with borrowers in an effort to resolve collectability and repayment issues.

At June 30, 2011, real estate-secured loans comprised 98.1% of total nonaccrual balances. The collateral underlying nonaccrual balances is presented in the following table.


*Nonaccrual Loans by Collateral Type*	June 30, 2011		December 31, 2010
(Dollars in thousands)

Collateral type:
Real estate:
Land tracts	$	6,531	$	6,027
Lots within developments		13,416		11,682
Residential dwellings		8,227		8,828
Commercial buildings		532		1,385

Total real estate		28,706		27,922
Equipment		304		442
Other		138		158

Total nonaccrual loans	$	29,148	$	28,522

Approximately 98.6% of the real estate collateral underlying nonaccrual balances at June 30, 2011 was located in Georgia, predominantly coastal Georgia, with the balance in Florida.

Relationships above $250,000 comprised 87.4% or $25,471,516 of nonaccrual balances at June 30, 2011. The table below presents nonaccrual loans by relationship tiers.


*Nonaccrual Loans by Relationship Tiers* *June 30, 2011*	Number of Relationships		Balances		Percent of Total Balance			Average Balance within Tier
(Dollars in thousands)

Relationship tier:
< $250,000		151	$	3,677		12.6	%	$	24
> $250,000 - < $750,000		5		1,499		5.2	%		300
> $750,000		8		23,972		82.2	%		2,997

Total		164	$	29,148		100.0	%		178


Nonaccrual Loans by Relationship Tiers December 31, 2010	Number of Relationships		Balances		Percent of Total Balance			Average Balance within Tier
(Dollars in thousands)

Relationship tier:
< $250,000		145	$	4,244		14.88	%	$	29
> $250,000 - < $750,000		5		2,223		7.79	%		445
> $750,000		9		22,055		77.33	%		2,451

Total		159	$	28,522		100.00	%		179

~~Nonaccrual~~At ~~Loans.~~June 30, ~~Nonaccrual loans comprised $26~~2011,~~652,249~~ orthe ~~59.67%~~largest ofrelationship ~~nonperforming~~within ~~asset~~this ~~balances~~group ~~at March 31,~~had ~~2011.~~a ~~Approximately~~ $4,~~962~~086,000 ofbook ~~loans~~balance. ~~were~~Unless pricing ~~placed~~and ondemand ~~nonaccrual~~in ~~status during~~ the ~~three-month~~real ~~period,~~estate ~~$2,246,000~~markets ~~charged-off~~improve, ~~$2,033,000~~management ~~transferred~~expects ~~out~~other ~~by foreclosure~~borrowers, ~~and~~including ~~$2,553,000 reduced by payments or~~ other ~~repossession.~~borrowers ~~At March 31,~~with ~~2011,~~loan ~~real~~balances ~~estate-secured~~above ~~loans comprised~~ $26250,~~228~~000,~~303~~ orto ~~98.41%~~also ofstop ~~total~~servicing ~~nonaccrual~~their ~~balances~~loans. ~~Nonaccrual balances did not contain any other industry concentrations at March 31, 2011. The collateral underlying nonaccrual balances is presented in the next table.~~

Nonaccrual Loans by Collateral Type	March 31,2011		December 31,2010
(Dollars in thousands)
Collateral type:
Real estate:
Land tracts	$	6,778	$	6,027
Lots within developments		9,960		11,682
Residential dwellings		8,574		8,828
Commercial buildings		916		1,385
Total real estate	$	26,228		27,922
Equipment		312		442
Other		112		158
Total nonaccrual loans	$	26,652	$	28,522

Management continues to evaluate collateral underlying nonaccrual loans and adjusts valuations based on appraisal and similar information available. Unfortunately, valuation estimates can change, resulting in additional charge-offs and provisioning for loan losses. Unless collected, higher nonaccrual balances also adversely affect interest income versus performing loans. Comparative details on charge-offs and the provision are provided in the “Allowance for Loan Losses” section of this Analysis.

~~Approximately~~Troubled ~~96%~~Debt ofRestructurings the real estate collateral underlying nonaccrual balances at March 31, 2011 was located in Georgia, predominantly coastal Georgia, with the balance in Florida. Nonaccrual balances included one purchased participation loan at March 31, 2011. This particular loan, with a balance of $532,998 and secured by a commercial building, is the only purchased participation on the Company’s books; a $164,189 charge-off was recorded on this credit during the first quarter of 2011 and in June, the underlying property was foreclosed.

~~Relationships~~The ~~above~~Company ~~$250,000~~continues ~~comprised~~to ~~85.03%~~accrue orinterest on $226,~~661~~780,~~300~~732 ofin ~~nonaccrual~~troubled ~~balances~~debt restructurings (“TDR”) outstanding at ~~March~~June 3130, 2011. ~~Cumulative~~TDRs ~~charge-offs~~comprise of ~~recognized~~loan relationships for which payment concessions were granted. Certain TDRs are on ~~these~~nonaccrual 13status due to a lack of performance or management’s concern regarding future repayment ability or performance. These TDRs are included in ~~large~~nonaccrual ~~relationships,~~loans ~~primarily~~in ~~acquisition~~this ~~and~~Report. ~~development~~Since ~~relationships~~the end of 2010, ~~totaled~~the amount of accruing TDRs outstanding decreased $115,~~500~~888,~~020~~498 at(or ~~March 31,~~46.5%). The material changes in accruing TDRs during the first six months of 2011; include: two loans totaling approximately $94,~~480~~661,~~297~~000 ofwere ~~these~~placed ~~charge-offs~~on ~~were~~nonaccrual ~~recognized~~status; inone ~~2010~~loan ~~and~~with ~~prior~~a ~~years~~balance ~~and~~of $2,~~019~~328,~~723~~000 ~~year-to-date.~~was ~~The~~“upgraded” ~~specific~~out ~~allowance allocated~~of toTDR ~~these~~status 13based ~~relationships~~on ~~totaled~~performance; ~~$679,836~~and atthree ~~March 31,~~loans ~~2011.~~totaling ~~Additional~~$1,474,000 ~~charge-offs~~were ~~recognized~~added onto ~~these~~the ~~particular~~pool ~~credits~~of ~~since~~TDRs. ~~March~~At June 3130, 2011, ~~were~~the specific ~~nominal.~~allowance ~~The~~allocated ~~table~~to ~~below~~the ~~presents~~aggregate ~~nonaccrual~~TDR ~~loans~~balance bytotaled ~~relationship tiers~~$718,628.

Nonaccrual Loans by Relationship Tiers March 31, 2011	Number ofRelationships		Balances		Percentof TotalBalance			AverageBalancewithin Tier
(Dollars in thousands)
Relationship tier:
< $250,000		142	$	3,991		14.97	%	$	28
> $250,000 - £ $750,000		6		2,412		9.05	%		402
> $750,000		7		20,249		75.98	%		2,893
Total		155	$	26,652		100.00	%	$	172

Foreclosed Real Estate

During the first six months of 2011, the balance of real estate acquired through foreclosure or in settlement of debts previously contracted increased $4,150,782 (or 37.6%) to $15,184,561 at June 30, 2011. Of the $15,781,066 reported as other real estate owned on the Company’s consolidated balance sheet at June 30, 2011, $596,505 is not categorized as “foreclosed real estate”. This property is under a lease-purchase agreement with a local municipality. Foreclosures, sales, and subsequent devaluations within foreclosed real estate balances totaled $5,059,948, $687,539, and $243,612, respectively, during the first six months of 2011. The following table summarizes the foreclosed real estate portfolio by real estate type.


*Foreclosed Real Estate by Type*	June 30, 2011		December 31, 2010
(Dollars in thousands)

Real estate:
Land tracts	$	7,405	$	5,584
Lots within developments		3,722		2,025
Residential dwellings		2,755		2,986
Commercial buildings		1,303		439

Total foreclosed real estate	$	15,185	$	11,034

Approximately 82% of these holdings were located in Georgia with the balance in Nassau County, Florida at June 30, 2011. Within the portfolio, aggregate holdings in one established subdivision totaled $3,322,817 at June 30, 2011. At June 30, 2011, the Company owned six properties with an aggregate basis of $6,915,247, representing 45.4% of the total foreclosed real estate portfolio.

Although foreclosed properties continue to be marketed aggressively, when estimating their carrying value, management expects to incur carrying costs for at least one year. Any additional devaluation subsequent to foreclosure will be charged to operations. The Company’s foreclosed real estate holdings can be viewed via a link from its website at www.southeasternbank.com or directly at www.liveatthecoast.com.

Nonaccrual Loans by Relationship Tiers December 31, 2010	Number ofRelationships		Balances		Percent ofTotalBalance			AverageBalancewithin Tier
(Dollars in thousands)
Relationship tier:
£ $250,000		145	$	4,244		14.88	%	$	29
> $250,000 - £ $750,000		5		2,223		7.79	%		445
> $750,000		9		22,055		77.33	%		2,451
Total		159	$	28,522		100.00	%	$	179

Other Potential Problem Loans

~~Management~~Loans ~~continues~~past todue ~~evaluate~~90 ~~collateral~~days ~~underlying~~or ~~nonaccrual~~more ~~loans~~ and ~~adjusts~~still ~~valuations~~accruing ~~based~~interest ontotaled ~~appraisal and similar information available. Unfortunately~~$65, ~~valuation estimates can change~~340, ~~resulting~~or inless ~~additional~~than ~~charge-offs~~1% ~~and~~of ~~provisioning~~net ~~for~~loans, ~~loan~~at ~~losses. Unless collected~~June 30, ~~higher~~2011. ~~nonaccrual~~Loans ~~balances~~past ~~also~~due ~~adversely~~30-89 ~~affect~~days ~~interest~~represented ~~income versus performing loans~~1.57% ~~The impact~~ of ~~nonaccrual~~net loans onat ~~the~~June 30, 2011, ~~Company’s~~totaling ~~interest~~$3,612,782. ~~income~~In ~~and~~aggregate, ~~other~~approximately ~~operating~~80% ~~results~~of isthese ~~further~~past ~~discussed~~due inloans ~~the~~were ~~Operations~~secured ~~section~~by ofreal ~~this Analysis~~estate.

~~Subsequent~~Accruing ~~to March 31,~~ loans ~~with~~classified ~~principal~~as individually ~~balances~~impaired ~~approximating~~under ~~$4,086,000~~accounting ~~were~~guidance ~~placed~~to creditors on ~~nonaccrual~~impairment ~~status,~~of ~~reduced~~loans bytotaled ~~charge-offs totaling~~ $406,~~794. The largest credit within this group~~340,007 ~~secured primarily~~at ~~by tracts and residential lots~~June 30, ~~including lots in established subdivisions~~2011, ~~had~~up a $31,~~422~~819,~~000~~676 ~~book~~or ~~balance~~40.3% ~~Management~~from ~~is currently reappraising~~ the ~~underlying~~end ~~real~~of ~~estate~~2010. onThese ~~this~~loans ~~credit~~are ~~and~~predominately ~~reviewing~~to ~~legal~~borrowers ~~remedies~~whose ~~and~~loan ~~other~~repayment ~~solutions prior~~was expected to ~~foreclosure.~~come ~~Unless~~foremost ~~pricing~~from ~~and~~sales ~~demand~~of inunderlying ~~the~~ real estate ~~markets~~collateral. ~~improve,~~Due ~~management~~to ~~expects~~lagging ~~other~~sales ~~borrowers,~~and ~~including~~lingering ~~other~~distress ~~borrowers~~in ~~with~~the ~~loan~~real ~~balances~~estate ~~above $250~~markets,~~000,~~ topayment ~~also stop servicing their loans. As noted in the Operations section~~ of ~~this~~principal ~~Analysis,~~and ~~management~~interest ~~expects~~on ~~the~~these ~~Company~~loans tohas become ~~only~~from ~~marginally~~borrower ~~profitable~~reserves inor ~~fiscal~~other ~~2011~~resources, constituting ifa atchange ~~all.~~in ~~The~~the ~~Company~~initial ~~regularly~~source ~~stress~~of ~~tests~~payment/terms ~~its~~of ~~capital~~these ~~position~~loans. toAlthough ~~measure~~these ~~its~~loans ~~ability~~continue to ~~withstand~~perform ~~deterioration in operating performance~~ and ~~asset~~management ~~quality.~~has ~~Nonaccrual~~no ~~and~~evidence ~~other~~to ~~impaired~~suggest ~~loans,~~that ~~including~~the ~~acquisition~~borrowers ~~and~~might ~~development~~cease ~~loans,~~to ~~figure~~perform ~~prominently~~ in ~~these~~the ~~stress~~future, ~~tests.~~their ~~Currently,~~performance ~~the~~has ~~Company’s~~been through ~~capital~~other ~~levels~~resources ~~remain~~and ~~able~~the tovalue ~~withstand~~of ~~considerable~~the ~~reductions~~underlying ~~before reaching~~collateral ~~regulatory~~has ~~minimums~~diminished. AtManagement ~~May~~reviews ~~31,~~all ~~2011,~~classified ~~nonaccrual~~ loans ~~totaled~~with ~~$28,824,281,~~total ~~reflecting~~credit ~~$2,172,032~~exposure ~~net~~of ~~inflows since March 31~~$250,000 ~~2011.~~or ~~Although~~more ~~nonaccrual~~on ~~levels~~a ~~are~~monthly ~~expected~~basis toand ~~remain~~evaluates ~~elevated~~underlying ~~in the near-term~~collateral, ~~management~~assuming ~~remains cautiously~~salvage ~~optimistic that charge-offs~~ values and ~~the~~estimating ~~associated~~any ~~provision~~allowance ~~peaked~~necessary ~~last~~to ~~year.~~cover ~~Comparative~~projected ~~details~~losses onat ~~charge-offs~~– ~~and~~worse ~~the~~case ~~provision~~scenario ~~are~~– ~~provided~~liquidation. inAfter ~~the~~adjustments ~~Allowance~~ for ~~Loan~~collateral ~~Losses~~value ~~table.~~shortfalls, ~~Details~~the onallowance ~~nonperforming~~for ~~assets~~loan ~~which~~losses ~~have~~allocated ~~migrated from nonaccrual~~ to ~~foreclosed~~these ~~status~~eight ~~are~~classified ~~provided~~credits intotaled $1,412,278 ~~the~~at ~~Foreclosed~~June 30, ~~Real Estate subsection below~~2011.

~~TDRs.~~Allowance ~~The $5,669,751 troubled debt restructurings (“TDR”) balance at March 31, 2011 comprised loan relationships~~ for ~~which~~Loan ~~payment~~Losses concessions were granted. Four large relationships with balances ranging from $267,000 - $2,850,000 comprised the entire TDR balance at March 31, 2011. These balances were variously secured by commercial & residential real estate. The specific allowance allocated to the aggregate TDR balance totaled $303,765 at March 31, 2011. No additional loans were placed on TDR status subsequent to March 31, 2011.

The Company continuously reviews its loan portfolio and maintains an allowance for loan losses ~~approximated~~available ~~0.26X~~to absorb estimated losses inherent in the ~~nonperforming~~portfolio. ~~loans~~Management ~~balance~~prepares ~~at March 31,~~a ~~2011~~comprehensive ~~versus~~analysis of ~~0.24X~~the atallowance ~~year-end~~for ~~2010~~loan ~~and~~losses ~~0.21X~~on a ~~year~~monthly ~~ago~~basis. AsThis ~~noted~~analysis ~~earlier~~is comprised of two components, ~~management~~specific ~~expects~~allowances ~~overall~~for ~~credit~~individual ~~conditions~~loans and ~~the~~general ~~performance~~allowances for pools of ~~the~~loans based on similar risk characteristics such as loan ~~portfolio~~type, tocredit risk ~~remain~~grades ~~weak~~and indelinquency ~~the~~status. ~~near~~Such ~~term~~evaluation considers numerous factors, ~~resulting~~including, inbut ~~additional~~not limited to, net charge-~~offs~~off ~~and~~trends, internal risk ratings, loss forecasts, collateral values, geographic location, delinquency rates, nonperforming ~~more~~loans, ~~provisioning~~underwriting ~~until~~practices, ~~real~~industry ~~estate~~conditions, ~~markets~~and ~~stabilize~~economic trends. SEB’s Board of Directors is responsible for affirming the allowance methodology and assessing the general and specific allowance factors in relation to estimated and actual net charge-off trends.

~~Foreclosed~~Specific ~~Real~~Reserves Estate. Foreclosures, sales, and subsequent devaluations within foreclosed real estate balances totaled $2,032,875, $590,075, and $161,127 during the 2011 first quarter. One foreclosure of raw land in an established neighborhood comprised 58% or $1,173,000 of the first quarter foreclosures; separately, a single home sale in this same subdivision comprised 97% of sales activity through March 31, 2011. The remaining first quarter foreclosures, including residential lots and a former barbecue restaurant, had values ranging from $4,600 - $334,000. Charge-offs recognized on all underlying credits prior to their 2011 foreclosures approximated $586,000; 33% or $192,000 of these charge-offs were recognized in 2011 and $394,000 in prior years. The next table details foreclosed real estate by real estate type.

Foreclosed Real Estate by Type	March 31,2011		December 31,2010
(Dollars in thousands)
Real estate:
Land tracts	$	6,863	$	5,584
Lots within developments		2,300		2,025
Residential dwellings		2,403		2,986
Commercial buildings		749		439
Total foreclosed real estate	$	12,315	$	11,034

The first component of the allowance for loan loss methodology covers the measurement of specific allowances for individual impaired loans as required by FASB ASC 310-10-35, Accounting by Creditors for Impairment of a Loan. Specific allowances for loan losses are established for large impaired loans evaluated on an individual basis. The specific allowance established for these loans is based on a thorough analysis of the most probable source of repayment, including the present value of the loan’s expected future cash flows, the loan’s estimated market value, or the estimated fair value of the underlying collateral. Total impaired loans are disaggregated by segment and class below:

Approximately 83% of these holdings were located in Georgia with the balance in Nassau County, Florida at March 31, 2011. Aggregate holdings in a single established subdivision increased from approximately $2,750,000 at year-end 2010 to $3,350,000 at March 31, 2011 due to net foreclosure activity. The next largest holding in any established subdivision approximated $337,000 at March 31, 2011.


*June 30, 2011*	Recorded Investment			Unpaid Principal Balance		Related Allowance
(Dollars in thousands)

Impaired loans with a valuation allowance:
Commercial real estate:
Construction and development	$	28,441		$	37,145	$	2,095
Owner-occupied		2,448			2,605		147
Non owner-occupied		3,335			3,335		143
Residential real estate - mortgage		7,447			8,534		1,377
Other commercial, financial, and agricultural		365			499		38
Consumer, including credit cards		299			693		8

Total impaired loans	$	42,335		$	52,811	$	3,808


Related allowance as a % of impaired loans		8.99	%

Recorded investment of impaired loans as a % of unpaid principal balance of impaired loans		80.2	%


December 31, 2010	Recorded Investment			Unpaid Principal Balance		Related Allowance
(Dollars in thousands)

Impaired loans with a valuation allowance:
Commercial real estate:
Construction and development	$	30,017		$	39,674	$	2,459
Owner-occupied		1,338			1,483		36
Non owner-occupied		3,749			3,869		117
Residential real estate - mortgage		7,545			8,559		882
Other commercial, financial, and agricultural		2,752			2,883		81
Consumer, including credit cards		432			812		6

Total impaired loans	$	45,833		$	57,280	$	3,581


Related allowance as a % of impaired loans		7.81	%

Recorded investment of impaired loans as a % of unpaid principal balance of impaired loans		80.0	%

The ~~following~~aggregate ~~table~~amount ~~presents~~of ~~foreclosed~~impaired loans decreased $3,498,000 since the end of 2010. However, due to further weakness in real estate ~~based~~valuations, the related allowance on ~~collateral~~those ~~values~~loans increased from 7.81% at December 31, 2010 to 8.99% at June 30, 2011. At June 30, 2011, the Company’s recorded investment in impaired loans represented 80.2% of ~~individual~~the ~~properties~~unpaid principal balance on those loans. The Company has in effect already recognized a discount (through partial charge-offs and/or application of payments received to principal rather than interest and fees) of $10,476,000 on those impaired loans.

Foreclosed Real Estate by Collateral Values March 31, 2011	Number ofProperties		Balances		Percent ofTotalBalance			AverageBalancewithinTier
(Dollars in thousands)
Collateral value:
< $250,000		51	$	3,018		24.51	%	$	59
> $250,000 - £ $750,000		5		2,398		19.47	%		480
> $750,000		6		6,899		56.02	%		1,150
Total		62	$	12,315		100.00	%	$	199

General Reserves

Foreclosed Real Estate by Collateral Values December 31, 2010	Number ofProperties		Balances		Percent ofTotalBalance			AverageBalancewithinTier
(Dollars in thousands)
Collateral value:
< $250,000		49	$	2,940		26.64	%	$	60
> $250,000 - £ $750,000		4		2,365		21.44	%		591
> $750,000		5		5,729		51.92	%		1,146
Total		58	$	11,034		100.00	%	$	190

The second component of the allowance for loan loss methodology addresses all loans that are not individually evaluated for impairment. General reserves are established for loans grouped into pools based on similar characteristics. In this process, general reserve factors are established based on an analysis of historical charge-off experience and expected loss-given-default derived from the Company’s internal risk rating process. At June 30, 2011, management used a trailing nine-quarter historical average loss rate for each pool of loans. At December 31, 2010, management used a trailing six-quarter historical average loss rate for each pool of loans. At December 31, 2009, management used a trailing four-quarter historical average loss rate for each pool of loans. The historical period has been gradually expanded to continue to include loss rates incurred early in the cycle. Management believes that excluding those losses

As shown in the preceding table, foreclosed real estate balances included eleven material properties aggregating $9,296,849 at March 31, 2011; individual values ranged from $309,750 - $1,402,000. Charge-offs recognized on these larger properties prior to foreclosure approximated $2,228,000; these charge-offs were all recognized prior to 2011. Charge-offs recognized life-to-date on all active properties totaled $3,246,971; devaluations recognized subsequent to foreclosure on these properties totaled $2,488,251 life-to-date at March 31, 2011. Approximately 6% or $161,127 of these devaluation charges were recorded in the first quarter of 2011.

~~Certain~~ would ~~foreclosed~~not ~~real~~provide ~~estate~~an ~~balances~~accurate ~~pertain~~estimate that best reflects the inherent risk in the loan portfolio. Other adjustments may be made to the ~~same~~historical ~~borrower~~loss rates for the pools after an assessment of internal and external influences on credit quality that are not fully reflected in the historical loss or risk rating data. ~~The~~These ~~next~~influences ~~table~~typically ~~presents~~include ~~foreclosed~~recent loss experience in specific portfolio segments, trends in loan quality, changes in ~~real~~market ~~estate~~focus, ~~aggregated~~and byconcentrations ~~relationship~~of ~~tiers~~credit. This element necessarily requires a high degree of managerial judgment to anticipate the impact that economic trends, legislative or governmental actions, or other unique market and/or portfolio issues will have on credit losses.

Foreclosed Real Estate by Relationship Tiers March 31, 2011	Number ofRelationships		Balances		Percentof TotalBalance			AverageBalancewithinTier
(Dollars in thousands)
Relationship tier:
< $250,000		35	$	2,090		16.97	%	$	60
> $250,000 - £ $750,000		4		1,701		13.81	%		425
> $750,000		7		8,524		69.22	%		1,218
Total		46	$	12,315		100.00	%	$	268

The following table summarizes the historical loss rates and adjustments made for qualitative/ environmental factors used in assessing the general reserves for all loans not individually evaluated for impairment at June 30, 2011 and December 31, 2010.

Foreclosed Real Estate by Relationship Tiers December 31, 2010	Number ofRelationships			Balances			Percentof TotalBalance			AverageBalancewithinTier
	June 30, 2011						December 31, 2010
(Dollars in thousands)
Loan Pool	9-QuarterHistoricalLoss Rate			Adjustments forQualitative/EnvironmentalFactors			6-QuarterHistoricalLoss Rate			AdjustmentsforQualitative/EnvironmentalFactors
Relationship tier:
Credit Cards		4.85	%		0.08	%		4.14	%		0.08	%
< $250,000		31		$	1,995			18.08	%	$	64
Unsecured Consumer		5.64	%		0.08	%		5.74	%		0.08	%
> $250,000 - £ $750,000		2			1,058			9.59	%		529
Unsecured Commercial		0.79	%		0.06	%		0.66	%		0.06	%
> $750,000		6			7,981			72.33	%		1,330
Equipment		2.08	%		0.06	%		2.85	%		0.06	%
Total		39		$	11,034			100.00	%	$	283
RE - Farm		0.03	%		0.04	%		0.22	%		0.04	%
RE - Commercial Building - Owner Occupied		0.27	%		0.04	%		0.22	%		0.04	%
RE - Commercial Building - Not Owner Occupied		0.26	%		0.04	%		0.22	%		0.04	%
RE - Raw Land, Vacant Lots, Construction		6.74	%		0.04	%		7.96	%		0.04	%
RE - Improved Residential		1.71	%		0.04	%		2.03	%		0.04	%
Other		1.17	%		0.06	%		1.44	%		0.06	%

~~Foreclosures~~Unallocated ~~from~~allowances ~~April~~relate 1to –inherent ~~June~~losses 6that ~~approximated~~are ~~$2,272,000;~~not ~~sales,~~included ~~all~~elsewhere ~~pertaining~~in tothe ~~smaller~~allowance. ~~properties,~~The ~~$75,000; and~~qualitative ~~devaluations,~~factors ~~$82,000.~~associated ~~These~~with ~~eight~~unallocated ~~foreclosures,~~allowances orinclude ~~deeds~~the inherent imprecision in ~~lieu~~models ~~of,~~and ~~had~~lagging ~~values~~or ~~ranging~~incomplete ~~from~~data. ~~$13,500~~Because -of ~~$553~~their subjective nature,~~500~~ ~~and~~these ~~included~~risk ~~multiple~~factors ~~lots,~~are ~~two~~carefully ~~dwellings,~~reviewed ~~and~~by ~~the~~management ~~commercial~~and ~~building~~revised ~~discussed~~as ~~earlier.~~conditions indicate.

~~Although~~Deterioration ~~foreclosed~~in ~~properties~~the ~~continue~~real toestate beportfolio, ~~marketed~~particularly ~~aggressively~~land acquisition and development loans, ~~management~~has ~~expects~~been tothe ~~incur~~overriding ~~carrying~~factor ~~costs~~in the provisions made to the allowance for atloan ~~least~~losses ~~one~~since ~~year~~2008. ~~Any~~Management expects additional ~~devaluation~~ ~~will~~provisions to be ~~charged~~made to ~~operations.~~the ~~The~~allowance ~~Company’s~~for ~~foreclosed~~loan losses in the second half of 2011 as updated appraisals are obtained on coastal real estate ~~holdings~~collateral. ~~can~~Net charge-offs berepresented ~~viewed~~2.45% ~~via~~of average loans (annualized) for the first six months of 2011, a ~~link~~178 ~~from~~basis ~~its~~point ~~website~~decrease atfrom ~~www~~4.~~southeasternbank.com~~23% orfor ~~directly~~the atsame ~~www~~period in 2010.~~liveatthecoast.com.~~ NoA ~~significant~~summary of recent activity ~~occurred within~~in ~~other~~the ~~repossessed~~allowance ~~assets~~for ~~during~~loan ~~2011~~losses ~~year-to-date~~is presented in the following table.

Accruing Loans Past Due. Loans past due 90 days or more and still accruing totaled $68,284, or less than 1% of net loans, at March 31, 2011. Management is unaware of any material concentrations within these past due balances; the majority, or 64%, of these past due balances were secured by real estate.

Other. Loans past due 30-89 days comprised 1.54% of net loans at March 31, 2011, totaling $3,629,760. Approximately 77% of these past due loans were secured by real estate, predominantly 1 – 4 family residential properties with first liens and raw land. No loans in these past due balances exceeded $250,000 at March 31, 2011.

Accruing loans classified as individually impaired under accounting guidance to creditors on impairment of loans totaled $5,075,932 at March 31, 2011, up $555,601 or 12.29% from year-end 2010. The March 31 balance pertained to eight separate borrowers whose loan repayment was expected to come foremost from sales of underlying real estate collateral. Due to lagging sales and lingering distress in the real estate markets, payment of principal and interest on these loans has come from borrower reserves or other resources, constituting a change in the initial source of payment/terms of these loans. Management reviews all loans with total credit exposure of $250,000 or more on a monthly basis and evaluates underlying collateral, assuming salvage values and estimating any allowance necessary to cover projected losses at – worse case scenario – liquidation. After adjustments for collateral value shortfalls, the allowance for loan losses allocated to these eight classified credits totaled $1,306,073 at March 31, 2011. The $1,306,073 assumes a loss if the underlying collateral required liquidation currently. Management fully expects additional relationships to be identified as impaired throughout 2011, necessitating specific allowances for the underlying loans.

Fluctuations in nonperforming assets, charge-offs, and recoveries for earlier periods are discussed in the Form 10-Qs and 10-Ks filed for those periods. Problem asset information for current and prior periods is also available from the quarterly call reports SEB files with the Federal Deposit Insurance Corporation (“FDIC”). These reports are easily accessible from the FDIC’s website at www.fdic.gov.


*Allowance for Loan Losses* *Six Months Ended June 30,*	2011			2010			2009
(Dollars in thousands)

Allowance for loan losses at beginning of year	$	9,916		$	7,170		$	4,929
Provision for loan losses		1,560			6,120			2,190
Charge-offs:
Commercial, financial, and agricultural		55			347			75
Real estate – construction		2,266			4,265			644
Real estate – commercial mortgage		176			119			92
Real estate – residential mortgage		384			699			43
Consumer, including credit cards		95			148			134

Total charge-offs		2,976			5,578			988

Recoveries:
Commercial, financial, and agricultural		13			18			23
Real estate – construction		18			—			196
Real estate – commercial mortgage		—			—			—
Real estate – residential mortgage		14			8			4
Consumer, including credit cards		59			36			46

Total recoveries		104			62			269

Net charge-offs		2,872			5,516			719

Allowance for loan losses at end of period	$	8,604		$	7,774		$	6,400

Net loans outstanding¹ at end of period	$	229,715		$	251,793		$	284,105

Average net loans outstanding¹ at end of period	$	236,765		$	260,800		$	282,022

Ratios:
Allowance to net loans		3.75	%		3.09	%		2.25	%

Net charge-offs to average loans²		2.45	%		4.23	%		0.51	%

Provision to average loans²		1.33	%		4.69	%		1.57	%

Recoveries to total charge-offs		3.49	%		1.11	%		27.23	%

Allowance for Loan Losses

The Company continuously reviews its loan portfolio and maintains an allowance for loan losses available to absorb losses inherent in the portfolio. The three-month provision for loan losses at March 31, 2011 totaled $660,000 and net charge-offs, $2,205,368. The comparable provision and net charge-off amounts at March 31, 2010 were $2,985,000 and $3,525,125. Deterioration in the real estate portfolio, particularly land acquisition and development loans, was the overriding factor in the three-month provision; these and other loans will continue to be monitored, and the provision adjusted accordingly. Net charge-offs represented 3.67% of average loans at March 31, 2011, down significantly from 5.27% at March 31, 2010 but up 78 basis points from 0.14% in 2009. Charge-offs on acquisition and development credits, which were discussed in the nonaccrual section, comprised $1,852,280 or 82.48% of gross charge-offs at March 31, 2011. No material recoveries were recognized in the first three months of 2011. Refer to the Nonperforming Assets subsection of this Analysis for references on charge-offs and recoveries recognized in earlier periods. As further mentioned in other sections of this Analysis, the Company is committed to the early recognition of problem loans and to an appropriate and adequate level of allowance. The adequacy of the allowance is further discussed in the next subsection of this Analysis. Activity in the allowance is presented in the following table.

Allowance for Loan Losses Three Months Ended March 31,	2011			2010			2009
(Dollars in thousands)
Allowance for loan losses at beginning of year	$	9,916		$	7,170		$	4,929
Provision for loan losses		660			2,985			940
Charge-offs:
Commercial, financial, and agricultural		177			188			136
Real estate – construction		1,852			3,182			49
Real estate – mortgage		181			117			42
Consumer, including credit cards		36			76			66
Total charge-offs		2,246			3,563			293
Recoveries:
Commercial, financial, and agricultural		4			13			6
Real estate – construction		—			—			150
Real estate – mortgage		7			5			2
Consumer, including credit cards		29			20			38
Total recoveries		40			38			196
Net charge-offs		2,206			3,525			97
Allowance for loan losses at end of period	$	8,370		$	6,630		$	5,772
Net loans outstanding1 at end of period	$	235,643		$	258,466		$	282,335
Average net loans outstanding1 at end of period	$	240,554		$	267,358		$	280,966
Ratios:
Allowance to net loans		3.55	%		2.57	%		2.04	%
Net charge-offs to average loans2		3.67	%		5.27	%		0.14	%
Provision to average loans2		1.11	%		4.47	%		1.34	%
Recoveries to total charge-offs		1.78	%		1.07	%		66.89	%

Net of unearned income.

Annualized.

~~The~~RESULTS ~~Company~~OF ~~prepares~~OPERATIONS a comprehensive analysis of the allowance for loan losses monthly. SEB’s Board of Directors is responsible for affirming the allowance methodology and assessing the general and specific allowance factors in relation to estimated and actual net charge-off trends. Such evaluation considers numerous factors, including, but not limited to, net charge-off trends, internal risk ratings, loss forecasts, collateral values, geographic location, delinquency rates, nonperforming loans, underwriting practices, industry conditions, and economic trends. Specific allowances for loan losses are established for large impaired loans evaluated on an individual basis. The specific allowance established for these loans is based on a thorough analysis of the most probable source of repayment, including the present value of the loan’s expected future cash flows, the loan’s estimated market value, or the estimated fair value of the underlying collateral. General allowances are established for loans grouped into pools based on similar characteristics. In this process, general allowance factors are established based on an analysis of historical charge-off experience and expected loss-given-default derived from the Company’s internal risk rating process. Other adjustments may be made to the allowance for the pools after an assessment of internal and external influences on credit quality that are not fully reflected in the historical loss or risk rating data. These influences typically include recent loss experience in specific portfolio segments, trends in loan quality, changes in market focus, and concentrations of credit. This element necessarily requires a high degree of managerial judgment to anticipate the impact that economic trends, legislative or governmental actions, or other unique market and/or portfolio issues will have on credit losses. Unallocated allowances relate to inherent losses that are not included elsewhere in the allowance. The qualitative factors associated with unallocated allowances include the inherent imprecisions in models and lagging or incomplete data. Because of their subjective nature, these risk factors are carefully reviewed by management and revised as conditions indicate. Based on its analyses, management believes the allowance was adequate at March 31, 2011 but expects further provisioning throughout 2011. Cumulatively in April and May 2011, an additional $500,000 was provisioned and $173,629 charged-off, net of recoveries.

~~Other~~The ~~Commitments~~Company recorded a net loss of $199,118 for the first six months of 2011 compared to a net loss of $3,224,419 during the same period in 2010. On a per share basis, the year-to-date loss totaled $0.06 at June 30, 2011, a $0.97 per share improvement from the $1.03 net loss per share at June 30, 2010. Major variances in the Company’s results of operations for the first six months of 2011 compared to the same period in 2010 included:

~~The~~• ~~Company~~$390,068 ~~had~~reduction ~~no material~~in ~~plans~~net orinterest ~~commitments for capital expenditures as of March 31, 2011.~~ income;

~~Liquidity~~• $4,560,000 decline in the provision for loan losses;

~~Liquidity~~• is managed to ensure sufficient cash flow to satisfy demands for credit, deposit withdrawals, and other corporate needs. Liquidity is vital to any financial institution and its importance cannot be overstated, particularly during periods of economic crisis. Overall liquidity position is determined by the types of assets, and their duration, on the balance sheet; encumbrances; borrowing capacity from customer deposits or other sources; and retained earnings. In short, assets, predominantly loans and investment securities, are funded by customer deposits, borrowed funds, and retained earnings. The last few years, in an effort to become more liquid, the Company has increased its most liquid assets, namely cash and cash equivalents. Cash and cash equivalents, which variously comprise cash and due from banks, interest-bearing deposits in other banks, and federal funds sold, increased $1287,~~756,048~~837 ordecrease 15.77% at March 31, 2011 compared to year-end 2010. Cash and cash equivalents represented 21.55% of total assets at March 31, 2011 versus 18.91% at December 31, 2010. The cost of the liquidity improvement has been a sacrifice of some earnings potential. Liquidity sources are discussed further in ~~the~~noninterest ~~next subsections of this Analysis.~~ income;

~~Cash~~• flows from the loan and securities portfolios represent important components of the Company’s overall liquidity position. At March 31, 2011, loans1 and investment securities with carrying values exceeding $~~137~~1,~~000~~206,~~000 were~~692 ~~scheduled~~decrease ~~to mature~~ in ~~one~~noninterest ~~year~~expenses; or less. The investment portfolio has also been structured to meet liquidity needs prior to asset maturity when necessary. Refer to note 3 of the consolidated financial statements for pertinent information on contractual and ~~other redemptions of these~~

1• NoNonrecognition ~~cash~~of ~~flow~~income ~~assumptions~~tax ~~other~~benefits ~~than~~for ~~final~~both ~~contractual~~regulatory ~~maturities~~and ~~have~~financial ~~been~~accounting ~~made~~purposes ~~for~~in ~~installment~~2011 ~~loans.~~compared ~~Nonaccrual~~to ~~loans~~a ~~are~~$2,263,486 ~~excluded~~benefit recognized in the first six months of 2010.

Variations in net interest income and noninterest income and expenses are further discussed in the following subsections of this Analysis; the variation in the provision for loan losses is separately discussed within the Financial Condition section.

Net Interest Income

Net interest income declined $390,068 (or 6.0%) during the first six months of 2011 compared to 2010. Interest income declined $1,084,662 (or 12.1%) during the first six months of 2011 compared to 2010 due to a shift in earning assets from higher-yielding loans to lower-yielding cash and cash equivalents, an increase in nonaccrual loans, and the prolonged low interest rate environment. The decrease in interest income was offset in part by a $694,594 (or 27.9%) decrease in interest expense as rates paid on deposit accounts continued to re-price downward. Reductions in the cost of funds in the current economic cycle have not kept pace with declines in asset yields since liquidity constraints have compelled other banks in our markets to rely more heavily on deposits, particularly time certificates, for funding; this reliance has kept deposit rates higher than national averages. In addition, new competitor banks in several of our markets have advertised higher deposit rates attempting to increase their market share.

Net interest income and resultant margins and spreads are projected to remain below 2010 levels for the remainder of 2011 due to: a) yield reductions on a year-over-year basis, due largely to higher cash equivalent balances and shortened maturities on investment securities; b) overall lower average balances on loans; and c) increases in nonperforming assets, particularly nonaccrual loans and foreclosed real estate, also on an average basis.

The net interest margin approximated 3.24% for the six months ended June 30, 2011 versus 3.49% during the same period in 2010. The interest rate spread decreased 13 basis points to 3.05% compared to 3.18% in 2010. The average yield on earning assets declined 62 basis points to 4.16% in the first six months of 2011 compared to 2010 while the average rate paid for interest-bearing liabilities decreased 48 basis points to 1.11% in the first six months of 2011 compared to 2010. Comparative details about average balances, income/expense, and average yields earned and rates paid on interest-earning assets and liabilities for the six months ended June 30, 2011 and 2010 are provided in the following table.

instruments. Of course, loans are subject to refinancing, and loans and particularly, securities, may be pledged to secure public funds and other borrowing arrangements. At March 31, 2011, 90.27% or $68,462,091 of the Company’s securities portfolio was pledged; when adjusted for overpledging due to cyclical variations in public funds and contingency pledging to the Federal Reserve Bank discount window, approximately $17,700,000 or 23% of the securities portfolio was unencumbered at March 31, 2011. The entities to which the excess collateral is pledged have no legal claim on such collateral unless amounts are owed under other obligations. As discussed in the Financial Condition section of this Analysis and also below, the FDIC amended its deposit insurance program effective December 31, 2010 and NOW accounts will no longer be insured above $250,000. The change in insurance coverage necessitated the purchase of securities to collateralize affected public funds in the first quarter of 2011 and will continue throughout 2011 and beyond.


	2011							2010
*Average Balances⁷ Six Months Ended June 30,*	Average Balances		Income/ Expense		Yields/ Rates			Average Balances		Income/ Expense		Yields/ Rates
(Dollars in thousands)

Assets
Interest-earning assets:
Net loans^1,2,4	$	236,765	$	6,724		5.73	%	$	260,800	$	7,342		5.68	%
Taxable investment securities³		61,932		873		2.84	%		53,237		1,260		4.77	%
Tax-exempt investment securities^3,4		12,907		423		6.60	%		18,617		603		6.53	%
Other interest-earning assets⁵		82,577		110		0.27	%		58,572		61		0.21	%

Total interest-earning assets	$	394,181	$	8,130		4.16	%	$	391,226	$	9,266		4.78	%


Liabilities
Interest-bearing liabilities:
Interest-bearing demand deposits⁶	$	130,956	$	350		0.54	%	$	116,561	$	437		0.76	%
Savings		56,267		141		0.51	%		54,485		206		0.76	%
Time certificates		133,921		1,236		1.86	%		136,006		1,717		2.55	%
FHLB advances		5,000		65		2.62	%		7,072		127		3.62	%
Other short-term borrowings		715		—		—			633		—		—

Total interest-bearing liabilities	$	326,859	$	1,792		1.11	%	$	314,757	$	2,487		1.59	%

Excess of interest-earning assets over interest-bearing liabilities	$	67,322						$	76,469

Interest rate spread						3.05	%						3.18	%

Net interest income			$	6,338						$	6,779

Net interest margin						3.24	%						3.49	%

~~The~~1 ~~Company has~~Average ~~long~~loans ~~benefited~~are ~~from~~shown anet ~~relatively large, stable deposit base. Customer-based core deposits, traditionally the Company’s largest and most cost-effective source~~ of ~~funding,~~unearned ~~comprised 83% of the funding base at March 31, 2011, up 200 basis points from year-end 2010 levels~~income. ~~The~~Nonperforming ~~variation~~loans inare core deposits is largely attributable to a decrease in time certificates with balances of $100,000 or more at March 31, 2011 compared to year-end; these particular balances declined over $3,851,000 in the first three months of 2011included. ~~Funding~~Income ~~sources~~on ~~primarily~~nonaccrual ~~comprise customer-based core deposits but also include borrowed funds and cash flows from operations. Borrowed funds~~loans, ~~which~~if ~~variously encompass U.S. Treasury demand notes~~recognized, ~~Federal~~ ~~Reserve~~is ~~discount~~recorded window borrowings, federal funds purchased, and FHLB advances, totaled $6,042,509 at March 31, 2011 versus $5,762,782 at December 31, 2010. The $279,727 or 4.85% growth in borrowed funds resulted from an increase in U.S. Treasury demand notes outstanding. The maximum amount of U.S. Treasury demand notes available to the Company at March 31, 2011 totaled $1,816,514, of which $1,042,509 was outstanding. At March 31, 2011, the Company also had $5,448,065 of borrowing capacity at the Federal Reserve Bank discount window; no amounts were outstanding against this capacity at March 31, 2011, and except for periodic testing of availability, the Company intends to use this capacity on a ~~limited~~ cash basis. ~~Due to nonperforming assets and other trends, the Company is not currently eligible for any unsecured federal funds lines of credit from its correspondent banks.~~

~~Net~~2 ~~cash~~Includes ~~from operations derives primarily from net income adjusted for noncash items such as depreciation and amortization, accretion, and the provision for~~ loan ~~losses.~~fees ~~The statements of cash flows within this Form 10-Q provide a comprehensive breakdown of cash flows provided by or used in operating, investing,~~ and ~~financing~~late ~~activities~~charges.

In3 ~~the~~Securities ~~third~~are ~~quarter~~presented ofon ~~2009,~~an ~~the~~amortized ~~FDIC~~cost ~~announced~~basis. ~~its~~Investment ~~plan~~securities towith ~~restore~~original ~~DIF~~maturities ~~balances as a result~~ of recent bank failures. The restoration plan required all FDIC-insured banks to prepay their risk-based assessments for the years 2010, 2011, and 2012. The assessments, usually due quarterly, were instead estimated for the three ~~future~~months ~~years~~or ~~and~~less ~~paid~~are ~~prior to December 31~~included, ~~2009.~~as ~~The Company paid the required assessment on December 29, 2009 and concurrently recorded a prepaid asset within other assets on the consolidated balance sheets~~applicable. ~~This prepaid asset totaled $936,000 at March 31, 2011. Any differences between the prepaid and actual amounts due each quarter will be funded using existing available liquidity.~~

~~Management~~4 ~~believes~~Interest ~~the~~income ~~Company~~on ~~has~~tax-exempt ~~the~~loans ~~funding~~and ~~capacity, from~~securities ~~operating~~is ~~activities~~presented oron ~~otherwise,~~a totaxable-equivalent ~~meet~~basis, ~~its~~using ~~financial~~a ~~commitments~~federal inincome ~~2011.~~tax ~~Refer~~rate toof ~~the~~34%. ~~Capital~~No ~~Adequacy~~adjustments ~~section~~have ofbeen ~~this~~made ~~Analysis~~ for ~~details~~any onstate ~~dividend~~tax ~~policy~~benefits ~~and~~or the ~~Financial~~nondeductible ~~Condition~~portion ~~section~~of ~~for~~interest ~~details on unfunded loan commitments~~expense.

⁵	Includes interest-bearing deposits in other banks, federal funds sold and FHLB stock.

⁶	Includes NOW and money market accounts.

⁷	Averages presented generally represent average daily balances.

~~Deposits~~The following table summarizes the changes in interest income and interest expense attributable to volume and rates between the two reporting periods.

Deposits increased 1.70% or $6,393,214 since year-end 2010. Interest-bearing deposits grew $4,805,320 or 1.50% while noninterest-bearing deposits increased $1,587,894 or 2.87%. Within interest-bearing deposits, time certificate balances declined $5,222,840 while NOW, money market, and savings balances grew $5,871,490, $660,972, and $3,495,698. Time certificate balances of $100,000 or more decreased $3,851,132 year-to-date and represented 49.47% of certificate totals at March 31, 2011. Lower balance certificate totals declined $1,371,708 or 2.00% since December 31, 2010. The Company has focused certificate pricing on customers who also have non-certificate deposit and/or loan balances. The increase in NOW balances occurred in personal accounts as well as local government accounts, predominantly Georgia-based. The modest growth in money market balances likewise resulted largely from personal accounts, also Georgia-based. The increase in savings deposits was due to customers, both personal and non-personal accounts, seeking FDIC-insured investments in this low rate environment. Funding costs associated with deposits declined 22.32% overall at March 31, 2011 versus March 31, 2010 due to reductions in cost of funds; see the Results of Operations section of this Analysis for more details. No single factor precipitated the 2.87% increase in noninterest-bearing deposits since year-end; these balances tend to be somewhat cyclical. Noninterest-bearing deposits will continue to carry unlimited deposit insurance, regardless of dollar amount, until December 31, 2012 under provisions of the Dodd-Frank Act. A separate surcharge will no longer apply as enrollment is automatic for all banks.


	2011 Compared to 2010
Interest Differential¹	Increase (Decrease) Due to
Six Months Ended June 30,	Volume			Rate			Net
(Dollars in thousands)

Interest income:
Net loans^2,3	$	(677	)	$	59		$	(618	)
Taxable investment securities		206			(593	)		(387	)
Tax-exempt investment securities³		(185	)		5			(180	)
Other interest-earning assets⁴		25			24			49

Total interest income		(631	)		(505	)		(1,136	)


Interest expense:
Interest-bearing demand deposits⁵		54			(141	)		(87	)
Savings		7			(72	)		(65	)
Time certificates		(26	)		(455	)		(481	)
FHLB advances		(37	)		(25	)		(62	)
Other short-term borrowings		—			—			—

Total interest expense		(2	)		(693	)		(695	)

Net change in net interest income	$	(629	)	$	188		$	(441	)

~~Overall,~~1 Changes in net interest~~-bearing~~ ~~deposits~~income ~~comprised~~are ~~85.07%,~~attributed ~~and~~to ~~noninterest-bearing~~either ~~deposits, 14.93%,~~changes ofin ~~total~~average ~~deposits~~balances at(volume ~~March 31,~~change) ~~2011.~~or ~~Approximately~~changes ~~82%~~in ofaverage ~~quarter-end~~rates ~~deposits~~(rate ~~were~~change) ~~based~~for inearning ~~Georgia~~assets and ~~the~~sources ~~residual~~of ~~18%~~funds inon ~~Florida~~which interest is received or paid. ~~The~~Volume ~~distribution~~change ofis ~~interest-bearing~~calculated ~~balances~~as atchange ~~March 31,~~in ~~2011~~volume ~~and~~times ~~certain~~the ~~comparable quarter-end~~previous ~~dates~~rate while rate change is ~~shown~~change in rate times the ~~next~~previous ~~table~~volume. Thus, changes that are not solely due to volume have been consistently attributed to rate.

	March 31, 2011					December 31, 2010					March 31, 2010
Deposits	Balances		Percentof Total			Balances		Percentof Total			Balances		Percentof Total
(Dollars in thousands)
Interest-bearing demand deposits1	$	134,163		41.33	%	$	127,631		39.91	%	$	115,841		37.77	%
Savings		57,529		17.72	%		54,033		16.89	%		54,044		17.62	%
Time certificates < $100,000		67,166		20.69	%		68,538		21.43	%		69,610		22.70	%
Time certificates >= $100,000		65,765		20.26	%		69,616		21.77	%		67,207		21.91	%
Total interest-bearing deposits	$	324,623		100.00	%	$	319,818		100.00	%	$	306,702		100.00	%

Includes loan fees. See the average balances table on the previous page for more details.

13 ~~NOW~~Interest income on tax-exempt loans and ~~money~~securities ~~market~~is ~~accounts~~presented on a taxable-equivalent basis, using a federal income tax rate of 34%. No adjustments have been made for any state tax benefits or the nondeductible portion of interest expense.

~~Deposits~~4 ofIncludes ~~one~~interest-bearing ~~local~~deposits ~~governmental~~in ~~body~~other ~~comprised approximately $22~~banks,~~000,000~~ ~~and~~federal ~~$24,402,000 of the overall deposit base at March 31, 2011 and December 31, 2010. On an aggregate basis, public~~ funds ~~comprised~~sold ~~approximately 19% of the deposit base at March 31, 2011~~ and ~~18%~~FHLB ~~at December 31, 2010~~stock. ~~The Company had no brokered deposits at March 31, 2011 and year-end 2010.~~

As5 ~~shown~~Includes inNOW ~~the~~and ~~next~~money ~~table,~~market ~~approximately 94% of time certificates at March 31, 2011 were scheduled to mature within the next twelve months~~accounts.

Maturities of Time Certificates March 31, 2011	Balances
	< $100,000		³ $100,000		Total
(Dollars in thousands)
Months to maturity:
3 or less	$	16,580	$	12,062	$	28,642
Over 3 through 12		44,549		51,182		95,731
Over 12 through 36		5,064		2,421		7,485
Over 36		973		100		1,073
Total	$	67,166	$	65,765	$	132,931

The decline in interest income is due primarily to declines in the volume of loans outstanding and the yield on taxable investment securities for the six months ended June 30, 2011 compared to 2010. The decline in interest expense is due primarily to declines in rates paid on deposits.

Provision for Loan Losses

The provision for loan losses is discussed in detail with the allowance for loan losses in the “Financial Condition” section of the Analysis.

~~The~~Noninterest ~~composition~~Income ~~of average deposits and the fluctuations therein at March 31 for the last two years is shown in the Average Balances table included in the Operations section of this Analysis.~~

~~FHLB~~Noninterest ~~Advances~~income declined $87,837 (or 4.6%) during the first six months of 2011 compared to 2010. Excluding losses on sales of investment securities, noninterest income decreased $213,084 (or 10.5%). A summary of the changes in noninterest income by category follows:

Advances outstanding with the FHLB totaled $5,000,000 at March 31, 2011, unchanged from December 31, 2010. The advances outstanding included a $2,500,000 fixed rate advance due July 30, 2012 with an effective rate of 2.35% and another $2,500,000 fixed rate advance due July 29, 2013 with an effective rate of 2.89%. At March 31, 2011, the two advances were collateralized by cash balances held at the FHLB. Additional funding is not currently available from the FHLB.


	Three Months Ended June 30,									Six Months Ended June 30,
	2011			2010			Pct. Chg.			2011			2010			Pct. Chg.
Noninterest income:
Service charges on deposit accounts	$	206,692		$	213,938			-3.4	%	$	411,093		$	425,365			-3.4	%
Return check and stop payment fees		377,871			490,103			-22.9	%		724,346			920,588			-21.3	%
Insurance commissions		18,442			22,383			-17.6	%		36,061			51,816			-30.4	%
Gain/ (loss) on sale of securities		—			(143,408	)		-100.0	%		(18,191	)		(143,408	)		-87.3	%
Mortgage origination fees		3,090			12,698			-75.7	%		6,750			36,605			-81.6	%
Bank card and credit card fees		165,227			150,912			9.5	%		315,144			272,869			15.5	%
Earnings on bank-owned life insurance		57,919			58,814			-1.5	%		116,481			118,282			-1.5	%
Other noninterest income		104,666			107,398			-2.5	%		212,343			209,747			1.2	%

Total noninterest income	$	933,907		$	912,838			2.3	%	$	1,804,027		$	1,891,864			-4.6	%

Noninterest income (annualized) as a percentage of average assets		0.87	%		0.85	%					0.72	%		0.76	%

~~Interest~~For ~~Rate~~the first six months of 2011, return check and ~~Market~~stop ~~Risk/Interest~~payment ~~Rate~~fee income declined $196,242 (or 21.3%) compared to 2010. ~~Sensitivity~~Lower volume of overdraft fees, as well as regulatory changes impacting the collection of these fees, were the main factors in the year-to-date decline. These regulatory changes, which stem largely from amendments to Federal Reserve Regulation E, became effective July 2010; as a result of the Regulation E amendment, this income category will continue to decline in 2011 when compared to comparable periods in 2010.

~~The~~Fee ~~normal~~income ~~course~~for ofcredit ~~business~~life ~~activity~~insurance ~~exposes~~sales ~~the~~decreased ~~Company~~$15,755 to(or ~~interest rate risk~~30.4%) ~~Fluctuations~~ in ~~interest rates may result in changes in~~ the ~~fair~~first ~~market~~six ~~value~~months of ~~the~~2011 ~~Company’s~~compared ~~financial instruments, cash flows, and net interest income. The asset/liability committee periodically reviews the Company’s exposure~~ to ~~interest~~2010 ~~rate~~due ~~risk and formulates strategy based on acceptable levels of interest rate risk. The overall objective of this process is~~ to ~~optimize~~a ~~the~~decline ~~Company’s~~in ~~financial~~new ~~position,~~consumer ~~liquidity,~~loan ~~and~~volume ~~net interest income, while limiting volatility to net interest income from changes~~ in ~~interest rates~~2011.

~~The~~As ~~Company~~discussed ~~uses~~in ~~simulation modeling to test~~ the ~~interest~~“Financial ~~rate~~Condition” ~~sensitivity~~section of ~~net~~this ~~interest~~Analysis, ~~income and~~ the ~~balance~~Company ~~sheet.~~recognized ~~Contractual~~a ~~maturity and~~net ~~repricing~~loss ~~characteristics~~ of ~~loans are incorporated into the model~~$18,191 ason ~~are prepayment assumptions, maturity data, and call options within~~ the ~~investment~~sale ~~portfolio.~~of ~~Non-maturity~~one ~~deposit accounts are modeled based on past experience. Simulation~~corporate ~~results~~bond ~~quantify~~in ~~interest~~the ~~rate~~first ~~risks~~quarter ~~under~~of ~~various~~2011, ~~interest rate scenarios over~~ a ~~twelve-month period. Based on the latest analysis~~$125,217 ~~the~~(or ~~Company~~87.3%) ~~continues~~decrease tocompared ~~be asset sensitive and exposed~~ to ~~declining~~losses ~~earnings~~recognized ~~if interest rates fall. The simulation model estimates changes in net interest income based~~ on ~~various~~investment ~~gradual~~activities ~~and~~during ~~shocked/instantaneous scenarios, as shown in~~ the ~~table~~same ~~below.~~period ~~The model projects that the Company’s earnings will increase as rates rise and decrease if rates drop. The base fed funds rate used~~ in ~~the model assumes a 0~~2010.~~00%~~ ~~- 0.25% range.~~

	Effect on Net Interest Income
Market Rate Change	Gradual			Immediate Shock
+300 basis points		5.70	%		21.08	%
+200 basis points		2.37	%		10.38	%
+100 basis points		0.77	%		3.53	%
-100 basis points		(0.30	)%		(3.71	)%

Fee income on mortgage originations declined $29,855 (or 81.6%) in the first six months of 2011 compared to the same period in 2010 due to a decline in volume of mortgage loan originations. In 2010, the Company either eliminated or reassigned its mortgage origination personnel due to insufficient activity to support the department.

~~The~~For ~~Company’s asset~~the ~~sensitivity~~first ~~has~~six months of 2011, fees earned on bank card and credit card activity increased ~~since~~$42,275 ~~year-end~~(or ~~2010~~15.5%) due ~~largely~~ to ~~growth~~an increase in ~~interest-bearing~~volume ~~balances~~of card transactions and a change in ~~other~~vendors ~~banks;~~that allowed the ~~increase~~Company into ~~these~~earn ~~balances~~more isper ~~further~~card ~~discussed~~transaction than in prior years. However, due to recent regulatory restrictions on card transaction fees enacted by the ~~Liquidity~~Dodd-Frank ~~section~~Act, ofthe ~~this~~Company ~~Analysis~~expects to see a decline in card fee income going forward.

Limitations inherent with simulation modeling include: a) In a down rate environment, competitive and other factors constrain timing of rate cuts on other deposit products whereas loans tied to prime and other variable indexes reprice instantaneously and securities with call or other prepayment features are likely to be redeemed prior to stated maturity and replaced at lower rates (lag effect); and b) changes in balance sheet mix, for example, unscheduled pay-offs of large commercial loans and significant increases in nonaccrual loans, are oftentimes difficult to forecast.

The Company has not in the past, but may in the future, utilize interest rate swaps, financial options, financial futures contracts, or other rate protection instruments to reduce interest rate and market risks.

~~Impact~~Noninterest ofExpense ~~Inflation~~

~~The~~Noninterest ~~effects~~expense ofdecreased ~~inflation~~$1,206,692 on(or ~~the~~15.6%) ~~local~~in ~~economy and~~ the ~~Company’s~~first ~~operating~~six ~~results~~months ~~have~~of ~~been~~2011 ~~relatively~~compared ~~modest~~to the ~~last~~same ~~several~~period ~~years~~in 2010. ~~Because~~Excluding ~~substantially~~other ~~all~~operational ~~the~~losses, ~~Company’s~~other ~~assets~~than ~~and liabilities,~~temporary ~~including~~impairment ~~cash,~~losses on securities, ~~loans~~gains, losses and ~~deposits,~~write-downs ~~are~~on ~~monetary~~other inreal ~~nature~~estate owned, ~~their~~and ~~values~~gains ~~are~~and ~~less~~losses ~~sensitive~~on toother ~~the~~assets, ~~effects~~noninterest ofexpense ~~inflation~~decreased ~~than~~$440,302 to(or ~~changing interest rates~~6.6%) Asfrom ~~discussed~~$6,211,670 in the ~~preceding~~first ~~section,~~six ~~the~~months ~~Company~~of ~~attempts~~2011 compared to ~~control the~~$6,651,972 ~~impact~~for ofthe ~~interest~~same ~~rate~~period in ~~fluctuations~~2010 byas ~~managing~~management ~~the~~has ~~relationship~~focused ~~between~~ its ~~interest~~efforts ~~sensitive~~on ~~assets~~cost savings initiatives and ~~liabilities~~operational efficiencies. A summary of the changes in noninterest expense by category follows:

Capital Adequacy


	Three Months Ended June 30,									Six Months Ended June 30,
	2011			2010			Pct. Chg.			2011			2010			Pct. Chg.
Noninterest expenses:
Salaries and wages	$	1,299,413		$	1,387,680			-6.4	%	$	2,586,652		$	2,794,934			-7.5	%
Employee benefits		380,111			403,765			-5.9	%		775,579			822,825			-5.7	%
Net occupancy expense of premises		297,602			293,046			1.6	%		574,418			590,372			-2.7	%
Furniture and equipment expense		353,516			367,432			-3.8	%		689,477			764,176			-9.8	%
FDIC insurance expense		143,590			294,000			-51.2	%		357,364			441,117			-19.0	%
Legal and accounting fees		157,374			150,710			4.4	%		275,187			269,402			2.2	%
Taxes and insurance		61,824			57,140			8.2	%		130,671			117,624			11.1	%
Director and committee fees		27,550			27,075			1.8	%		54,775			53,350			2.7	%
Advertising, marketing and supplies		86,875			84,846			2.4	%		179,465			197,779			-9.3	%
Postage and courier		67,212			69,920			-3.9	%		135,357			140,990			-4.0	%
Service charges and fees		142,402			135,132			5.4	%		276,614			265,454			4.2	%
Foreclosure and repossession expenses		55,943			71,640			-21.9	%		107,968			128,701			-16.1	%
Other operational losses		87,858			110,193			-20.3	%		109,775			153,977			-28.7	%
Other than temporary impairment loss on debt securities		—			45,059			-100.0	%		—			45,059			-100.0	%
(Gain)/ loss on sale of other real estate owned		45			2,315			-98.1	%		(21,984	)		(1,505	)		1360.7	%
Write-downs on other real estate owned		82,485			909,569			-90.9	%		243,612			909,569			-73.2	%
(Gain)/ loss on other assets		2,891			(3,155	)		-191.6	%		2,891			(6,416	)		-145.1	%
Other noninterest expense		34,564			35,013			-1.3	%		68,143			65,248			4.4	%

Total noninterest expense	$	3,281,255		$	4,441,380			-26.1	%	$	6,545,964		$	7,752,656			-15.6	%

Noninterest expense as a percentage of average assets (annualized)		3.07	%		4.13	%					2.61	%		3.10	%

~~Federal~~Combined, ~~banking~~salaries ~~regulators have established certain capital adequacy standards required to be maintained by banks~~ and ~~bank~~employee ~~holding~~benefits ~~companies.~~declined ~~These~~$255,528 ~~regulations define capital as either Tier 1~~ (~~primarily realized shareholders’ equity)~~ or ~~Tier 2 (for the Company, a portion of the allowance for loan losses)~~7. ~~The Company and SEB are subject to a minimum Tier~~ 1 ~~capital ratio (Tier 1 capital to risk-weighted assets) of 4~~%~~, total capital ratio (Tier 1 plus Tier 2 to risk-weighted assets~~) ofduring ~~8%,~~the ~~and~~first ~~Tier~~six 1months ~~leverage ratio (Tier 1 to average quarterly assets)~~ of ~~4%.~~2011 Tocompared ~~be considered a~~to ~~“well-capitalized” institution, the Tier 1 capital, total capital, and Tier 1 leverage ratios must equal or exceed 6%, 10%, and 5%, respectively~~2010. ~~Banks~~The ~~and~~decrease ~~bank~~is ~~holding~~due ~~companies are prohibited from including unrealized gains and losses on debt securities~~ in ~~the~~part ~~calculation of risk-based capital but are permitted~~ to ~~include~~a ~~up to 45 percent of net unrealized pre-tax holding gains on equity securities in Tier 2 capital~~7.3% ~~The~~decrease ~~Company did not have any unrealized gains on equity securities includible~~ in the ~~risk-based~~number ~~capital calculations for any~~ of ~~the~~employees ~~periods~~from ~~presented.~~151 Atat ~~March~~June 3130, 2011, the Company’s Tier 1, total capital, and Tier 1 leverage ratios totaled 16.41%, 17.68%, and 10.25%. On a stand-alone basis, SEB’s same ratios totaled 15.97%, 17.24%, and 9.97%. As discussed in the 2010 ~~Form 10-K, minimum capital standards are slated~~ to ~~increase~~140 inat ~~the~~June 30, ~~future and will include a capital conservation buffer; management believes the Company already complies with the proposed standards~~2011. The Company ishas ~~committed~~been todiligent ~~maintaining its well-capitalized status and stress tests its capital position on a regular basis to gauge its ability to withstand deterioration~~ in ~~asset~~managing ~~quality~~salaries and ~~operating~~employee ~~performance~~benefits costs.

~~Capital~~Combined, ~~ratios~~net ~~for~~occupancy, furniture and equipment expenses declined $90,653 (or 6.7%) during the ~~most~~first ~~recent~~six ~~periods~~months ~~are~~of ~~presented~~2011 compared to 2010. The Company realized costs savings related to a data line communications upgrade and a decline in depreciation/amortization expense on fully-depreciated/amortized equipment and software. In July 2011, the ~~next~~Company ~~table~~replaced its AS/400 equipment and software, while its other depreciated assets remain in good working condition and have not been replaced as management curtails spending on high dollar items.

Capital Ratios	March 31,2011			December 31,2010			March 31,2010
(Dollars in thousands)
Tier 1 capital:
Total shareholders’ equity	$	44,883		$	44,806		$	56,269
Accumulated other comprehensive (income) loss		(308	)		(269	)		3
Intangible assets and other adjustments		—			—			—
Total Tier 1 capital		44,575			44,537			56,272
Tier 2 capital:
Portion of allowance for loan losses		3,457			3,585			3,762
Total risk-based capital	$	48,032		$	48,122		$	60,034
Risk-weighted assets	$	271,642		$	280,441		$	298,122
Risk-based ratios:
Tier 1 capital1		16.41	%		15.88	%		18.88	%
Total risk-based capital		17.68	%		17.16	%		20.14	%
Tier 1 leverage ratio		10.25	%		10.29	%		13.41	%
Shareholders’ equity to assets		10.33	%		10.48	%		13.16	%

1 The Company’s tier 1 common equity ratio is the same as its tier 1 capital ratio.

~~Book~~Expense ~~value~~for ~~per~~FDIC ~~share~~insurance ~~increased~~decreased ~~a nominal~~ $~~0.02 per share during the 2011 first quarter to $14.34 at March 31~~83,753 ~~2011. No dividends were declared~~ (or ~~paid~~19.0%) induring the first ~~quarter~~six months of 2011, acompared ~~$0.06 1/2 decline from the same period in~~ to 2010. The ~~Company~~decrease ~~has~~is ~~suspended~~due ~~future~~to ~~dividend~~a ~~payments~~one-time ~~and~~accounting ~~treasury~~adjustment ~~stock~~to ~~purchases~~the ~~until~~amortization ~~operating~~of ~~performance improves~~the ~~and~~Company’s ~~credit~~prepaid ~~losses~~FDIC ~~abate~~insurance assessment. ~~Regulatory~~The ~~approval~~change ~~will~~in beamortization ~~required~~was ~~prior~~made to ~~payment~~reflect ofthe aFDIC’s ~~future~~changes ~~dividend~~made orto ~~treasury~~the ~~stock~~assessment ~~purchases.~~base ~~For~~from ~~more~~total deposits ~~specifics on equity matters, refer~~ to ~~Part~~total ~~II, Item 2, of this Form 10-Q~~assets.

~~The~~As ~~Company~~discussed ~~has~~in ~~granted~~the ~~various~~“Financial ~~employees~~Condition” ~~options~~section toof ~~purchase~~this ~~shares~~Analysis, ofthe ~~common~~Company ~~stock;~~recognized ~~refer~~an toother ~~the~~than temporary ~~2010~~impairment ~~Form~~loss ~~10-K~~of ~~previously~~$45,059 ~~filed~~on ~~for~~a ~~details~~corporate onbond in the ~~number~~ first six months of ~~options~~2010. ~~outstanding~~The ~~and~~Company sold the ~~range~~residual balance of ~~exercise~~the ~~prices~~bond in 2011.

~~Accumulated~~Write-downs on other ~~comprehensive~~real ~~income~~estate ~~(loss),~~owned ~~which~~decreased ~~measures~~$665,957 ~~net fluctuations~~(or 73.2%) in the ~~fair~~first ~~values~~six months of ~~investment~~2011 ~~securities,~~compared ~~improved~~to ~~$39,831~~2010. ~~since~~These ~~year~~write-~~end~~downs ~~2010.~~correlate ~~Further~~with ~~details~~receipt onof ~~investment~~updated ~~securities,~~appraisals ~~including~~of ~~corporates,~~foreclosed ~~and~~property held ~~their~~for ~~associated~~sale. ~~fair~~Management ~~values~~expects further write-downs to occur in 2011 as updated appraisals are ~~contained~~obtained. As further discussed in the “Financial Condition” section of this Analysis, real estate values in coastal Georgia and northeast ~~analysis~~Florida remain depressed. Management anticipates that losses and other costs associated with foreclosed real estate will remain elevated unless the Company’s coastal real estate markets stabilize and demand for properties improves.

~~Refer~~Income toTaxes ~~the Financial Condition and Liquidity sections of this Analysis for details on planned capital expenditures.~~

~~Results~~A valuation allowance is recorded for deferred tax assets if, based on available evidence, it is more likely than not that all or some portion of ~~Operations~~the underlying tax benefits may not be realizable. All sources of taxable income available to utilize the deferred tax assets are considered in making this assessment, including taxable income in carryback years, future reversals of existing temporary differences, any tax planning strategies, and future taxable income (exclusive of reversing temporary differences and carryforwards). The predictability of future taxable income is the most subjective of these four sources. The presence of cumulative losses in recent years, or a significant loss in a single year, is considered significant negative evidence, rendering reliance on future taxable income to fully realize a deferred tax asset difficult. Judgment is a critical element in making this assessment.

~~The~~During ~~Company recognized~~2010, ~~net~~the ~~income~~Company ofsustained ~~$26,187~~a insignificant ~~the~~operating ~~2011~~loss ~~first~~due ~~quarter~~predominantly ~~compared~~ to aprovisions ~~net~~and ~~loss~~other ofcharges ~~$1,172,409~~on ~~during~~nonperforming ~~the~~assets. ~~same~~The ~~period~~positive inevidence ~~2010.~~supporting Onfuture earnings as a ~~per~~source ~~share~~of utilizing ~~basis,~~the ~~quarterly~~deferred ~~income~~tax ~~totaled~~assets ~~$0.01~~was atinsufficient ~~March 31,~~to ~~2011,~~overcome athe ~~$0.38~~negative ~~increase~~evidence ~~from~~due to the ~~$0.37~~sheer ~~net~~size of the loss ~~at March 31,~~to ~~2010~~be absorbed. ~~Major~~As ~~variances~~a inresult, the ~~2011~~Company –recorded ~~2010~~a ~~quarterly~~$4,777,526 ~~results~~valuation ~~included:~~allowance against the balance of its net deferred tax assets at December 31, 2010.

•Until $2the Company returns to a period of sustained profitability,~~325~~ the Company will not record income tax expense or benefits or deferred tax assets or liabilities. Once the Company returns to sustained profitability,~~000~~ ~~decline~~management inexpects to be able to reverse the ~~provision~~valuation ~~for~~allowance ~~loan~~against ~~losses;~~its deferred tax assets.

• $187,456 reduction in net interest income due to yield reductions resulting from higher cash equivalent balances and shortened maturities on investment securities, overall lower average balances on loans, and an increase in nonperforming assets, particularly nonaccrual loans and also on an average basis, offset by a reduction in interest expense on deposits and other borrowed funds; and

• Nonrecognition of income tax for both regulatory and financial accounting purposes in 2011 year-to-date versus $876,609 benefit recognized in 2010.

Variations in net interest income and noninterest income/expense are further discussed in the next two subsections of this Analysis; the provision for loan losses is separately discussed within the Financial Condition section.

Net Interest Income

Due to margin compression resulting largely from increased nonaccrual loans and high cash equivalent balances, net interest income declined $187,456 or 5.74% during the first three months of 2011 compared to 2010. Additionally, reducing cost of funds in the current economic cycle to mitigate earnings pressure on assets has been particularly difficult since liquidity constraints have compelled regional and other banks to rely more heavily on deposits, particularly time certificates, for funding; this reliance has kept deposit rates higher and lowered margins and spreads for competitor banks attempting to maintain market share. Although many variable rate loans have reached a contractual floor, reducing asset sensitivity, asset rates remain exceedingly low and deposit costs high on a relative basis. Net interest income and resultant margins and spreads are projected to decline further the remainder of 2011 due to a) yield reductions on a year-over-year basis, due largely to higher cash equivalent balances and shortened maturities on investment securities; b) overall lower average balances on loans; and c) increases in

~~nonperforming~~LIQUIDITY ~~assets,~~AND ~~particularly~~CAPITAL ~~nonaccrual~~RESOURCES loans and foreclosed real estate, also on an average basis. As discussed earlier, unless collected, nonaccrual balances adversely affect interest income two ways - interest reversals and nonearning status. To recap, the net interest margin approximated 3.26% at March 31, 2011 versus 3.58% in 2010; the interest rate spread, 3.07% versus 3.28%. Interest earnings on loans and investment securities fell $275,431 and $264,967 in the first three months of 2011 compared to 2010 while interest income on other assets, which includes cash equivalent balances, increased $27,533. Asset yields averaged 4.24% at March 31, 2011, down 69 basis points from 4.93% in 2010; see the interest differential table on the next page for more details on changes in interest income attributable to volume and rates at March 31, 2011 versus 2010. Interest expense on deposits and other borrowed funds declined $325,409 or 25.51% during the first three months of 2011 versus 2010. Cost of funds fell 48 basis points from 2010 levels, totaling 1.17% at March 31, 2011 versus 1.65% at March 31, 2010. The reduced funding costs resulted mainly from lower rates on deposits at March 31, 2011 compared to 2010. Although interest expense on time certificates declined $215,142 or 24.74% in the first three months of 2011 compared to 2010, higher average balances, competitive pressure, and the aforementioned lag effect have constrained desired rate reductions in this product. Nonetheless, rate pressure on certificates continued to ease year-to-date and is expected to drop further this year. Refer to the Liquidity and Interest Sensitivity sections of this Analysis for more details on deposit/funding fluctuations and the Company’s asset/liability sensitivity position.

~~The~~Management ~~intense~~believes ~~competition~~the ~~for~~Company ~~deposits~~has ~~and~~the ~~certain~~funding ~~loans~~capacity, ~~continues~~from inoperating ~~2011~~activities ~~and~~or ~~shows~~otherwise, noto ~~sign~~meet ofits ~~abating.~~financial ~~The~~commitments ~~high~~over ~~number~~the ofnext ~~financial~~12 ~~institutions~~months. inLiquidity ~~the~~is ~~Company’s~~managed ~~market~~to ~~areas~~ensure ~~essentially~~sufficient ~~guarantees~~cash ~~downward~~flow ~~pressure~~to onsatisfy ~~net~~demands ~~interest~~for ~~spreads~~credit, deposit withdrawals, and ~~margins~~other ascorporate ~~all~~needs. ~~participants~~Liquidity ~~struggle~~is vital to ~~amass,~~any ~~grow,~~financial institution and~~/or~~ ~~maintain~~its ~~market~~importance ~~share~~cannot be overstated, particularly during periods of economic crisis. ~~Volume~~Overall liquidity position is determined by the types of assets, and ~~deposits~~their ~~become~~duration, ~~even~~on ~~more~~the ~~important~~balance assheet; ~~margins~~encumbrances; ~~decline.~~borrowing ~~Long-term~~capacity ~~strategies~~from ~~implemented~~customer ~~by management~~deposits toor ~~increase~~other ~~average~~sources; ~~loans~~and ~~outstanding~~retained ~~emphasize~~earnings. ~~competitive~~In ~~pricing~~short, onassets, ~~loan~~predominantly ~~products~~loans and ~~development~~investment ofsecurities, ~~additional~~are funded ~~loan~~by ~~relationships~~customer deposits, ~~all~~borrowed ~~without~~funds, ~~compromising~~and ~~portfolio~~retained ~~quality~~earnings. ~~Management’s~~During ~~strategy~~the ~~for~~last ~~deposits~~few isyears, in an effort to ~~closely manage~~improve ~~anticipated~~its ~~market~~on-balance ~~increases~~sheet ~~and~~liquidity, ~~maintain~~the aCompany ~~competitive~~has ~~position~~increased ~~with~~its ~~respect~~most toliquid ~~pricing~~assets, ~~and~~namely ~~products.~~cash ~~Comparative~~and ~~details~~cash ~~about~~equivalents. ~~average~~Cash ~~balances,~~and ~~income/expense~~cash equivalents, ~~and~~which ~~average~~variously ~~yields~~comprise ~~earned~~cash and ~~rates~~due ~~paid~~from onbanks, interest-~~earning~~bearing ~~assets~~deposits in other banks and ~~liabilities~~ ~~for~~federal ~~the~~funds ~~last~~sold, ~~two~~increased ~~years~~$12,981,349 ~~are~~(or ~~provided~~16.1%) inat ~~the~~June 30, ~~table~~2011 oncompared to the ~~next~~end ~~page~~of 2010. Cash and cash equivalents represented 21.8% of total assets at June 30, 2011 versus 18.9% at December 31, 2010.

Cash flows from the loan and securities portfolios represent important components of the Company’s overall liquidity position. At June 30, 2011, loans (excluding nonaccrual loans) and investment securities with carrying values of approximately $125,289,000 were scheduled to mature in one year or less. Of course, loans are subject to refinancing prior to maturity or renewal at maturity and securities may be pledged to secure public funds and other borrowing arrangements. These characteristics may have an impact on the actual cash flows from the loan and securities portfolios. At June 30, 2011, approximately $67,116,000 (or 90%) of the Company’s securities portfolio was pledged. However, when adjusted for overpledging due to cyclical variations in public funds and contingency pledging to the Federal Reserve Bank discount window, approximately $12,182,000 of the securities pledged was unencumbered at June 30, 2011. The entities to which the excess collateral is pledged have no legal claim on such collateral unless amounts are owed under other obligations.

The Company has long benefited from a relatively large, stable deposit base. Customer-based core deposits (total deposits less time deposits with balances of $100,000 or more), traditionally the Company’s largest and most cost-effective source of funding, comprised 83% of total deposits at June 30, 2011. The Company does not currently accept brokered deposits or other out-of-market deposits. Alternative sources of funding have traditionally encompassed U.S. Treasury demand notes, Federal Reserve discount window borrowings, federal funds purchased, and FHLB advances. At June 30, 2011, these alternative sources of funding totaled $5,889,547.

The Company has also historically generated net cash flows from operations. For the six months ended June 30, 2011, net cash provided by operating activities amounted to $2,400,854 compared to $2,722,785 for the same period in 2010. The consolidated statements of cash flows within this Form 10-Q provide a summary of cash flows provided by or used in operating, investing, and financing activities.

In the third quarter of 2009, the FDIC announced a plan to restore its Deposit Insurance Fund balances depleted as a result of recent bank failures. The restoration plan required all FDIC-insured banks to prepay their risk-based assessments for the years 2010, 2011, and 2012. The assessments, usually due quarterly, were instead estimated for the three future years and paid prior to December 31, 2009. The Company paid the required assessment on December 29, 2009 and concurrently recorded a prepaid asset within other assets on the consolidated balance sheets. This prepaid asset totaled $802,000 at June 30, 2011. Any differences between the prepaid and actual amounts due each quarter will be funded using existing available liquidity.

~~Selected~~Deposits ~~Average Balances, Income/Expense, and Average Yields Earned and Rates Paid~~

	2011							2010
Average Balances6 Three Months Ended March 31,	AverageBalances		Income/Expense		Yields/Rates			AverageBalances		Income/Expense		Yields/Rates
(Dollars in thousands)
Assets
Interest-earning assets:
Net loans1,2,4	$	240,554	$	3,424		5.77	%	$	267,358	$	3,682		5.59	%
Interest-bearing deposits in other banks		76,849		48		0.25	%		39,584		20		0.20	%
Federal funds sold		2,150		1		0.19	%		2,150		1		0.19	%
Taxable investment securities3		63,442		455		2.91	%		55,442		663		4.85	%
Tax-exempt investment securities3,4		13,231		217		6.65	%		18,990		308		6.58	%
Other interest-earning assets		1,174		2		0.69	%		1,314		1		0.31	%
Total interest-earning assets	$	397,400	$	4,147		4.24	%	$	384,838	$	4,675		4.93	%
Liabilities
Interest-bearing liabilities:
Interest-bearing demand deposits5	$	132,997	$	186		0.57	%	$	115,553	$	210		0.74	%
Savings		55,272		77		0.56	%		54,227		102		0.76	%
Time certificates		136,115		655		1.95	%		133,386		870		2.65	%
U. S. Treasury demand note		728		—		—			592		—		—
FHLB advances		5,000		32		2.60	%		9,167		94		4.16	%
Total interest-bearing liabilities	$	330,112	$	950		1.17	%	$	312,925	$	1,276		1.65	%
Excess of interest-earning assets over interest-bearing liabilities	$	67,288						$	71,913
Interest rate spread						3.07	%						3.28	%
Net interest income			$	3,197						$	3,399
Net interest margin						3.26	%						3.58	%

The distribution of total deposits at June 30, 2011 and certain comparable quarter-end dates is summarized in the following table.

1 Average loans are shown net of unearned income. Nonperforming loans are included. Income on nonaccrual loans, if recognized, is recorded on a cash basis.


	June 30, 2011					December 31, 2010					June 30, 2010
*Deposits*	*Balances*		Percent of Total			Balances		Percent of Total			Balances		Percent of Total
(Dollars in thousands)

Noninterest-bearing demand	$	58,155		15.4	%	$	55,377		14.8	%	$	56,306		15.0	%

Interest-bearing demand¹		131,643		34.9	%		127,631		34.0	%		122,479		32.7	%
Savings		57,550		15.3	%		54,033		14.4	%		54,738		14.6	%
Time certificates < $100,000		66,610		17.7	%		68,538		18.3	%		70,639		18.9	%
Time certificates >= $100,000		62,713		16.7	%		69,616		18.5	%		70,209		18.8	%

Total interest-bearing deposits		318,516		84.6	%		319,818		85.2	%		318,065		85.0	%


Total deposits	$	376,671		100.0	%	$	375,195		100.0	%	$	374,371		100.0	%

21 Includes ~~loan~~NOW ~~fees~~ and ~~late~~money ~~charges~~market accounts.

3Total ~~Securities~~deposits ~~are~~increased ~~presented~~approximately on$1,476,000 an(0.4%) ~~amortized~~since ~~cost~~the ~~basis~~end of 2010. ~~Investment~~During ~~securities~~the ~~with~~period, ~~original~~noninterest-bearing ~~maturities~~deposits ofincreased ~~three~~approximately ~~months~~$2,778,000 (or ~~less~~5.0%) ~~are~~while ~~included~~interest-bearing deposits decreased approximately $1,302,000 (or 0.4%). Within interest-bearing deposits, time certificate balances declined approximately $8,831,000 (or 6.4%) while NOW, money market, and savings balances grew approximately $7,529,000 (or 4.1%). No single factor precipitated the 5.0% increase in noninterest-bearing deposits since year-end as ~~applicable~~these balances tend to be somewhat cyclical. However, noninterest-bearing deposits will continue to be protected by unlimited FDIC deposit insurance until December 31, 2012 under provisions of the Dodd-Frank Act, and that insurance protection may have been a factor in the increase in these balances.

4Approximately ~~Interest~~82% ~~income~~of ontotal ~~tax-exempt~~deposits ~~loans~~at ~~and~~June 30, ~~securities~~2011 iswere ~~presented~~based onin athe ~~taxable-equivalent~~Company’s ~~basis,~~13 ~~using~~Georgia abranches ~~federal~~and ~~income~~the ~~tax~~remaining ~~rate~~18% ofwere ~~34%~~from the three Florida branches. NoDeposits ~~adjustments~~with ~~have~~one ~~been~~local governmental ~~made~~entity ~~for~~amounted ~~any~~to ~~state~~approximately ~~tax~~$16,500,000 ~~benefits~~(or 4.4%) and $24,402,000 (or 6.5%) of the ~~nondeductible~~Company’s ~~portion~~total deposits at June 30, 2011 and December 31, 2010. In total, public funds comprised approximately 18% of ~~interest~~the ~~expense~~deposit base at June 30, 2011 and 18% at December 31, 2010.

5As ~~NOW~~shown ~~and~~in ~~money~~the ~~market~~following ~~accounts~~table, approximately 93.8% of time deposits at June 30, 2011 were scheduled to mature within the next twelve months.

6 Averages presented generally represent average daily balances.

Maturities of Time Deposits

Balances

June 30, 2011

< $100,000

³ $100,000

Total

(Dollars in thousands)

Months to maturity:

3 or less

16,068

15,540

31,608

Over 3 through 12

44,427

45,266

89,693

Over 12 through 36

5,050

1,807

6,857

Over 36

1,065

100

1,165

Total

66,610

62,713

129,323

Analysis of Changes in Net Interest Income

The average balance table above provides detailed information about average balances, income/expense, and average yields earned and rates paid on interest-earning assets and interest-bearing liabilities for the three months ended March 31, 2011 and 2010. The table on the next page summarizes the changes in interest income and interest expense attributable to volume and rates during this period.

	2011 Compared to 2010
Interest Differential1	Increase (Decrease) Due to
Three Months Ended March 31,	Volume			Rate			Net
(Dollars in thousands)
Interest income:
Net loans2,3	$	(377	)	$	119		$	(258	)
Interest-bearing deposits in other banks		22			6			28
Federal funds sold		—			—			—
Taxable investment securities		85			(293	)		(208	)
Tax-exempt investment securities3		(94	)		3			(91	)
Other interest-earning assets		—			1			1
Total interest income		(364	)		(164	)		(528	)
Interest expense:
Interest-bearing demand deposits4		29			(53	)		(24	)
Savings		2			(27	)		(25	)
Time certificates		17			(232	)		(215	)
U.S. Treasury demand note		—			—			—
FHLB advances		(34	)		(28	)		(62	)
Total interest expense		14			(340	)		(326	)
Net change in net interest income	$	(378	)	$	176		$	(202	)

FHLB Advances

1Advances ~~Changes~~outstanding inwith ~~net~~the ~~interest~~FHLB ~~income~~totaled ~~are~~$5,000,000 ~~attributed~~at toJune 30, ~~either~~2011, ~~changes~~unchanged infrom ~~average~~December 31, ~~balances~~2010. ~~(volume~~The ~~change)~~advances oroutstanding ~~changes~~included ina ~~average~~$2,500,000 ~~rates~~fixed (rate ~~change)~~advance ~~for~~due ~~earning~~July 30, ~~assets~~2012 with ~~and~~an ~~sources~~effective rate of ~~funds on which interest is received or paid~~2.35% ~~Volume~~and ~~change~~another is$2,500,000 ~~calculated~~fixed asrate ~~change~~advance indue ~~volume~~July 29, ~~times~~2013 ~~the~~with ~~previous~~an ~~rate~~effective ~~while~~ rate ~~change~~of ~~is change in rate times the previous volume~~2.89%. ~~The~~At ~~rate/volume change~~June 30, ~~change in rate times change in volume~~2011, isthe ~~allocated~~two ~~between~~advances ~~volume~~were ~~change~~collateralized ~~and~~by ~~rate~~cash ~~change~~balances held at the ~~ratio~~FHLB. ~~each~~Additional ~~component~~funding ~~bears~~is not tocurrently ~~the~~available ~~absolute~~from ~~value~~the ~~of their total~~FHLB.

2Other ~~Includes~~Commitments ~~loan fees. See the average balances table on the previous page for more details.~~

3The ~~Interest~~Company ~~income~~had onno ~~tax-exempt~~material ~~loans~~plans ~~and~~or ~~securities~~commitments ~~is presented on a taxable-equivalent basis, using a federal income tax rate of 34%. No adjustments have been made~~ for ~~any~~capital ~~state~~expenditures ~~tax~~as ~~benefits or the nondeductible portion~~ of ~~interest~~June 30, ~~expense~~2011.

4Capital ~~Now~~Adequacy ~~and money market accounts.~~

~~Noninterest~~Federal ~~Income~~banking regulators have established certain capital adequacy standards required to be maintained by banks and ~~Expense~~bank holding companies. These regulations define capital as either Tier 1 (primarily realized shareholders’ equity) or Tier 2 (for the Company, a portion of the allowance for loan losses). The Company and SEB are subject to a minimum Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) of 4%, total capital ratio (Tier 1 plus Tier 2 to risk-weighted assets) of 8%, and Tier 1 leverage ratio (Tier 1 to average quarterly assets) of 4%. To be considered a “well-capitalized” institution, the Tier 1 capital, total capital, and Tier 1 leverage ratios must equal or exceed 6%, 10%, and 5%, respectively. Banks and bank holding companies are prohibited from including unrealized gains and losses on debt securities in the calculation of risk-based capital but are permitted to include up to 45 percent of net unrealized pre-tax holding gains on equity securities in Tier 2 capital. The Company did not have any unrealized gains on equity securities includible in the risk-based capital calculations for any of the periods presented. At June 30, 2011, the Company’s Tier 1, total capital, and Tier 1 leverage ratios totaled 16.54%, 17.81%, and 10.36%. On a stand-alone basis, SEB’s same ratios totaled 16.10%, 17.38%, and 10.08%. The Company is committed to maintaining its well-capitalized status and stress tests its capital position on a regular basis to gauge its ability to withstand deterioration in asset quality and operating performance.

~~Noninterest~~The ~~income~~consolidated ~~declined~~regulatory ~~$108,906~~capital orratios ~~11.12%~~for ~~during~~ the ~~first three~~most ~~months~~recent ofperiods are ~~2011~~presented ~~compared to 2010. Key elements~~ in the ~~year-to-date~~following ~~results~~table. ~~included:~~

a) Net loss on sales of investment securities available-for-sale: As further discussed in note 3 to the consolidated financial statements, the Company recognized a net loss of $18,191 on the sale of one corporate bond in the first quarter of 2011. No securities were sold during the same period in 2010.


*Capital Ratios*	June 30, 2011			December 31, 2010			June 30, 2010
(Dollars in thousands)

Tier 1 capital:
Total shareholders’ equity	$	44,966		$	44,806		$	54,630
Accumulated other comprehensive (income) loss		(605	)		(269	)		(695	)

Total Tier 1 capital		44,361			44,537			53,935

Tier 2 capital:
Portion of allowance for loan losses		3,418			3,585			3,652

Total risk-based capital	$	47,779		$	48,122		$	57,587

Risk-weighted assets	$	268,231		$	280,441		$	288,032

Risk-based ratios:
Tier 1 capital¹		16.54	%		15.88	%		18.73	%

Total risk-based capital		17.81	%		17.16	%		19.99	%

Tier 1 leverage ratio		10.36	%		10.29	%		12.49	%

Shareholders’ equity to assets		10.47	%		10.48	%		12.50	%

b)1 ~~Service~~The ~~charges~~Company’s ontier ~~deposit~~1 ~~accounts:~~common ~~Service~~equity ~~charges~~ratio onis ~~deposit accounts declined $91,035 or 14.18% at March 31, 2011 compared to 2010. Lower volume of overdraft fees, as well as regulatory changes impacting~~ the ~~collection~~same ~~of these fees, were the main factors in the year-to-date decline. These regulatory changes, which stem largely from amendments to Federal Reserve Regulation E, became effective July 2010;~~ as aits ~~result~~tier of1 ~~the~~capital ~~Regulation E amendment, this income category will continue to decline in 2011 when compared to comparable periods in 2010~~ratio.

c) Other operating income: The other operating portion of noninterest income was virtually unchanged at March 31, 2011 compared to 2010. By type and amount, the chief components of other operating income at March 31, 2011 were ATM and debit fee income, $157,229; income on bank-owned life insurance, with a resultant yield exceeding 6.00% on a federal taxable-equivalent basis, $57,919; income on sale of check products, $23,592; safe deposit box rentals, $23,080; credit card interchange fees, $21,867; and commissions on the sale of

~~credit~~At ~~life~~June 30, ~~insurance~~2011, ~~(separate~~the ~~from~~Company’s ~~third~~book ~~party~~value ~~broker-dealer~~per ~~affiliation),~~share was $14.37,~~940~~ a $0.05 ~~Together,~~per ~~these~~share ~~six~~increase ~~income~~since the ~~items~~end ~~comprised~~of 882010.~~50%~~ To preserve capital, no dividends were declared or paid in the first half of ~~other~~2011, ~~operating~~a ~~income~~$0.13 Inper ~~2010,~~share ~~these~~decline ~~same~~from ~~six~~the ~~income~~same ~~components~~period ~~comprised~~in 832010.~~34%~~ ofThe ~~other~~Company ~~operating~~has ~~income.~~suspended ~~Dodd-Frank~~future ~~Act~~dividend ~~regulation,~~payments ifand ~~enacted~~treasury asstock ~~proposed,~~purchases ~~could~~until operating ~~limit~~performance ~~ATM~~improves and ~~debit~~credit ~~card~~losses ~~fee~~abate. ~~income~~Regulatory ~~going~~approval ~~forward~~will be required prior to payment of future dividends or treasury stock purchases.

~~Noninterest~~CRITICAL ~~expense~~ACCOUNTING ~~dropped~~ESTIMATES ~~$46,567 in 2011 year-to-date compared to 2010. The chief factors impacting year-to-date results comprised:~~

a)The ~~Salaries~~preparation ~~and~~of ~~employee~~financial ~~benefits:~~statements ~~Personnel~~and ~~costs~~the ~~fell~~related disclosures ~~7.86%~~in orconformity ~~$143,607~~with ~~year-to-date.~~accounting ~~Declines~~principles generally accepted in ~~salaries~~the ~~and~~United ~~payroll~~States ~~taxes~~requires ~~accounted~~that ~~for~~management ~~most~~make ofestimates ~~the~~and ~~2011~~assumptions ~~variation.~~which ~~Specifically,~~affect ~~salaries~~the ~~declined~~reported ~~$120,015~~amounts ~~overall~~of assets and ~~payroll~~liabilities ~~taxes,~~and ~~$9,376,~~disclosure inof ~~2011~~contingent ~~year-to-~~assets and liabilities at the date ~~compared~~of tothe ~~2010.~~financial ~~The~~statements ~~vast~~and ~~majority,~~the orreported ~~83%,~~amounts of ~~employee~~revenues and expenses ~~remained~~during ~~concentrated~~the inreporting ~~salaries~~period. ~~and~~Actual ~~other~~results ~~direct~~could ~~compensation,~~differ ~~including~~from ~~related~~those ~~payroll~~estimates. ~~taxes,~~Management atbelieves ~~March~~that ~~31,~~its ~~2011.~~determination ~~Profit-sharing/401-K~~of ~~accruals~~the allowance for loan losses and ~~other~~the ~~fringe~~fair ~~benefits~~value ~~constituted~~of ~~the~~assets ~~remaining~~affect 3%its most significant judgments and ~~14%~~estimates used in the preparation of ~~employee~~the ~~expenses~~consolidated financial statements. The ~~division~~Company’s accounting policies are described in detail in Note 1 of ~~employee~~the ~~expenses~~Consolidated Financial ~~between~~Statements ~~compensation,~~provided ~~profit~~in Item 8 of the Company’s Annual Report on Form 10-~~sharing,~~K ~~and~~for ~~other~~the ~~fringe~~year ~~benefits~~ended ~~remained~~December 31, ~~consistent~~2010. ~~with~~There ~~historical~~have ~~norms~~been no material changes in ~~2011~~the Company’s critical accounting policies since December 31, 2010.

b)The ~~Occupancy~~following ~~and~~is ~~equipment~~a ~~expense,~~brief ~~net:~~description ~~Net occupancy and equipment expense fell $81,293 or 11.71% during the first three months~~ of ~~2011 compared to 2010. Savings of $19,645 and $34,878 related to data line communications and depreciation/amortization expense were~~ the ~~main reasons for the decline. The decrease in data line expense resulted from an efficiency upgrade pertaining to new bandwidth over the~~ Company’s ~~network~~critical ~~system;~~accounting ~~the~~estimates ~~telecommunications~~involving ~~upgrade~~significant ~~will~~management ~~also reduce comparative expense in other periods this year~~valuation judgment. ~~The~~Management ~~depreciation/amortization~~has ~~reduction~~discussed isthese ~~directly~~critical ~~related~~accounting topolicies ~~various~~with ~~furniture~~the ~~and~~Audit ~~equipment, as well as software, reaching fully depreciated status~~Committee. ~~These depreciated assets remain in good working condition and have not been replaced as management curtails spending on high dollar items.~~

c)Allowance Write-downs on other real estate: Write-downs on foreclosed real estate increased $161,127 in the first three months of 2011 compared to 2010. These write-downs correlate with updated appraisals of property held for ~~sale.~~Loan AsLosses ~~further discussed in the Financial Condition section of this Analysis, real estate values in coastal Georgia and northeast Florida remain depressed.~~

d)The ~~Other~~allowance ~~noninterest~~for ~~expense:~~loan ~~Other~~losses ~~noninterest~~represents ~~expense~~management’s ~~increased~~estimate ~~$35,415~~of orlosses 4inherent in the existing loan portfolio.~~46%~~ atThe ~~March~~allowance ~~31,~~for ~~2011~~loan ~~compared~~losses tois increased ~~2010.~~by Athe ~~$66,657~~provision ~~jump~~for inloan ~~FDIC~~losses ~~costs~~charged ~~was~~to ~~the~~expense ~~primary~~and ~~factor~~reduced inby ~~the~~loans ~~2011~~charged –off, ~~2010~~net ~~comparative~~of ~~results~~recoveries. ~~Besides~~The ~~FDIC~~allowance ~~expense,~~for ~~which~~loan ~~approximated~~losses ~~$214,000~~is indetermined ~~2011~~based &on ~~$147,000~~management’s inassessment ~~2010~~of ~~and~~several ~~aggregated~~factors ~~accounting~~including, ~~consulting,~~but &not ~~legal~~limited ~~fees~~to, reviews ~~which~~and ~~approximated~~evaluations ~~$104~~of specific loans,~~000~~ changes in ~~both~~the ~~2011~~nature and ~~2010~~volume of the loan portfolio, nocurrent ~~individual~~economic ~~component~~conditions and the related impact on segments of ~~noninterest~~the ~~expense~~loan ~~aggregated~~portfolio, orhistorical ~~exceeded~~loan ~~10%~~loss ofexperiences and the ~~total~~level inof ~~2011~~classified and nonperforming loans.

~~Management~~Loans ~~anticipates that~~are ~~losses~~considered impaired if, based on current information and ~~other~~events, ~~costs~~it ~~associated~~is ~~with~~probable ~~foreclosed~~that ~~real~~the ~~estate~~Company will ~~remain~~be unable ~~elevated~~to ~~unless~~collect the ~~Company’s~~scheduled ~~coastal~~payments ~~real~~of ~~estate~~principal ~~markets~~or ~~stabilize~~interest ~~and~~when ~~demand~~due ~~for~~according ~~properties~~to -the atcontractual ~~reasonable~~terms ~~prices~~of –the ~~improves~~loan agreement. ~~Due~~The tomeasurement ~~problem~~of ~~asset resolutions~~impaired ~~and~~loans ~~continued~~is ~~margin~~based ~~compression~~on either the fair value of the underlying collateral, the ~~Company~~present ~~expects~~value of tothe befuture ~~only~~cash ~~marginally~~flows ~~profitable~~discounted at the historical effective interest rate stipulated in ~~2011~~the loan agreement, ifor atthe ~~all~~estimated market value of the loan. In measuring the fair value of the collateral, management uses assumptions (e.g., discount rate) and methodologies (e.g., comparison to the recent selling price of similar assets) consistent with those that would be utilized by unrelated third parties.

~~Critical~~Management’s ~~Accounting~~assessment is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. Changes in various internal and external ~~Policies~~environmental factors including, but not limited to, the financial condition of individual borrowers, economic conditions, historical loss experience, or the condition of the various markets in which collateral may be sold may affect the required level of the allowance for loan losses and the associated provision for loan losses. Should these environmental factors change; a different amount may be reported for the allowance for loan losses and the associated provision for loan losses.

The Company’s consolidated financial statements are prepared applying certain critical accounting policies. Critical accounting policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variations and may significantly affect the Company’s reported results and financial position for the period or in future periods. Changes in underlying factors, assumptions, or estimates in any of these areas could have a material impact on the Company’s future financial condition and results of operations. The Company’s financial statements are prepared in

~~accordance~~Estimates with U.S. GAAP, and they conform to general practices in the banking industry. The Company applies its critical accounting policies consistently from period to period and intends that any change in methodology occur in an appropriate manner. Accounting policies currently deemed critical, including the a) allowance for loan losses; b) estimates of ~~fair~~Fair ~~value~~Value pertinent to investment securities, other real estate, loans, and other assets; and c) income taxes are further discussed in the 2010 Form 10-K. There have been no material changes in the Company’s critical accounting policies since December 31, 2010.

The estimation of fair value is significant to a number of the Company’s assets, including, but not limited to, investment securities, other real estate owned and other repossessed assets. These are all recorded at either fair value or at the lower of cost or fair value. Fair values are volatile and may be influenced by a number of factors. Circumstances that could cause estimates of the fair value of certain assets and liabilities to change include a change in prepayment speeds, discount rates or market interest rates. Management’s estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.

Fair values for most investment securities are based on quoted market prices. If quoted market prices are not available, fair values are based on the quoted prices of similar instruments. The fair values of other real estate owned are typically determined based on appraisals by third parties, less estimated costs to sell.

Recent Accounting Pronouncements

~~The~~A summary ~~provisions~~ of recent pronouncements and the related impact on the Company’s consolidated financial statements, if any, are discussed in ~~note~~Note 2. In management’s opinion, there are no recent accounting pronouncements that have had or will have had a material impact on our earnings or financial position as of or for the quarter ended June 30, 2011.

~~Various~~Item ~~other~~3. ~~accounting~~Quantitative ~~proposals affecting the banking industry are pending with the FASB~~ and ~~other~~Qualitative ~~regulatory~~Disclosures ~~authorities.~~about ~~Given~~Market ~~the inherent uncertainty of the proposal process, the Company cannot assess the impact of any such proposals on its financial condition or results of operations.~~ Risk

~~Forward-Looking~~The ~~Statements~~normal course of business activity exposes the Company to interest rate risk. Fluctuations in interest rates may result in changes in the fair market value of the Company’s financial instruments, cash flows, and net interest income. The Asset/Liability Committee periodically reviews the Company’s exposure to interest rate risk and formulates strategy based on acceptable levels of interest rate risk. The overall objective of this process is to optimize the Company’s financial position, liquidity, and net interest income, while limiting volatility to net interest income from changes in interest rates.

~~Certain~~The ~~statements~~Company ~~set~~uses ~~forth~~simulation inmodeling ~~this~~to ~~Quarterly~~test ~~Report~~the oninterest ~~Form~~rate ~~10-Q~~sensitivity orof ~~incorporated~~net ~~herein~~interest byincome ~~reference,~~and ~~including matters discussed under~~ the ~~caption “Management’s~~balance ~~Discussion~~sheet. ~~and~~Contractual ~~Analysis~~maturity ~~of Financial Condition~~ and ~~Results~~repricing characteristics of ~~Operations,”~~loans are ~~“forward-looking~~incorporated ~~statements” within~~ into the ~~meaning of federal securities laws~~model, ~~including,~~as ~~without limitation, statements regarding the Company’s outlook on earnings, stock performance, asset quality, economic conditions, real estate markets, and projected growth, and~~ are ~~based~~prepayment ~~upon management’s beliefs as well as~~ assumptions, ~~based~~maturity on data ~~currently available. When words like “anticipate”~~, ~~“believe”, “intend”, “plan”, “may”, “continue”, “project”, “would”, “expect”, “estimate”, “could”, “should”, “will”,~~ and ~~similar~~call ~~expressions~~options ~~are~~within ~~used,~~the ~~they~~investment ~~should be considered forward-looking statements~~portfolio. ~~Forward~~Non-~~looking~~maturity ~~statements~~deposit ~~are~~accounts ~~subject to significant risks and uncertainties. Investors~~ are ~~cautioned~~modeled ~~against~~based ~~placing undue reliance~~ on ~~such statements.~~past ~~Actual results may differ materially from those set forth in forward-looking statements~~experience. ~~Factors~~Simulation ~~that could cause actual~~ results toquantify ~~differ~~interest ~~materially~~rate ~~from~~risks ~~those~~under ~~described~~various ~~in the forward-looking statements include: (1) difficult~~interest ~~economic~~rate ~~conditions,~~scenarios ~~both~~over ~~generally and in local markets, may persist, resulting in, among other things, further deterioration in credit quality,~~ a ~~reduction~~twelve-month inperiod. ~~demand~~Based ~~for~~on ~~credit, or additional declines in real estate values; (2)~~ the ~~severe decline~~latest ~~in the real estate and lending market~~analysis, ~~particularly in~~ the Company’s ~~coastal~~continues ~~markets and primarily comprising acquisition and development loans, may continue~~ to ~~negatively affect financial results; (3) the allowance for loan losses may not~~ be adequate to cover eventual loss; (4) future losses will be realized if proceeds received upon liquidation of nonperforming assets are less than carrying values of such assets; (5) restrictions or conditions imposed by regulators on the Company’s operations may make it more difficult for the Company to achieve its goals; (6) the Company’s recovery of its deferred tax asset ~~could~~sensitive beand ~~delayed~~exposed ~~for an extended period; (7) the Company’s ability~~ to ~~raise any~~declining ~~needed~~earnings ~~capital in a prolonged economic downturn may be impaired~~ if ~~market~~interest ~~disruption~~rates ~~and~~fall. ~~volatility~~The ~~continue~~simulation ormodel ~~worsen;~~estimates ~~(8) legislative or regulatory~~ changes, ~~including changes~~ in ~~accounting~~net ~~standards~~interest ~~and~~income ~~compliance~~based ~~requirements, may~~on ~~adversely~~various ~~affect~~gradual ~~the Company’s business, revenue,~~ and ~~profit~~shocked/instantaneous ~~margins;~~rate ~~(9) poor~~change ~~financial results may negatively affect liquidity~~scenarios, ~~including~~as ~~liquidity~~shown ~~from core deposits; (10) competitive pressures among depository and other financial institutions may increase significantly, resulting~~ in ~~lost business relationships or reduced margins; (11) changes in~~ the ~~interest~~table ~~rate~~below. ~~environment~~The ~~may~~model ~~reduce~~projects ~~margins or the volumes or values of loans made; (12) competitors may have greater financial resources and develop products~~ that ~~enable them to compete more successfully; (13)~~ the Company’s ~~ability~~earnings towill ~~attract~~increase ~~and~~as ~~retain~~rates ~~key~~rise ~~personnel~~and ~~can~~decrease beif ~~affected~~rates bydrop. ~~increased~~The ~~competition~~base ~~for~~federal ~~experienced~~funds ~~employees~~rate used in the model ~~banking~~assumes ~~industry; (14) adverse changes may occur in~~ the ~~bond~~current ~~markets,~~targeted ~~affecting~~0.00% ~~portfolio~~- ~~valuation~~0.25% ~~and~~rate ~~causing~~range. ~~impairment; (15) war or terrorist activities may cause further~~


	Effect on Net Interest Income
*Market Rate Change*	Gradual			Immediate Shock
+300 basis points		5.77	%		21.90	%
+200 basis points		2.46	%		10.94	%
+100 basis points		0.85	%		3.79	%
-100 basis points		(0.30	)%		(3.59	)%

The Company’s asset sensitivity has increased since year-end 2010 due largely to growth in interest-bearing balances in other banks; the increase in these balances is further discussed in the “Liquidity and Capital Resources” section of this Report.

~~deterioration~~Limitations ininherent ~~the~~with ~~economy~~simulation ormodeling ~~cause~~include: ~~instability~~a) in ~~credit~~a ~~markets;~~down ~~(16) economic,~~rate ~~governmental~~environment, orcompetitive ~~other~~and other factors ~~may~~constrain ~~prevent~~timing ~~growth~~of inparallel ~~the~~rate ~~Company’s~~reductions ~~markets;~~on ~~(17) changes~~various ~~in consumer~~deposit ~~spending~~products ~~and~~whereas ~~savings~~loans ~~habits~~tied ~~could impede the Company’s ability~~ to ~~grow~~Prime ~~its loan~~ and ~~deposit~~other ~~portfolios;~~variable ~~(18) the~~indexes ~~Company~~reprice ~~may~~instantaneously beand ~~unfavorably~~securities ~~impacted~~with bycall ~~litigation,~~or ~~which~~other ~~depends~~prepayment onfeatures ~~judicial~~are ~~interpretations~~likely ofto ~~law~~be ~~and~~redeemed ~~findings~~prior ofto ~~juries;~~stated ~~(19) the~~maturity ~~dividend~~and ~~suspension~~replaced ~~may~~at ~~adversely~~lower ~~affect~~rates ~~the market price of the Company’s stock;~~ (~~20) third~~lag ~~party vendors who provide key components of the Company’s business infrastructure may have system failures or other difficulties which could materially affect operations~~effect); and ~~(21~~b) ~~the~~ ~~risk~~potential ~~factors~~changes ~~discussed from time to time~~ in ~~the~~balance ~~Company’s~~sheet ~~periodic reports filed with the SEC~~mix, ~~including~~for ~~but not limited to~~example, ~~this~~unscheduled ~~Report.~~pay-offs ~~The~~of ~~Company~~large ~~undertakes~~commercial ~~no obligation~~loans ~~to,~~ and ~~does~~significant ~~not~~increases ~~intend~~in ~~to,~~nonaccrual ~~update or revise these statements following the date of this filing~~loans, ~~whether~~are asoftentimes adifficult ~~result~~to ~~of new information, future events or otherwise, except as may be required by law~~forecast.

AsThe ~~noted,~~Company has not in the ~~foregoing~~past, ~~list~~but ofmay ~~factors~~in isthe ~~not~~future, ~~exclusive.~~utilize ~~This~~interest ~~Analysis~~rate ~~should~~swaps, befinancial ~~read~~options, infinancial ~~conjunction~~futures ~~with~~contracts, ~~the~~or ~~consolidated~~other rate ~~financial~~protection ~~statements~~instruments to reduce interest rate and ~~related~~ ~~notes~~market risks.

~~Item~~Impact 3.of ~~Quantitative~~Inflation ~~and Qualitative Disclosures about Market Risk.~~

The ~~discussion~~effects of inflation on ~~market~~the ~~risk~~local iseconomy ~~included~~and inthe Company’s operating results have been relatively modest the ~~Interest~~last ~~Rate~~several years. Because substantially all the Company’s assets and ~~Market~~liabilities, ~~Risk/Interest~~including ~~Rate~~cash, ~~Sensitivity~~securities, ~~section~~loans, and deposits, are monetary in nature, their values are less sensitive to the effects of ~~Part~~inflation Ithan to changing interest rates. As discussed in the preceding section, ~~Item 2~~the Company attempts to control the impact of interest rate fluctuations by managing the relationship between its interest sensitive assets and liabilities.

Item 4. Controls and Procedures.

AnA review and evaluation ofwas performed by the Company’s ~~disclosure~~management, ~~controls~~including ~~and~~the ~~procedures~~Company’s asprincipal ~~defined~~executive inofficer ~~Rules~~and ~~13a-15(e)~~principal ~~and~~financial ~~15d-15(e)~~officer, ~~under~~of the ~~Securities~~effectiveness ~~Exchange~~of ~~Act~~the ofdesign ~~1934~~and ~~(the~~operation ~~“Act”)~~of ~~was~~the ~~carried~~Company’s ~~out~~disclosure ~~under~~controls ~~the~~and ~~supervision~~procedures ~~and~~as ~~with~~of the ~~participation~~end of the ~~Company’s~~period ~~Chief~~covered ~~Executive~~by ~~Officer~~this ~~(“CEO”),~~Quarterly ~~Chief~~Report. ~~Financial~~Based ~~Officer~~on ~~(“Treasurer”),~~that review and ~~other~~evaluation, ~~members~~the ofCompany’s ~~management~~principal asexecutive ofofficer ~~March 31,~~and ~~2011.~~principal ~~The~~financial ~~CEO~~officer ~~and~~have ~~Treasurer~~ concluded that~~, as~~ ~~of March 31, 2011,~~ the Company’s ~~disclosure~~current disclosure controls and procedures, as designed and implemented, were effective inas ~~ensuring~~of ~~that~~ the ~~information~~end ~~required~~of tothe beperiod ~~disclosed~~covered by ~~the~~this ~~Company~~report in ~~the~~alerting ~~reports~~them iton ~~files~~a ortimely ~~submits~~basis ~~under~~to ~~the~~material ~~Act~~information ~~is:~~relating ~~(i) accumulated and communicated~~ to the Company’s ~~management,~~required ~~including~~to ~~the~~be ~~CEO~~included ~~and~~in the ~~Treasurer,~~Company’s reports ~~and~~filed ~~(ii) recorded,~~or ~~processed,~~submitted ~~summarized,~~under ~~and reported in accordance with~~ the ~~SEC’s~~Securities ~~rules~~Exchange ~~and~~Act ~~forms~~of 1934. There ~~were~~have been no changes in the Company’s internal control over financial reporting ~~(as defined in Rules 13a-15(f) and 15d-15(f) under the Act)~~ that occurred during the ~~quarter~~Company’s ~~ended~~most ~~March 31,~~recent ~~2011~~fiscal quarter that ~~has~~have materially affected, or isare reasonably likely to materially affect, ~~such~~the Company’s internal ~~controls~~control over financial reporting.

The Company does not expect that its disclosure controls and procedures will prevent all error and fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies and procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

~~The~~Part ~~Company~~II ~~intends~~– toOther ~~continually~~Information review and evaluate the design and effectiveness of its disclosure controls and procedures, to improve its controls and procedures over time, and to correct any deficiencies it may discover in the future. The goal is to ensure that management has timely access to all material financial and non-financial information concerning the Company’s business. While the Company believes the present design of its disclosure controls and procedures is effective to achieve its goal, future events affecting its business may cause the Company to modify its disclosure controls and procedures. The Company continues to use the widely accepted Committee of Sponsoring Organization of the Treadway Commission (“COSO”) framework for its evaluation of such internal controls.

Part II - Other Information

Item 1.

Legal Proceedings.

Not Applicable

Item 1A.

Risk Factors.

There were no material changes to the Company’s risk factors during the first ~~quarter~~six months of 2011.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

On July 21, 2010, the Company suspended dividend payments and treasury stock purchases until operating performance improves and credit losses abate. The Company’s ability to pay dividends in the future will be dependent on earnings, capital adequacy, the availability of liquid assets for distribution, and regulatory approval. The Company is a legal entity separate from its bank subsidiary, and its revenues depend primarily on the payment of dividends from SEB. Separate regulatory approval will be required before SEB can itself pay a dividend. See the Capital Adequacy section of Part I, Item 2 for more details on the Company’s capital position and the Nonperforming Assets section of Part I, Item 2 for particulars on problem asset trends and their resultant effect on earnings. None

Item 3.

Defaults Upon Senior Securities.

Not Applicable

Item 4.

(Removed and Reserved).

Item 5.

Other Information.

Not Applicable

Item 6.

Exhibits.

(a) Index to Exhibits:


31.1		Rule 13a-14(a) Certification of CEO.

31.2		Rule 13a-14(a) Certification of Treasurer.

32		Section 1350 Certification of CEO and Treasurer.

Exhibit 3		Articles of Incorporation and Bylaws, incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 1990.
Exhibit 4		Specimen Common Stock Certificate, incorporated by reference from Form 8-A filed April 30, 2001.
Exhibit 10		2006 Stock Option Plan, as amended and restated effective January 1, 2008, incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.
Exhibit 31.1		Rule 13a-14(a) Certification of CEO.
Exhibit 31.2		Rule 13a-14(a) Certification of Treasurer.
Exhibit 32		Section 1350 Certification of CEO/Treasurer.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SOUTHEASTERN BANKING CORPORATION (Registrant) ~~By: /s/ ALYSON G. BEASLEY Alyson G. Beasley, Vice President & Treasurer (Principal Accounting Officer)~~

~~Date~~By: ~~June~~/s/ 6DONALD J. TORBERT, ~~2011~~JR. Donald J. Torbert, Jr., Treasurer (Principal Accounting Officer)

47 Date: August 15, 2011

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