UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, ~~2010~~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)

Securities registered pursuant to ~~Section~~ section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $1.25 per share

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

Indicate by check mark ~~whether~~if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [¨ ] No ~~[X]~~x

Indicate by 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 to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ~~[X]~~x No ~~[ ]~~¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate ~~website~~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 preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [x ] No ~~[ ]~~¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§~~232~~229.405 ~~of this chapter~~) is not contained herein, and will not be contained, to the best of ~~registrant~~ Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ~~[ ]~~¨

Indicate by check mark whether the ~~registrant~~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.

Large accelerated filer [¨ ] Accelerated filer [¨ ] Non-accelerated filer [¨ ] (Do not check if a smaller reporting company.) Smaller reporting company ~~[X]~~x

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

The aggregate market value of common stock held by non-affiliates on June 30, ~~2010~~2011 was approximately $2112,~~515~~421,000 (based on a per share price of $106.5005 on over-the-counter trades executed by broker-dealers). For purposes of this calculation, the Registrant has assumed that its directors, principal shareholders, and executive officers are affiliates.

As of ~~April~~March 151, ~~2011~~2012, the Registrant had 3,129,388 shares of common stock, par value $1.25 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s ~~Annual~~definitive ~~Report~~Proxy onStatement ~~Form~~in ~~10-K~~connection ~~for~~with the ~~year~~2012 ~~ended~~Annual ~~December 31,~~Meeting ~~1990~~of Shareholders are incorporated by reference into Part ~~IV,~~III ~~Item 15~~of this Report.

The Registrant’s Specimen Common Stock Certificate filed on April 30, 2001 on Form 8-A is incorporated by reference into Part IV, Item 15.

Portions of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 are incorporated by reference into Part IV, Item 15.

Portions of the Registrant’s definitive Proxy Statement for the 2010 Annual Meeting of Shareholders, which will be filed no later than April 29, 2011, are incorporated by reference into Part III, Items 10 - 14.

~~Table~~TABLE ofOF ~~Contents~~CONTENTS

Part I


CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS		2
PART I		3
ITEM 1.	BUSINESS	3
GENERAL		3
MARKETS AND COMPETITION		3
EMPLOYEES		6
AVAILABILITY OF INFORMATION		6
SUPERVISION AND REGULATION		6
ITEM 1A.	RISK FACTORS	15
ITEM 1B.	UNRESOLVED STAFF COMMENTS	24
ITEM 2.	PROPERTIES	24
ITEM 3.	LEGAL PROCEEDINGS	24
ITEM 4.	REMOVED AND RESERVED	25
PART II		25
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	25
ITEM 6.	SELECTED FINANCIAL DATA	26
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	27
STATISTICAL DISCLOSURES		28
LIQUIDITY AND CAPITAL RESOURCES		45
RESULTS OF OPERATIONS		47
CRITICAL ACCOUNTING POLICIES		50
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	52
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	53
QUARTERLY FINANCIAL SUMMARY (UNAUDITED)		53
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		54
CONSOLIDATED STATEMENTS OF CONDITION		55
CONSOLIDATED STATEMENTS OF OPERATIONS		56
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)		57
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY		58
CONSOLIDATED STATEMENTS OF CASH FLOWS		59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		61
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR ACCOUNTING AND FINANCIAL DISCLOSURE	93
ITEM 9A.	CONTROLS AND PROCEDURES	93
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES		93
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING		93
ITEM 9B.	OTHER INFORMATION	94
PART III		94
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	94
ITEM 11.	EXECUTIVE COMPENSATION	94
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	94
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	94
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	94
PART IV		95
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	95
SIGNATURES		96

		Page
Item 1.	Business.		3
Item 1A.	Risk Factors.		9
Item 1B.	Unresolved Staff Comments.		16
Item 2.	Properties.		16
Item 3.	Legal Proceedings.		17
Item 4.	(Removed and Reserved).		17
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.		18
Item 6	Selected Financial Data.		19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		21
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.		47
Item 8.	Financial Statements and Supplementary Data.		47
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.		89
Item 9A.	Controls and Procedures.		89
Item 9B.	Other Information.		89
Part III
Item 10.	Directors, Executive Officers and Corporate Governance.		90
Item 11.	Executive Compensation.		90
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.		90
Item 13.	Certain Relationships and Related Transactions, and Director Independence.		90
Item 14.	Principal Accounting Fees and Services.		90
Part IV
Item 15.	Exhibits, Financial Statement Schedules.		91
Signatures			92

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements set forth in this Report or incorporated herein by reference, including, without limitation, matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are “forward-looking statements” within the meaning of the federal securities laws, including, without limitation, statements regarding our outlook on earnings, stock performance, asset quality, economic conditions, real estate markets and projected growth, and are based upon management’s beliefs as well as assumptions made based on data currently available to management. In this Report, the terms the “Company”, the “Bank”, “we”, “us”, or “our” refer to Southeastern Banking Corporation and its wholly-owned subsidiaries, Southeastern Bank and SBC Financial Services, Inc. When words like “anticipate”, “believe”, “intend”, “plan”, “may”, “continue”, “project”, “would”, “expect”, “estimate”, “could”, “should”, “will”, and similar expressions are used, you should consider them as identifying forward-looking statements. These forward-looking statements are not guarantees of future performance, and a variety of factors could cause our actual results to differ materially from the anticipated or expected results expressed in these forward-looking statements. Many of these factors are beyond our ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. The following list, which is not intended to be an all-encompassing list of risks and uncertainties affecting us, summarizes several factors that could cause our actual results to differ materially from those anticipated or expected in these forward-looking statements: (1) general economic conditions (both generally and in our markets) may be less favorable than expected, resulting in, among other things, a continued deterioration in credit quality, a further reduction in demand for credit and/or a further decline in real estate values; (2) the general decline in the real estate and lending market, particularly the market areas of Coastal Georgia and North Florida, may continue to negatively affect our financial results; (3) our ability to raise additional capital may be impaired if current levels of market disruption and volatility continue or worsen; (4) restrictions or conditions imposed by our regulators on our operations may make it more difficult for us to achieve our goals; (5) legislative or regulatory changes, including changes in accounting standards and compliance requirements, may adversely affect the businesses in which we are engaged; (6) competitive pressures among depository and other financial institutions may increase significantly; (7) changes in the interest rate environment may reduce margins or the volumes or values of the loans we make; (8) competitors may have greater financial resources and develop products that enable those competitors to compete more successfully than we can; (9) our ability to attract and retain key personnel can be affected by the increased competition for experienced employees in the banking industry; (10) adverse changes may occur in the bond and equity markets; (11) war or terrorist activities may cause further deterioration in the economy or cause instability in credit markets; and (12) the risk factors discussed from time to time in the Company’s Periodic Reports filed with the Securities and Exchange Commission (the “SEC”), including but not limited to, this Annual Report on Form 10-K (the “Report”). We undertake no obligation to, and we do not intend to, update or revise these statements following the date of this filing, whether as a result of new information, future events or otherwise, except as may be required by law. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this Cautionary Notice. Our actual results may differ significantly from those we discuss in these forward-looking statements. For other factors, risks and uncertainties that could cause our actual results to differ materially from estimates and projections contained in these forward-looking statements, please read the “Risk Factors” section of this report. Any forward-looking statement speaks only as of the date that the statement was made, and, except as required by law, we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement to reflect events or circumstances after the date on which we made the statement or to reflect the occurrence of unanticipated events.

PART I

~~Item~~ ITEM 1. ~~Business.~~ BUSINESS

1. General~~. Southeastern~~ Banking Corporation (the “Company”) and its wholly-owned subsidiary, Southeastern Bank (“SEB” or the “Bank”), offer a broad range of banking services to meet the financial needs of consumer and commercial customers in southeast Georgia and northeast Florida. The Company’s corporate offices are located at 1010 North Way, Darien, Georgia.

Southeastern Banking Corporation (the “Company”) is a bank holding company headquartered in Darien, McIntosh County, Georgia. The Company was ~~formed~~organized and incorporated in 1980 tounder ~~serve~~the aslaws of the ~~parent~~State of Georgia as the holding company offor its then sole subsidiary bank, The Citizens Bank, Folkston, Georgia, which later changed its name to Southeastern Bank (the “Bank”). In 1983, the Company acquired The Darien Bank, Darien, Georgia, one of the oldest banks in the state, with a banking charter dating back to 1888. From 1983 -to 1988, the Company acquired three ~~additional~~other Georgia financial institutions inand ~~the~~subsequently ~~southeast~~merged those ~~Georgia~~institutions ~~market,~~into ~~which~~the ~~were converted to branches of SEB~~Bank. In 1990, ~~SEB~~the Bank merged with and into The Darien Bank, with ~~The~~the Darien Bank being the surviving bank in the merger operating under its 1888 ~~Charter~~charter. Immediately upon the merger, The Darien Bank changed its name to “ Southeastern Bank.” From 1991 – 2001, the Company acquired banking offices from other financial institutions, which were either consolidated with existing SEB offices or operated as stand-alone facilities. Six stand-alone facilities were acquired in this manner, most recently Richmond Hill. In February 2003, the Company opened a loan production office in Brunswick, Georgia. In November 2004, a full service banking facility was opened at 15 Trade Street in Brunswick, and the loan production office closed. On December 10, 2010, SEB closed its branch at 601 Palisade Drive in the Southport area of Brunswick, Georgia. The leased facility, which opened in January 2007, had nominal loan and deposit volume. SEB is a state banking association incorporated under the laws of the State of Georgia.

~~Unless~~Currently, the ~~context~~Bank ~~indicates~~operates ~~otherwise,~~13 ~~all~~branches ~~references~~located toin ~~the~~eight ~~“Company”~~counties in ~~this~~southeast ~~Report~~Georgia ~~refer~~and tothree ~~Southeastern~~branches ~~Banking~~located ~~Corporation~~in ~~and~~one county ~~its~~in ~~consolidated~~northeast ~~bank~~Florida. ~~subsidiary~~Additional information on each of the markets that we serve is provided below under the caption “Markets and Competition.”

~~2. Markets. SEB,~~Unless the ~~Company’s~~context ~~commercial~~indicates ~~bank subsidiary~~otherwise, ~~offers~~all ~~traditional~~references ~~banking~~in ~~products~~this ~~and~~report ~~services~~ to ~~commercial~~the ~~and~~“Company,” ~~individual~~“we,” ~~customers~~“us” inand ~~its~~“our” ~~markets.~~refer ~~The Bank’s product line includes loans~~ to ~~small-~~Southeastern ~~and~~Banking ~~medium-sized~~Corporation ~~businesses, residential~~ and ~~commercial construction and~~its ~~development~~wholly ~~loans,~~owned ~~commercial real estate loans~~subsidiaries, ~~agricultural~~Southeastern ~~production~~Bank ~~loans,~~and ~~long-term~~SBC ~~mortgage~~Financial ~~originations~~Services, ~~home equity loans~~Inc., ~~consumer~~except ~~loans,~~that ~~and~~in athe ~~variety~~discussion of ~~commercial~~its ~~and~~capital ~~consumer~~stock ~~demand, savings,~~ and ~~time~~related ~~deposit products. SEB also offers internet banking~~matters, ~~on-line~~these ~~cash~~terms ~~management,~~refer ~~electronic~~solely ~~bill~~to ~~payment~~Southeastern ~~services,~~Banking ~~safe~~Corporation ~~deposit box rentals, telephone banking, credit~~ and ~~debit~~not ~~card services, and access~~ to aits ~~network of ATMs~~subsidiaries. ~~In addition, through an affiliation with a third party~~All ~~broker-dealer,~~references ~~SEB~~to ~~also provides securities brokerage and investment advisory services. SEB’s banking facilities are predominantly located in rural communities on or near~~ the ~~Atlantic~~“Bank” ~~coast~~refer ~~with~~to ~~populations~~Southeastern ~~less~~Bank ~~than 50,000~~only. ~~The Company operates these sixteen full-service banking offices within one business segment, community banking. At December 31, 2010, SEB’s total assets approximated $428,000,000.~~

The ~~following~~Bank table provides basic information and summary demographic data on the Company’s markets. Further discussion regarding local real estate market conditions is provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Report. A list of SEB offices is provided in Part I, Item 2.

The Bank offers traditional banking products and services to commercial and individual customers in our markets. Our product line includes, among other things, loans to small- and medium-sized businesses, residential and commercial construction and development loans, commercial real estate loans, farmland and agricultural production loans, residential mortgage loans, home equity loans, consumer loans, and a variety of commercial and consumer demand, savings and time deposit products. We also offer internet banking, on-line cash management, electronic bill payment services, safe deposit box rentals, telephone banking, credit and debit card services, remote depository products and the availability of a network of automated teller machines (“ATMs”) to our customers. In addition, through an agreement with a third-party broker-dealer and investment advisory firm, we are able to offer securities brokerage and investment advisory services to our customers.

Markets and Competition

The financial services industry is highly competitive. In our markets, we face competitive pressures from both larger regional banks and smaller community banks and thrifts in attracting and retaining commercial and consumer accounts. The competitive environment is amplified in some of our smaller markets as there are more financial service providers competing for fewer customers. The principal factors in competing for such accounts include interest rates, fee structures, the range of products and services offered, convenience of office and ATM locations, and flexible office hours. Other competition for such accounts comes from credit unions, internet banks, retail brokerage firms, mortgage companies, insurance companies and consumer finance offices. These nonbank financial providers are not subject to the same regulatory restrictions as banks and bank holding companies. Therefore, they can often operate at a competitive advantage with greater flexibility, lower cost structures and higher leverage. Other investment alternatives such as stocks and mutual funds made readily accessible by the internet have also had an effect on our ability to grow deposits in our markets.

Our experience and strong community relationships in our markets allow us to deliver a higher level of customer service to the small- and medium-sized commercial businesses and to individual consumers. Being smaller and less bureaucratic than our regional and national competitors allows us to provide a more timely response and greater flexibility in serving the needs of our customers. At the same time, we have invested in systems and support to provide a product line that we believe gives us a competitive edge over many of the smaller financial institutions in our markets.

Market/ County	Numberof Offices		TotalDeposits1		MarketShare2			Population3		PopulationGrowth4			EmploymentGrowth5			UnemploymentRate6
(Dollars in thousands)
Florida:
Nassau		3	$	68,083		6.81	%		73,314		27.1	%		0.1	%		11.5	%
State of Florida											17.6			(0.6	)		11.7
Georgia:
McIntosh		2	$	60,189		71.76	%		14,333		32.1	%		(2.2	)%		11.5	%
Brantley		2		53,406		69.87			18,411		25.9			(2.2	)		12.0
Bryan		1		7,624		1.93			30,233		29.1			0.8			8.3
Camden		3		66,725		17.90			50,513		15.7			(2.0	)		9.9
Charlton		1		54,551		58.31			12,171		18.4			(3.4	)		12.2
Coffee		2		20,469		3.21			42,356		13.2			(4.5	)		16.5
Glynn		1		19,475		1.02			79,626		17.8			(2.2	)		9.4
Jeff Davis		1		24,673		17.04			15,068		18.8			0.7			14.5
		13	$	307,112
		16	$	375,195
State of Georgia											18.3	%		(0.5	)%		10.2	%
National Total											9.7	%		0.7	%		9.1	%

A brief description of each of our markets follows.

1Georgia ~~Dollar amounts at December 31, 2010.~~

2The ~~Based~~Bank has onbranches ~~the~~in ~~FDIC~~thirteen ~~Summary~~communities ofin ~~Deposits~~eight ~~market~~counties ~~share~~in ~~report~~southeast asGeorgia. Overall, we have the third largest market share1 with 8.70% of ~~June~~the ~~30,~~total ~~2010~~deposits in the Bank’s eight-county Georgia market.

3McIntosh ~~April~~County 1is located on the Georgia coast along Interstate 95. Darien is the county seat of McIntosh County and is 62 miles south of Savannah, ~~2010~~17 ~~population~~miles ~~provided~~north byof Brunswick and 79 miles north of Jacksonville, Florida. McIntosh County is part of the UBrunswick Metropolitan Statistical Area (“MSA”).S We have 16 employees, two branches (Darien and Eulonia), and an ATM serving our customers in this county. ~~Census~~The ~~Bureau~~Company’s administrative and operational facilities and 40 additional employees are also located in Darien. Founded in 1793, McIntosh County is one of the oldest counties in Georgia. The county is rich in historical sites and nature preserves. McIntosh County contains Harris Neck National Wildlife Refuge, Blackbeard Island National Wildlife Refuge and Wilderness Area, Fort King George State Historic Site, Wolf Island National Wildlife Refuge and Wilderness, Sapelo Island State Reserve and Sapelo Island National Estuarine Sanctuary.

4Brantley County ~~Estimated~~is ~~percentage~~southwest ~~population~~of ~~change~~McIntosh ~~from~~County. ~~2000~~Brantley –County ~~2010~~is ~~provided~~part byof the Brunswick MSA. The Bank has a branch in Nahunta (the county seat) and in Hoboken. Nahunta is 40 miles southwest of Darien and Hoboken is 9 miles west of Nahunta along U.S. Highway ~~Census~~82. ~~Bureau~~We have 16 employees, two branches and an ATM serving our customers in this county. The Okefenokee National Wildlife Refuge, an approximate 700 acre freshwater and black water wilderness swamp, occupies parts of the County’s southern and western borders.

5Bryan ~~Percentage~~County ~~change~~is innorth ~~employment~~of ~~growth~~McIntosh ~~(not~~County. ~~seasonally~~Bryan ~~adjusted)~~County ~~for~~is part of the ~~period~~Savannah ~~December~~MSA. ~~2009~~The –Bank ~~December~~has ~~2010~~one branch ~~based~~in onRichmond ~~preliminary~~Hill. ~~figures~~Richmond ~~from~~Hill ~~the~~is ~~Bureau~~43 miles north of ~~Labor~~Darien ~~Statistics~~along Interstate 95 and 22 miles west of Savannah along Interstate 16. We have five employees, one branch and an ATM serving our customers in this county. Fort Stewart, a large U.S. Army training facility, runs through Bryan County.

6Camden ~~Unemployment~~County ~~rate~~is south of McIntosh County. Camden County is part of the St. Marys MSA. The Bank has branches in Woodbine (~~not~~the ~~seasonally~~county ~~adjusted~~seat), asKingsland and St. Marys. Woodbine is 37 miles south of ~~December~~Darien, ~~2010~~Kingsland ~~provided~~is by47 ~~the~~miles ~~Bureau~~south of ~~Labor~~Darien ~~Statistics~~and St. Marys is 52 miles south of Darien. We have 13 employees, three branches and three ATMs serving our customers in this county. Camden County is home to Kings Bay Naval Nuclear Submarine Base and the Cumberland Island National Seashore.

~~The~~Charlton ~~Federal~~County ~~Reserve~~is ~~Bank~~southwest of ~~Atlanta~~McIntosh isCounty. The Bank has a branch in Folkston (the ~~principal~~county ~~correspondent~~seat). ofFolkston ~~SEB;~~is ~~virtually~~59 ~~all~~miles ~~checks~~southwest ~~and~~of ~~electronic~~Darien ~~payments~~and ~~are~~20 ~~processed through~~miles ~~the~~west ~~Federal~~of ~~Reserve~~Kingsland. ~~SEB~~We ~~also~~have ~~maintains~~eight employees, ~~accounts~~a ~~with~~branch ~~other~~and ~~correspondent~~an ~~banks~~ATM serving our customers in ~~Georgia~~this ~~and~~county. ~~Alabama~~The Okefenokee National Wildlife Refuge occupies approximately one-third of the county.

~~3. Competition. The~~Coffee ~~Company~~County ~~operates~~is inwest ~~a highly competitive industry that could become even more competitive as a result~~ of ~~legislative,~~McIntosh ~~regulatory, economic, and technological changes, as well as continued consolidation~~County. InCoffee ~~its~~County markets, the Company faces direct competition from both larger regional banks as well as smaller community banks and credit unions in attracting and retaining commercial and consumer accounts. Competition is ~~amplified~~part inof ~~some~~the ~~smaller~~Douglas ~~markets as more financial service providers compete for fewer customers~~MSA. The ~~Company~~Bank also faces increasingly aggressive competition from other domestic lending institutions and numerous other providers of financial services. The ability of nonbanking financial institutions to provide services previously reserved for commercial banks has ~~intensified~~ ~~competition.~~branches ~~Because~~in ~~nonbanking~~Douglas ~~financial institutions are not subject to~~ (the ~~same~~county ~~regulatory~~seat) ~~restrictions as banks~~ and ~~bank~~Nicholls. ~~holding~~Douglas ~~companies,~~is ~~they~~96 ~~can~~miles ~~often~~west ~~operate~~of ~~with~~Darien ~~greater flexibility~~ and ~~lower cost structures. Securities firms~~Nicholls ~~and~~is ~~insurance~~83 ~~companies~~miles ~~that~~west ~~elect~~of ~~to become financial holding companies may acquire banks and other financial institutions, potentially changing the competitive environment in which the Company conducts its business significantly~~Darien. ~~Certain~~We ~~of the Company’s competitors~~ have ~~greater~~ten ~~financial resources or face fewer regulatory constraints. As a result of these various sources of competition~~employees, ~~the~~two ~~Company~~branches ~~could lose business to competitors or be forced to price products~~ and ~~services~~two onATMs ~~less advantageous~~serving ~~terms~~our ~~to retain or attract~~ customers, ~~either of which would adversely affect the Company’s profitability. Key factors~~ in ~~competing~~this ~~for customer accounts include interest rates, fee structures, range of products and services offered, convenience of office and ATM locations, and technological innovations~~county.

Glynn County is south of McIntosh County. Glynn County is part of the Brunswick MSA. The Bank has a branch in Brunswick, the county seat. Brunswick is 17 miles south of Darien along Interstate 95. We have nine employees, one branch and an ATM serving our customers in this county. We also have ten administrative and executive employees located in the Brunswick branch facility. With its marshlands and barrier islands, this area referred to as the “Golden Isles” is a major tourist and recreational center. Glynn County is home to the Federal Law Enforcement Training Center, an interagency law enforcement training organization for 90 federal agencies and various other state, local and international law enforcement agencies, and the Georgia Port Authority’s Port of Brunswick, one of the largest deepwater port operations in the U.S. South Atlantic.

Jeff Davis County is west of McIntosh County. The Bank has a branch in Hazlehurst, the county seat. Hazlehurst is 88 miles west of Darien and 31 miles northeast of Douglas. We have five employees, a branch and an ATM serving our customers in this county.

¹	Based on the FDIC Summary of Deposits report as of June 30, 2011.

~~Although~~Florida competition is fierce and ever-changing, the Company believes that its experience and strong community ties result in a higher level of service to small and medium-sized businesses and consumers. By being smaller and less bureaucratic than regional and national competitors, the Company can oftentimes operate with greater flexibility and provide more timely responses in meeting customer needs.

The ~~Company’s~~Bank ~~ability~~has tothree ~~expand~~branches ~~remains~~in ~~subject to~~one ~~various~~county ~~federal~~in ~~and~~the ~~state~~northeast ~~laws~~corner ~~and~~of ~~other~~Florida. ~~regulatory~~We ~~restrictions~~have ~~that~~the ~~may~~fifth ~~exist~~largest ~~now~~market orshare2 inwith ~~the future~~7.55% ~~See~~of ~~“Government~~the ~~Supervision~~total ~~and~~deposits ~~Regulation”~~in ~~below~~the ~~for~~Bank’s aFlorida ~~more detailed discussion of these laws and restrictions~~market.

~~4. Government~~Nassau ~~Supervision~~County ~~and~~is ~~Regulation. As~~south aof ~~bank~~McIntosh ~~holding company,~~County. ~~the~~Nassau ~~Company~~County is ~~subject~~part ~~to the regulation and supervision~~ of the ~~Board~~Jacksonville ~~of Governors of the Federal Reserve System (“Federal Reserve”)~~MSA. ~~SEB,~~The anBank ~~insured~~has ~~state non-member bank chartered by the Georgia Department of Banking and Finance (“GDBF”), with~~ branches in ~~Georgia and Florida~~Callahan, isHilliard ~~subject to regulation~~ and ~~supervision by~~ Yulee (the ~~GDBF~~county ~~and the Federal Deposit Insurance Corporation (“FDIC”~~seat). ~~SEB~~Yulee is ~~subject~~58 tomiles ~~various~~south ~~requirements~~of ~~and~~Darien ~~restrictions under federal~~ and ~~state~~24 ~~law,~~miles ~~including~~north ~~requirements~~of toJacksonville ~~maintain~~along ~~cash~~Interstate ~~reserves~~95. ~~against~~Hilliard ~~deposits,~~is ~~restrictions~~69 onmiles ~~the~~southwest ~~types and amounts~~ of ~~loans~~Darien ~~that may be made~~ and ~~the~~10 ~~interest~~miles ~~that~~south ~~may be charged thereon, and limitations on the types~~ of ~~investments~~Folkston. ~~that~~Callahan ~~may~~is ~~be made~~70 ~~and~~miles ~~the~~south ~~types~~ of ~~services~~Darien ~~that may be offered. Numerous consumer laws~~ and ~~regulations~~15 ~~also~~miles ~~affect~~west ~~the operations~~ of ~~SEB~~Yulee. InWe have ~~addition~~16 ~~to the impact of regulation~~employees, ~~the~~three ~~Company’s~~branches ~~financial position~~ and ~~results~~three ofATMs ~~operation~~serving ~~are~~our ~~also significantly~~customers ~~affected by the actions of the Federal Reserve as it attempts to control the money supply and credit availability~~ in ~~order~~this ~~to influence the economy~~county. ~~Techniques used by the Federal Reserve include setting reserve requirements of financial institutions and establishing rates on borrowings.~~

OnMarket ~~July 21,~~Demographics 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was signed into law. The Dodd-Frank Act imposes new regulatory requirements and oversight over banks and other financial institutions in a number of ways, including: (i) creation of the Consumer Financial Protection Bureau to regulate consumer financial products and services; (ii) limitations on debit card interchange fees; (iii) adoption of certain shareholder rights and responsibilities, including a shareholder “say-on-pay” vote, with phase-in dependent on market capitalization under Securities and Exchange Commission (“SEC”) rules; (iv) expanded definition of higher-cost loans, new disclosures, and certain other revisions; (v) repeal of interest restriction on business checking accounts; and (vi) amendment of the Truth in Lending Act with respect to mortgage originations, including originator compensation, minimum repayment standards, and prepayment considerations. These changes have impacted the Company’s policies and procedures and will likely continue to do so as the regulation is enacted.

~~Pursuant~~The toBank ~~the~~operates ~~Riegle-Neal~~mainly ~~Interstate Banking and Branching Efficiency Act of 1994, as amended by the Dodd-Frank Act, bank holding companies from any state may acquire banks located~~ in ~~any other state~~rural, ~~subject~~ toslower ~~certain~~growth ~~conditions, including concentration limits~~markets. InIt ~~addition,~~also has a ~~bank~~growing ~~may~~presence ~~establish branches outside its home state, provided the laws of the target state permit banks chartered~~ in ~~that~~some ~~state to branch within its borders. A bank holding company may not directly or indirectly acquire ownership or control of~~ more ~~than~~heavily-populated ~~5% of the voting shares or substantially all of the assets of any bank or merge or consolidate with another bank holding company without prior approval of the Federal~~coastal ~~Reserve~~markets. ~~Under~~The ~~the~~following ~~recently~~table ~~enacted~~provides ~~Dodd-Frank Act, a bank holding company may not acquire another bank or engage in new activities that are financial in nature unless~~ the ~~bank~~most ~~holding~~current ~~company~~summary isdemographic ~~both~~data3 ~~well-capitalized~~on ~~and~~each ~~deemed~~of byour ~~the Federal Reserve to be well-managed~~markets.

A number of obligations and restrictions imposed on bank holding companies and their bank subsidiaries by federal law and regulatory policy are designed to reduce potential loss exposure to bank depositors and to the FDIC insurance fund in the event of actual or possible default. For example, Federal Reserve policy requires a bank holding company to serve as a source of financial strength to, and commit resources to support, its bank subsidiaries where it might refuse absent such policy. The federal banking agencies have broad powers under current federal law to take prompt corrective action to resolve problems of insured depository institutions. The extent of these powers depends largely upon whether the applicable institution is “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized,” as those terms are defined under regulations issued by each of the federal banking agencies.


Market/ County	2010 Population		2000-10 % Change Population		Persons per Square Mile		2009 Private Nonfarm Employment		2000-09 % Change Employment		2010 Median Household Income		2010 % Persons Below Poverty Level

Georgia
McIntosh		14,333		32.1		33.8		1,435		-29.2	$	39,075		16.6
Brantley		18,411		25.9		41.6		1,297		-11.3	$	37,343		21.4
Bryan		30,233		29.1		69.3		5,710		81.2	$	63,244		11.0
Camden		50,513		15.7		82.4		8,658		7.3	$	49,230		15.3
Charlton		12,171		18.4		15.7		1,716		7.2	$	40,850		19.8
Coffee		42,356		13.2		73.7		12,779		-24.3	$	35,202		21.3
Glynn		79,626		17.8		189.7		31,508		3.1	$	50,337		15.2
Jeff Davis		15,068		18.8		45.6		3,444		-25.2	$	32,928		24.0
GA Statewide		9,687,653		18.3		168.4		3,410,505		-2.1	$	49,347		15.7

Florida
Nassau		73,314		27.1		113.0		14,525		13.9	$	58,712		9.3
FL Statewide		18,801,310		17.6		350.6		6,861,612		10.4	$	47,661		13.8

Market Presence

The following table provides basic summary information on the Bank’s presence in each of our markets.


Market/ County	Metropolitan Statistical Area	Number of Branches		Number of ATMs		Number of Employees			Total Loans⁴		Total Deposits⁴		Market Share (%)²		Market Share Rank²

Georgia
McIntosh	Brunswick		2		1		56	⁵	$	57,320	$	62,510		72.01		1
Brantley	Brunswick		2		1		16			16,911		57,127		70.80		1
Bryan	Savannah		1		1		5			21,940		6,481		1.78		5
Camden	St. Marys		3		3		13			27,349		60,804		19.74		2
Charlton	n/a		1		1		8			2,888		56,023		55.28		1
Coffee	Douglas		2		2		10			9,178		20,474		3.22		9
Glynn	Brunswick		1		1		19	⁵		42,276		17,950		1.16		15
Jeff Davis	n/a		1		1		5			3,214		20,749		17.04		3

Total in GA			13		11		132		$	181,076	$	302,118		0.17		54


Florida
Nassau	Jacksonville		3		3		16		$	21,187	$	67,754		7.55		5

Total in FL			3		3		16		$	21,187	$	67,754		0.02		269


Company Total			16		14		148		$	202,263	$	369,872

²	Based on the FDIC Summary of Deposits report as of June 30, 2011.

³	Source: U.S. Census Bureau, www.census.gov.

⁴	Dollar amounts are presented in thousands as of December 31, 2011.

⁵	Includes administrative and operational support employees: 40 in McIntosh County and 10 in Glynn County.

~~The~~Employees Federal Reserve and the FDIC have issued substantially similar risk-based and leverage capital guidelines applicable to United States banking organizations. In addition, these regulatory agencies may from time to time require that a banking organization maintain capital above the minimum levels, whether because of its financial condition or actual or anticipated growth. The Federal Reserve risk-based guidelines define a tier-based capital framework. Tier 1 capital includes common shareholders’ equity, minority interests, and qualifying preferred stock, less goodwill and other adjustments, as applicable. Tier 2 capital consists of preferred stock not qualifying as Tier 1 capital, mandatory convertible debt, limited amounts of subordinated debt, other qualifying term debt, the allowance for loan losses up to a certain amount, and a portion of any unrealized gain on equity securities, also as applicable. The sum of Tier 1 and Tier 2 capital represents the Company’s qualifying total capital. Risk-based capital ratios are calculated by dividing Tier 1 and total capital by risk-weighted assets. Assets and off-balance sheet exposures are assigned to one of four categories of risk-weights, based primarily on relative credit risk. The leverage ratio is determined by dividing Tier 1 capital by adjusted average total assets.

~~The~~As ~~Federal Deposit Insurance Corporation Improvement Act~~ of ~~1991 (“FDICIA”)~~December 31, ~~among other things~~2011, ~~identifies~~we ~~five~~had ~~capital~~a ~~categories~~total ~~for~~of ~~insured~~142 ~~depository institutions (well~~full-~~capitalized,~~time ~~adequately capitalized, undercapitalized, significantly undercapitalized,~~ and ~~critically~~six ~~undercapitalized)~~part-time and requires the respective federal regulatory agencies to implement systems for “prompt corrective action” for insured depository institutions that do not meet minimum capital requirements within such categoriesemployees. ~~FDICIA~~We ~~imposes~~offer ~~progressively~~a ~~more~~competitive ~~restrictive~~compensation ~~constraints on operations, management,~~ and ~~capital~~benefits ~~distributions,~~package ~~depending on the category in which an institution is classified. Failure~~ to ~~meet~~our ~~the~~employees, ~~capital guidelines could also subject a banking institution to capital raising requirements. An “undercapitalized” bank must develop a capital restoration plan~~ and ~~its~~we ~~parent~~consider ~~holding~~our ~~company~~relationship ~~must guarantee that bank’s compliance~~ with ~~the plan. The liability of the parent holding company under any such guarantee is limited to the~~ ~~lesser~~our ofemployees ~~5% percent of the bank’s assets at the time it became “undercapitalized” or the amount needed~~ to ~~comply~~be ~~with the plan~~good. Furthermore, in the event of the bankruptcy of the parent holding company, such guarantee would take priority over the parent’s general unsecured creditors. In addition, FDICIA requires the various regulatory agencies to prescribe certain non-capital standards for safety and soundness relating generally to operations and management, asset quality, and executive compensation and permits regulatory action against a financial institution that does not meet such standards.

~~The~~Availability various regulatory agencies have adopted substantially similar regulations that define the five capital categories identified by FDICIA, using the total risk-based capital, Tier 1 risk-based capital, and leverage capital ratios as the relevant capital measures. Such regulations establish various degrees of ~~corrective~~Information action to be taken when an institution is considered undercapitalized. Under the regulations, a “well-capitalized” institution must have a Tier 1 risk-based capital ratio of at least 6%, a total risk-based capital ratio of at least 10%, and a leverage ratio of at least 5% and not be subject to a capital directive order; adequate, or minimum, capital ratios are 4%, 8%, and 4%. The Company and SEB are currently considered “well-capitalized” by their respective federal banking regulators. The Company’s capital position is delineated in Note 14 to the Consolidated Financial Statements and in the Capital Adequacy section of Part II, Item 7.

~~Regulators~~More ~~also~~information ~~must~~on ~~take~~the ~~into~~Company ~~consideration:~~is ~~(a) concentrations of~~available ~~credit~~through ~~risk;~~a ~~(b) interest~~link ~~rate~~on ~~risk~~our ~~(when~~internet ~~the~~website ~~interest~~at ~~rate~~www.southeasternbank.com. ~~sensitivity~~We ofare annot ~~institution’s~~incorporating ~~assets~~by reference ~~does~~into ~~not~~this ~~match~~Report the ~~sensitivity~~information ofcontained ~~its~~on ~~liabilities~~our orwebsite ~~its off-balance-sheet position);~~ and ~~(c) risks from non-traditional activities~~, as ~~well as an institution’s ability to manage those risks~~therefore, ~~when determining~~ the ~~adequacy~~content of anour ~~institution’s~~website ~~capital. This evaluation~~ is ~~made~~not asa part of anthis ~~institution’s regular safety and soundness examination~~Report. InCopies ~~addition, regulators~~of ~~may~~this ~~choose~~Report toand ~~examine~~ other ~~factors~~reports infiled ~~order~~or tofurnished ~~evaluate~~pursuant ~~the~~to ~~safety~~Section 13(a) ~~and~~or ~~soundness~~15(d) of ~~financial~~the Exchange ~~institutions.~~Act, ~~For~~including ~~example~~exhibits, ~~regulators~~are ~~have~~available ~~begun~~free toof ~~focus~~charge on ~~“Tier~~our 1website ~~common~~under ~~equity,~~the “About” ~~which~~tab isas ~~the~~soon ~~proportion~~as ofreasonably ~~Tier~~practicable 1after ~~capital~~they ~~that is~~have ~~common~~been ~~equity.~~filed Asor ~~the~~furnished ~~Company’s~~electronically ~~Tier~~to 1the ~~capital~~SEC. isCopies ~~comprised entirely~~ of ~~common~~these ~~equity,~~filings ~~its~~may ~~Tier~~also 1be obtained ~~capital~~free ~~and~~of ~~Tier~~charge 1on ~~common~~the ~~equity~~SEC’s ~~are~~website ~~the~~at ~~same~~www.sec.gov.

~~Capital~~Supervision ~~Framework~~ and ~~Basel III~~ Regulation

~~The~~Both ~~Basel~~federal ~~Committee~~and onstate ~~Banking Supervision~~laws ~~has~~extensively ~~issued~~regulate ~~two~~bank ~~consultative~~holding ~~documents~~companies ~~proposing~~and ~~reforms~~banks. These laws (and the regulations promulgated thereunder) are primarily intended to ~~bank~~protect ~~capital~~depositors and ~~liquidity~~the ~~regulation~~deposit insurance fund of the Federal Deposit Insurance Corporation (the “FDIC”). The ~~Basel~~following ~~Committee’s~~information ~~capital~~describes ~~proposals,~~particular ~~known~~laws asand ~~Basel~~regulatory ~~III,~~provisions ~~revise~~relating ~~the~~to ~~definition~~bank ofholding companies ~~Tier~~and 1banks. ~~capital~~This todiscussion ~~include~~is ~~Tier~~qualified 1in ~~common~~its ~~equity as~~entirety by reference to the ~~predominant~~particular ~~equity~~laws and, ~~once~~regulatory ~~fully~~provisions. ~~phased~~A change in any of these laws or regulations may have a material effect on ~~January 1,~~our business and the business of the Bank.

General

The Company is a bank holding company registered with the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the Georgia Department of Banking and Finance (the “Georgia Department”) under the Bank Holding Company Act of 1956, as amended (the “BHC Act”) and the Financial Institutions Code of Georgia, respectively. The Company is subject to regulation, supervision, and examination by the Federal Reserve and the Georgia Department. The Federal Reserve may also make examinations of each of the Company’s subsidiaries.

The Bank is a Georgia-chartered commercial bank. The Bank is a member of the FDIC, and as such, our deposits are insured by the FDIC to the maximum extent provided by law. The Bank is subject to regulation, supervision, and examination by the FDIC and the Georgia Department. These regulatory agencies regularly examine our operations and are given authority to approve or disapprove mergers, consolidations, the establishment of branches, and similar corporate actions. The agencies also have the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law.

Dodd-Frank Act

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law. The Dodd-Frank Act is intended to effect a fundamental restructuring of federal banking regulation. Among other things, the Dodd-Frank Act creates a new Financial Stability Oversight Council to identify systemic risks in the financial system and gives federal regulators new authority to take control of and liquidate financial firms. The Dodd-Frank Act additionally creates a new independent federal regulator to administer federal consumer protection laws. The enacted provisions of the Dodd-Frank Act has already made an impact on our business operations through increased compliance and operating costs, increased deposit insurance and decreased fee income. It is difficult to predict at this time what specific impact the yet-to-be written implementing rules and regulations of the Dodd-Frank Act will have on community banks. A summary of a few of the provisions of the Dodd-Frank Act follow.

Payment of Interest on Business Checking Accounts. Effective one year from the date of enactment, the Dodd-Frank Act eliminated the federal statutory prohibition against the payment of interest on business checking accounts.

~~2019,~~Corporate ~~would~~Governance. ~~require~~The ~~banks~~Dodd-Frank Act requires publicly-traded companies to ~~maintain~~give stockholders a non-binding ~~minimum~~vote ~~ratio~~on ofexecutive ~~Tier~~compensation 1at ~~common~~their ~~equity~~first toannual ~~risk-weighted~~meeting ~~assets~~taking place six months after the date of enactment and at least ~~4.5%,~~every ~~plus~~three ayears ~~2.5%~~thereafter ~~capital~~and ~~conservation~~on so-called “~~buffer~~golden parachute”, ~~effectively~~payments ~~resulting~~ in aconnection ~~minimum~~with approvals ~~ratio~~ of ~~Tier~~mergers 1and ~~common~~acquisitions ~~equity~~unless topreviously ~~risk-weighted~~voted ~~assets~~on ofby 7%shareholders. ~~Banks~~The ~~would~~new legislation also beauthorizes ~~required to maintain~~ the ~~following~~SEC ~~minimum~~to ~~ratios,~~promulgate ~~which~~rules ~~include~~that ~~the~~would ~~2.5%~~allow ~~capital~~stockholders ~~conservation~~to ~~buffer,~~nominate ~~upon~~their ~~full~~own ~~implementation:~~candidates using a) ~~Tier~~company’s 1proxy ~~capital to~~materials. ~~risk~~Additionally, the Dodd-~~weighted~~Frank ~~assets~~Act ofdirects ~~8.5%~~the ~~and~~federal b)banking ~~total~~regulators ~~(i.e.~~to ~~Tier~~promulgate 1rules ~~plus~~prohibiting ~~Tier~~excessive 2)compensation ~~capital~~paid to ~~risk-weighted~~executives ~~assets~~ of ~~10.5%.~~depository Asinstitutions aand ~~newly~~their ~~adopted~~holding ~~international~~companies ~~standard,~~with ~~banks~~assets ~~would~~in ~~also~~excess beof ~~required~~$1.0 tobillion, regardless ~~maintain~~of awhether ~~minimum~~the ~~leverage~~company ~~ratio~~is ofpublicly ~~3%,~~traded ~~calculated~~or asnot. ~~the~~The ~~ratio of~~Dodd-Frank ~~Tier~~Act 1gives ~~capital~~the SEC authority to ~~average~~prohibit ~~balance~~broker ~~sheet~~discretionary ~~plus~~voting ~~certain~~on ~~off-balance~~elections ~~sheet~~of ~~exposures~~directors ~~calculated~~and ~~quarterly~~executive compensation matters.

~~The~~Prohibition ~~capital~~Against Charter Conversions of Troubled Institutions. Effective one year after enactment, the Dodd-Frank Act prohibits a depository ~~conservation~~institution ~~buffer~~from isconverting ~~designed~~from a state to ~~absorb~~federal ~~losses~~charter ~~during~~or ~~periods~~vice versa while it is the subject of ~~economic~~a ~~stress.~~cease ~~Banking~~and ~~institutions~~desist order or other formal enforcement action or a memorandum of understanding with respect to a ~~ratio~~significant supervisory matter unless the appropriate federal banking agency gives notice of ~~Tier~~the 1conversion ~~common~~to ~~equity~~the federal or state authority that issued the enforcement action and that agency does not object within 30 days. The notice must include a plan to ~~risk-weighted~~address ~~assets~~the ~~above~~significant supervisory matter. The converting institution must also file a copy of the ~~minimum~~conversion ~~but~~application ~~below~~with its current federal regulator which must notify the ~~conservation~~resulting ~~buffer~~federal ~~may~~regulator ~~face~~of ~~constraints~~any onongoing supervisory or investigative proceedings that are ~~dividends,~~likely ~~equity~~to ~~repurchases,~~result in an enforcement action and ~~compensation~~provide access to all supervisory and investigative information relating thereto.

~~Implementation~~Limits ofon Derivatives. ~~the~~Effective ~~Basel~~18 ~~III~~months ~~framework~~after ~~will commence January 1~~enactment, ~~2013 with~~the ~~new~~Dodd-Frank ~~capital~~Act ~~requirements~~prohibits ~~phased~~state-inchartered ~~over~~banks afrom ~~six-year~~engaging ~~period~~in ~~concluding~~derivatives ~~January 1,~~transactions ~~2019.~~unless ~~Federal~~the ~~banking~~loans ~~agencies~~to ~~have~~one ~~indicated~~borrower ~~regulations~~limits ~~implementing~~of ~~Basel~~the ~~III~~state ~~will~~in bewhich ~~proposed~~the inbank ~~mid-2011~~is ~~with~~chartered ~~final~~takes ~~adoption~~into consideration ofcredit ~~those~~exposure ~~regulations~~to ~~in mid-2012~~derivatives transactions. ~~The~~For ~~Company~~this ~~believes~~purpose, ~~its~~derivative ~~current~~transaction ~~capital~~includes ~~levels~~any ~~already~~contract, ~~exceed~~agreement, ~~the~~swap, ~~Basel~~warrant, ~~III~~note ~~requirements,~~or ~~including~~option ~~the~~that ~~capital~~is ~~conservation~~based ~~buffer.~~in ~~Note~~whole 14or ofin part on the ~~Consolidated~~value ~~Financial~~of, ~~Statements~~any ~~itemizes~~interest in, or any quantitative measure or the ~~Company’s~~occurrence ~~and~~of ~~SEB’s~~any ~~capital ratios~~event atrelating ~~December 31~~to, ~~2010~~one or more commodities securities, currencies, interest or other rates, indices or other assets.

~~Liquidity~~Debit ~~Ratios~~Card ~~under~~Interchange ~~Basel~~Fees. ~~III~~Effective July 21, 2011, the Dodd-Frank Act requires that the amount of any interchange fee charged by a debit card issuer with respect to a debit card transaction must be reasonable and proportional to the cost incurred by the issuer. On June 29, 2011, the Federal Reserve set the interchange rate cap at $0.24 per transaction. While the restrictions on interchange fees do not apply to banks that, together with their affiliates, have assets of less than $10 billion, the rule could affect the competitiveness of debit cards issued by smaller banks.

InConsumer ~~addition~~Financial toProtection ~~the~~Bureau. ~~capital~~The ~~requirements~~Dodd-Frank Act creates a new, ~~Basel~~independent ~~III~~federal ~~also~~agency ~~requires~~called ~~banks~~the ~~and~~Consumer ~~bank~~Financial ~~holding~~Protection ~~companies~~Bureau (“CFPB”), towhich ~~measure~~is ~~their~~granted ~~liquidity~~broad rulemaking, supervisory and enforcement powers under ~~specific~~ ~~tests.~~various ~~One~~federal ~~test~~consumer financial protection laws, ~~termed~~including the ~~liquidity~~Equal ~~coverage~~Credit ~~ratio~~Opportunity Act, isTruth ~~designed~~in toLending ~~ensure~~Act, ~~that~~Real ~~the~~Estate ~~banking~~Settlement ~~entity~~Procedures Act, ~~maintains~~Fair aCredit ~~level~~Reporting Act, Fair Debt Collection Act, the Consumer Financial Privacy provisions of ~~unencumbered~~the ~~high~~Gramm-~~quality~~Leach-Bliley ~~liquid~~Act ~~assets~~and ~~greater~~certain ~~than~~other orstatutes. ~~equal~~The toCFPB ~~the~~will ~~entity’s~~have ~~expected~~examination ~~net~~and ~~cash~~primary ~~outflow~~enforcement ~~for~~authority awith respect to depository ~~30-day~~institutions ~~time~~with ~~horizon~~$10 (billion or, ifmore ~~greater,~~in ~~25%~~assets. ofSmaller ~~its~~institutions ~~expected~~will ~~total~~be ~~cash~~subject ~~outflow)~~to ~~under~~rules anpromulgated ~~acute~~by ~~stress~~the ~~scenario~~CFPB but will continue to be examined and supervised by federal banking regulators for consumer compliance purposes. The ~~other~~CFPB ~~test~~will have authority to prevent unfair, ~~known~~deceptive asor abusive practices in connection with the ~~net~~offering ~~stable~~of ~~funding~~consumer ~~ratio,~~financial isproducts. aThe ~~longer~~Dodd-~~term~~Frank ~~liquidity~~Act ~~test~~authorizes ~~designed~~the CFPB to ~~promote~~establish ~~more~~certain ~~medium~~minimum ~~and~~standards ~~long-term~~for ~~funding based~~the onorigination ~~the~~of ~~liquidity~~residential ~~features~~mortgages including a determination of the ~~entity~~borrower’s ~~assets~~ability ~~and~~to ~~activities~~repay. ~~over~~In aaddition, ~~one~~the Dodd-~~year~~Frank ~~time~~Act ~~horizon.~~will Toallow ~~comply~~borrowers ~~with~~to ~~these~~raise ~~tests,~~certain ~~banks~~defenses ~~may~~to ~~increase~~foreclosure ~~their~~if ~~holdings~~they ofreceive ~~U.S.~~any ~~Treasury~~loan ~~securities,~~other ~~seek~~than ~~longer-term~~a ~~funding~~“qualified ~~sources,~~mortgage” ~~and~~as ~~adopt~~defined ~~new~~by the ~~business~~CFPB. ~~practices~~The ~~that~~Dodd-Frank ~~could~~Act ~~limit~~permits ~~the~~states ~~provision~~to ofadopt ~~liquidity~~consumer toprotection ~~customers.~~laws ~~The~~and ~~liquidity~~standards ~~coverage~~that ~~ratio~~are ~~would~~more bestringent ~~applied~~than ~~effective~~those ~~January 1,~~adopted ~~2015~~at ~~and~~ the ~~net~~federal ~~stable~~level ~~funding ratio~~and, ~~January 1,~~in ~~2018.~~certain ~~These~~circumstances, ~~new~~permits ~~standards~~state ~~are~~attorneys ~~subject~~general to ~~further~~ ~~rulemaking,~~enforce ~~and~~compliance ~~hence,~~with ~~their~~both the ~~terms~~state ~~may~~and ~~change~~federal ~~before~~laws ~~implementation~~and regulations.

~~Other~~Acquisitions ~~Regulation~~

~~There~~The ~~are~~BHC ~~various~~Act ~~legal~~requires ~~and~~every ~~regulatory~~bank ~~limits~~holding oncompany ~~the~~to ~~amount~~obtain ofthe ~~dividends~~prior ~~and~~approval ~~other~~of ~~funds SEB may pay or otherwise supply~~ the ~~Company~~Federal ~~and likewise,~~Reserve ~~dividends~~before: ~~the~~(i) it ~~Company~~ may ~~pay~~acquire ~~its~~direct ~~shareholders.~~or ~~Currently,~~indirect ~~neither~~ownership ~~the~~or ~~Company~~control ~~nor~~of ~~SEB~~any ~~can~~voting ~~make~~shares ~~dividend~~of ~~payments~~any ~~without~~bank if, ~~prior~~after ~~regulatory~~such ~~approval; dividend guidance is further discussed in Part II~~acquisition, ~~Item 5. Federal and state regulatory agencies have~~ the ~~authority not only to prevent a~~ bank ~~or bank~~ holding company ~~from~~will ~~paying~~directly ~~a dividend but also to prevent participation in any activity that, in the agency’s opinion, would constitute an unsafe~~ or ~~unsound~~indirectly ~~practice. The~~own ~~Federal Deposit Insurance Act provides that, in the event of the “liquidation~~ or ~~other~~control ~~resolution”~~more ofthan an5% ~~insured depository institution, the claims~~ of ~~depositors of~~ the ~~institution~~voting ~~(including~~shares ~~the claims~~ of the ~~FDIC~~bank; ~~as subrogee of insured depositors~~(ii) it ~~and~~or ~~certain~~any ~~claims for administrative expenses~~ of ~~the~~its ~~FDIC~~subsidiaries, ~~as a receiver will have priority over~~ other ~~general~~than ~~unsecured~~a ~~claims~~bank, ~~against~~may ~~the~~acquire ~~institution.~~all Ifor ansubstantially ~~insured~~all ~~depository~~of ~~institution fails, insured and uninsured~~the ~~depositors,~~assets ~~along with the FDIC, will have priority in payment ahead~~ of ~~unsecured,~~any ~~nondeposit~~bank; ~~creditors,~~or ~~including~~(iii) it ~~the~~may ~~parent~~merge ~~bank~~or ~~holding~~consolidate ~~company,~~ with ~~respect to~~ any ~~extensions~~other ofbank ~~credit~~holding ~~they have made to such insured depository institution~~company.

The FDIC maintains the Deposit Insurance Fund (“DIF”) by assessing depository institutions an insurance premium. The assessment is based upon statutory factors that include the balance of insured deposits as well as the degree of risk the institution poses to the insurance fund. Pursuant to the Dodd-Frank Act, the FDIC has revised its methodology for assessing insurance premiums and effective April 1, 2011, deposit insurance assessments will be based on an institution’s average consolidated total assets less Tier 1 capital and not its deposits. The change in

~~assessment~~Under ~~base~~the isRiegle-Neal ~~expected~~Interstate toBanking beand ~~beneficial~~Branching toEfficiency ~~SEB,~~Act ~~resulting~~of ~~in a $215~~1994,~~000~~ ~~overhead~~and ~~reduction~~as infurther ~~2011.~~amended ~~The~~by ~~FDIC will continue to use a risk~~the Dodd-~~based~~Frank ~~premium system that assesses higher rates on those institutions that pose greater risks to the DIF. Specifically~~Act, the ~~FDIC~~restrictions ~~places~~on ~~each~~interstate ~~institution~~acquisitions ~~in one~~ of ~~four~~banks ~~risk~~by ~~categories~~bank ~~using~~holding acompanies ~~two-step~~were ~~process~~repealed. ~~based~~As ~~first~~a onresult, ~~capital ratios (~~the ~~capital~~Company, ~~group assignment)~~ and ~~then~~any on other ~~relevant information~~bank ~~(the~~holding ~~supervisory~~company ~~group~~located ~~assignment).~~in ~~Subsequently~~Georgia, ~~the~~is ~~rate~~able ~~for~~to ~~each~~acquire ~~institution within~~ a ~~risk~~bank ~~category~~located ~~may~~in beany ~~adjusted~~other ~~depending~~state, ~~upon~~and a ~~different~~bank ~~factors~~holding ~~that~~company ~~either~~located ~~enhance~~outside ~~or reduce the risk the institution poses to the DIF, including, as~~ of ~~April 1,~~Georgia ~~2011,~~can ~~unsecured~~acquire ~~debt,~~any ~~brokered~~Georgia-based ~~deposits~~bank, ~~and~~in ~~bank-issued~~either ~~corporate~~case ~~holdings~~subject ~~applicable~~ to ~~each institution. Finally,~~ certain ~~risk~~deposit ~~multipliers~~percentage ~~may~~concentration belimits ~~applied~~and toother ~~the adjusted assessment~~restrictions. InDe ~~2009~~novo ~~and~~branching ~~2010,~~by ~~the~~an ~~FDIC significantly increased its assessment charges on both a uniform and risk~~out-~~adjusted~~of-state ~~basis~~bank ~~for~~is ~~all~~permitted ~~banks.~~only ~~The~~if ~~increased~~it is ~~assessments~~expressly ~~materially~~permitted ~~and~~by ~~adversely affected~~ the ~~Bank’s~~laws ~~profitability~~of ~~in 2010 and, notwithstanding~~ the ~~overhead~~host ~~reduction~~state. ~~discussed~~Georgia ~~above, will~~does ~~continue~~not topermit dode sonovo inbranching ~~2011~~by ~~and~~an ~~beyond. The FDIC insures interest~~out-~~bearing~~of-state ~~accounts~~bank. ~~up to $250~~Therefore,~~000,~~ ~~and~~the ~~until~~only ~~December 31,~~method ~~2012,~~by ~~insures~~which ~~noninterest-bearing deposits on~~ an ~~unlimited~~out-of-state ~~basis.~~bank ~~See~~or ~~Note~~bank 11holding tocompany ~~the~~may ~~Consolidated~~enter ~~Financial~~Georgia ~~Statements for~~is athrough ~~comparison~~an ~~of assessment expenses in 2010, 2009, and 2008~~acquisition.

OnActivities November 12, 2009, the FDIC approved a rule requiring insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and all of 2010, 2011, and 2012. An insured institutions’s risk-based deposit insurance assessments will continue to be calculated on a quarterly basis, but will be paid from the amount the institution prepaid until the later of the date that amount is exhausted or June 30, 2013, at which point any remaining funds would be returned to the insured institution. Consequently, the Company’s prepayment of DIF premiums made on December 29, 2009 resulted in a prepaid asset of $1,825,119 at year-end 2009 and $1,125,000 at December 31, 2010.

~~FDIC~~The ~~regulations~~BHC ~~require~~Act ~~that~~has generally ~~management~~prohibited ~~report~~a ~~annually~~bank onholding ~~its~~company ~~responsibility~~from ~~for~~engaging ~~preparing~~in ~~its~~activities ~~institution’s~~other ~~financial~~than ~~statements, establishing~~banking or managing or controlling banks or other permissible subsidiaries and ~~maintaining~~from anacquiring ~~internal~~or retaining direct or indirect control ~~structure~~of ~~and~~any ~~procedures~~company ~~for~~engaged in any activities other than those determined by the Federal Reserve to be closely related to banking or managing or controlling banks as to be a proper incident thereto. Provisions of the Gramm-Leach-Bliley Act (the “GLB Act”), discussed below, have expanded the permissible activities of a bank holding company that qualifies as a financial ~~reporting~~holding company. In determining whether a particular activity is permissible, ~~and~~the ~~compliance~~Federal ~~with~~Reserve ~~designated~~must ~~laws~~consider ~~and~~whether ~~regulations~~the ~~concerning~~performance ~~safety~~of ~~and~~such ~~soundness~~an activity can be reasonably expected to produce benefits to the public, such as a greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices.

~~On November 12, 1999, financial modernization legislation known as the~~ Gramm-Leach-Bliley Act (“GLB Act”) was signed into law. Under the GLB Act, a bank holding company which elects to become a financial holding company may engage in expanded securities activities, insurance sales, and underwriting activities, and other financial activities, and may also acquire securities firms and insurance companies, subject in each case to certain conditions. Securities firms and insurance companies may also choose to establish or become financial holding companies and thereby acquire banks, also subject to certain conditions. The Company has no present intention to change its status from a bank holding company to a financial holding company.

~~Federal~~The GLB Act implemented major changes to the statutory framework for providing banking ~~regulators,~~and asother ~~required~~financial ~~under~~services in the United States. The GLB Act, among ~~have~~other ~~adopted~~things, ~~rules~~eliminated ~~limiting~~many of the ~~ability~~restrictions ofon affiliations among banks and securities firms, insurance firms, and other financial ~~institutions~~service toproviders. ~~disclose~~A ~~nonpublic~~bank ~~information~~holding ~~about~~company ~~consumers~~that qualifies as a financial holding company is permitted to ~~nonaffiliated~~engage ~~third~~in ~~parties~~activities that are financial in nature or incidental or complimentary to a financial activity. The ~~rules~~GLB ~~require~~Act ~~disclosure~~specifies ofcertain ~~privacy~~activities ~~policies~~that are deemed to ~~consumers~~be ~~and,~~financial in ~~some circumstances~~nature, ~~allow~~including ~~consumers~~underwriting toand ~~prevent~~selling ~~disclosure~~insurance, ofproviding financial ~~certain~~and ~~personal~~investment ~~information~~advisory toservices, ~~nonaffiliated~~underwriting, ~~third~~dealing ~~parties.~~in, ~~The~~or ~~privacy~~making ~~provisions~~a ~~of the~~market ~~GLB~~in ~~Act~~securities, ~~affect~~limited ~~how~~merchant ~~consumer~~banking ~~information~~activities, isand ~~transmitted~~any ~~through~~activity currently permitted for bank holding companies ~~and~~under ~~conveyed~~Section 4(c)(8) toof ~~outside~~the ~~vendors.~~BHC Act.

~~Under~~To ~~the~~become ~~Community~~eligible ~~Reinvestment~~for ~~Act~~these ~~(“CRA”),~~expanded ~~SEB~~activities, ~~as an FDIC insured institution, has~~ a ~~continuing~~bank ~~and~~holding ~~affirmative~~company ~~obligation to~~must ~~help~~qualify ~~meet~~as ~~the~~a ~~credit~~financial ~~needs~~holding ~~of the entire community, including low- and moderate-income neighborhoods, consistent with safe and sound banking practices~~company. ~~CRA~~To ~~requires~~qualify ~~the~~as ~~appropriate~~a financial ~~federal~~holding ~~regulator~~company, ineach ~~connection with its examination of an~~ insured depository institution, tocontrolled ~~assess~~by the ~~institution’s~~bank ~~record~~holding ofcompany ~~meeting~~must ~~the~~be ~~credit~~well-capitalized, ~~needs~~well-managed, ~~of its community~~ and ~~consider~~have ~~such~~at ~~record~~least ina ~~its~~satisfactory ~~evaluation~~rating ofunder ~~certain~~the ~~applications,~~Community ~~such~~Reinvestment asAct. ~~applications~~In ~~for~~addition, athe ~~merger~~bank orholding company ~~establishment~~must offile a ~~branch.~~declaration ~~An unsatisfactory~~with ~~rating may be used as~~ the ~~basis~~Federal ~~for~~Reserve ~~denial~~ of anits ~~application~~intention byto ~~the~~become ~~federal banking regulator. SEB received~~ a ~~satisfactory~~financial ~~rating~~holding ~~in its most recent CRA exam~~company.

The ~~USA~~GLB ~~Patriot~~ Act designates the Federal Reserve as the overall umbrella supervisor of ~~2001~~financial ~~(“Patriot~~holding companies. The GLB Act”) ~~substantially~~adopts ~~broadens~~a ~~existing~~system ~~anti-money~~of ~~laundering~~functional ~~legislation~~regulation ~~and~~where the ~~extraterritorial~~primary ~~jurisdiction~~regulator ofis determined by the ~~United~~nature ~~States;~~of ~~imposes~~activity ~~compliance~~rather ~~and due~~than ~~diligence~~the ~~obligations;~~type ~~creates~~of ~~crimes~~institution. ~~and~~Under this ~~penalties;~~principle, ~~compels~~securities activities are regulated by the ~~production~~SEC ofand ~~documents~~other ~~located~~securities ~~both~~regulators, ~~inside~~insurance ~~and~~activities ~~outside~~by the ~~United~~state ~~States~~insurance authorities, asand ~~applicable;~~banking ~~and~~activities ~~clarifies~~by the ~~safe~~appropriate ~~harbor~~banking ~~from~~regulator. ~~civil~~As ~~liability~~a result, to ~~customers.~~the ~~The~~extent ~~United~~that ~~States~~we ~~Department~~engage ofin ~~the~~non-banking ~~Treasury~~activities ~~has~~permitted ~~issued~~under athe ~~number~~GLB ofAct, ~~regulations~~we ~~that~~will ~~further~~be ~~clarify~~subject to the ~~Patriot~~regulatory ~~Act’s~~authority ~~requirements~~of the SEC or ~~provide~~state ~~more~~insurance authority, as applicable. We have not made an election to become a financial holding company.

Payment of Dividends

The Company is a legal entity separate and distinct from its subsidiaries. Its principal source of cash flow is dividends from the Bank. There are statutory and regulatory limitations on the payment of dividends from the Bank to the Company, as well as by the Company to its shareholders. Due to the elevated level of nonperforming assets and operating losses, the Company and the Bank must obtain prior written consent from our regulators prior to the payment of a dividend.

The federal banking agencies have indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), a depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally pay dividends only out of current operating earnings.

~~specific~~In ~~guidance~~addition, onthe ~~their~~Federal ~~application. The Patriot Act requires all “financial institutions~~Reserve,” asthrough ~~defined,~~guidance toreissued ~~establish~~in ~~certain~~February anti-money laundering compliance and due diligence programs. The Patriot Act requires financial institutions that maintain accounts for “non-United States persons” or their representatives to establish2009, ~~“appropriate,~~has ~~specific~~supervisory ~~and, where necessary, enhanced due diligence~~ policies~~, procedures,~~ and guidance ~~controls~~ that: are reasonably designed to detect and report instances of money laundering through those accounts.” Bank regulators review anti-money laundering compliance during their examinations, and the Company continues to enhance its anti-money laundering compliance programs, as applicable.

~~The~~• ~~Sarbanes-Oxley~~may ~~Act~~restrict the ability of ~~2002~~a ~~(the “Sarbanes-Oxley~~bank ~~Act”)~~or ~~and~~financial ~~its~~services ~~impact~~holding company from paying dividends on ~~the~~any ~~Company~~class ~~are~~of ~~discussed~~capital instock or any other Tier 1 capital instrument if the ~~Corporate~~holding ~~Governance~~company ~~section~~is ofnot ~~Part~~deemed ~~II,~~to ~~Item 7.~~have a strong capital position,

In• ~~2009,~~states ~~the Federal Reserve adopted amendments to its Regulation E~~ that restrict the Company’s ability, effective July 2010, to charge overdraft fees on debit card and ATM transactions. Pursuant to the regulation, customers must opt-in to an overdraft service in order for SEB to collect overdraft fees. As overdraft fees have historically comprised a ~~significant~~holding ~~source~~company ofshould ~~noninterest~~reduce ~~income,~~or ~~the~~eliminate ~~new~~dividends restrictions have adversely affected the Company’s profitability. The Dodd-Frank Act created the Consumer Financial Protection Bureau, which has broad discretionary powers to protect consumers. In particular, such regulations may further restrict SEB’s ability to collect overdraft fees – even beyond the limits imposed by the 2009 amendments to Regulation E discussed above. when

On• ~~June 21, 2010,~~ the ~~Federal~~holding ~~Reserve~~company’s ~~and~~net ~~other~~income ~~regulators~~available ~~jointly published final guidance for structuring incentive compensation arrangements, which is applicable~~ to ~~all~~shareholders ~~financial institutions. The guidance does not set forth any formulas or pay caps, but contains principles companies must follow in establishing compensation arrangements~~ for ~~employees and groups of employees that may expose~~ the ~~institution~~past tofour ~~material~~quarters, ~~risk.~~net ~~The principles stress appropriate balancing~~ of ~~risk~~dividends ~~and~~previously ~~incentives, compatibility~~paid ~~with~~during ~~effective~~that ~~controls and risk management~~period, ~~and~~is ~~strong~~not ~~corporate~~sufficient ~~governance.~~to ~~Regulators~~fully ~~will~~fund ~~monitor compliance with~~ the ~~guidance during the examination process.~~ dividends;

~~There~~• ~~have~~the ~~been~~holding acompany’s ~~number~~prospective rate of ~~legislative~~earnings ~~and~~retention ~~regulatory~~is ~~proposals~~not ~~that~~consistent ~~would~~with ~~have an impact on~~ the ~~operation~~holding ofcompany’s ~~bank~~capital ~~holding~~needs ~~companies~~ and ~~their~~ ~~subsidiaries.~~overall Itcurrent ~~is impossible to predict whether or in what form these proposals may be adopted in the future~~ and, ifprospective ~~adopted,~~financial ~~what~~condition; ~~their effect will be on the Company.~~ or

~~5. Employees. At~~• ~~December 31, 2010,~~ the ~~Company~~holding ~~and~~company ~~its~~will ~~subsidiary~~not ~~had~~meet, ~~143~~or ~~full-time~~is ~~and~~in 8danger ~~part-time~~of ~~employees.~~not ~~The Company offers a competitive compensation and benefits package to its employees~~meeting, ~~and management considers~~ its ~~employee~~minimum ~~relations~~regulatory tocapital beadequacy ~~good~~ratios.

~~6. Additional~~• ~~Information. Through~~requires ~~its~~that ~~Internet website at www.southeasternbank.com, the Company provides~~ a ~~direct~~holding ~~link~~company ~~to reports~~must ~~filed~~inform ~~or furnished pursuant to Section 13(a) or 15(d) of~~ the ~~Securities~~Federal ~~Exchange~~Reserve ~~Act~~in ofadvance ~~1934 (the “Exchange Act”). Reports accessible from this link include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and proxy materials. Copies~~ of ~~these~~declaring ~~filings~~or ~~may~~paying ~~also~~a bedividend ~~obtained~~that ~~free~~exceeds ofearnings ~~charge~~for ~~directly from~~ the ~~SEC~~period ~~website at www~~(e.~~sec~~g.~~gov. Additionally~~, ~~the~~quarter) ~~public~~for ~~may~~which ~~read and copy any materials~~ the ~~Company~~dividend ~~files~~is ~~with~~being ~~the~~paid ~~SEC~~or atthat ~~the~~could ~~SEC Public~~result ~~Reference~~in ~~Room~~a atmaterial ~~100~~adverse Fchange ~~Street,~~to ~~NE,~~the ~~Washington,~~organization’s DCcapital ~~20549~~structure. ~~Information~~Declaring onor ~~the~~paying ~~operation~~a ofdividend ~~the~~in ~~Public~~either ~~Reference~~circumstance ~~Room~~could ~~can~~raise besupervisory ~~obtained by calling the SEC at 1-800-SEC-0330~~concerns.

~~The~~In ~~Company’s~~the ~~annual~~current ~~report~~financial onand ~~Form~~economic ~~10-K~~environment, isthe ~~being~~Federal ~~distributed~~Reserve has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong. During 2009, we paid a total of $0.30 per share in cash dividends to our shareholders. Early in ~~lieu~~2010, ofwe paid a ~~separate~~total ~~annual~~of ~~report~~$0.13 ~~containing~~per ~~the~~share in cash dividends to our shareholders. Later in 2010, we suspended our dividends until our operating performance improved and credit losses abated. We did not pay a dividend during ~~Consolidated~~2011. ~~Financial~~We ~~Statements~~do ofnot ~~the~~intend ~~Company~~to pay a dividend in 2012 due to regulatory restrictions and ~~SEB~~continued pressure on earnings and capital.

~~Item 1A. Risk Factors~~Capital Adequacy

~~Our~~We ~~business~~are isrequired ~~subject~~ to ~~certain~~comply ~~risks,~~with ~~including~~the ~~those~~capital ~~described~~adequacy ~~next.~~standards ~~These~~established ~~risks~~by ~~are not~~ the ~~only~~federal ~~risks~~banking ~~we face~~agencies. ~~New risks~~There ~~may~~are ~~emerge~~two atbasic measures ~~any~~of ~~time,~~capital ~~and~~adequacy ~~risks~~for webank ~~presently~~holding ~~deem~~companies ~~immaterial~~that ~~may~~have ~~become~~been ~~material.~~promulgated Weby ~~cannot predict such risks or estimate~~ the ~~extent~~Federal toReserve: ~~which~~a ~~they~~risk-based ~~may~~measure ~~affect~~and ~~our~~a ~~financial~~leverage ~~performance, business, and prospects~~measure. ~~More~~All ~~detailed~~applicable ~~information concerning~~capital ~~these~~standards ~~and~~must ~~other~~be ~~risks~~satisfied isfor ~~contained~~a inbank ~~other~~holding ~~sections~~company ofto ~~this~~be ~~Form~~considered ~~10-K~~in compliance.

The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance-sheet exposure, and to minimize disincentives for holding liquid assets. Assets and off-balance-sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance-sheet items.

The minimum guideline for the ratio of Total Capital to risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit) is 8.0%. Total Capital consists of Tier 1 Capital, which is comprised of common stock, undivided profits, minority interests in the equity accounts of consolidated subsidiaries and non-cumulative perpetual preferred stock, less goodwill and certain other intangible assets, and Tier 2 Capital, which consists of subordinated debt, other preferred stock, and a limited amount of loan loss reserves. The minimum guideline for the ratio of Tier 1 Capital to risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit) is 4.0%. At December 31, 2011, our consolidated Total Capital Ratio and our Tier 1 Capital Ratio were 17.63% and 16.37%, respectively.

In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio (the “Leverage Ratio”) of Tier 1 Capital to average assets, less goodwill and certain other intangible assets, of 3.0% for bank holding companies that meet certain specified criteria, including those having the highest regulatory rating. All other bank holding companies generally are required to maintain a Leverage Ratio of at least 3.0%, plus an additional cushion of 100 to 200 basis points. Our consolidated Leverage Ratio at December 31, 2011 was 9.70%. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Federal Reserve has indicated that it will consider a “tangible Tier 1 Capital Leverage Ratio” (deducting all intangibles) and other indicators of capital strength in evaluating proposals for expansion or new activities.

~~Difficult~~The ~~market~~Bank ~~conditions~~is ~~have~~subject ~~adversely~~to ~~affected~~risk-based ~~our~~and ~~industry~~leverage capital requirements adopted by its federal banking regulators, which are substantially similar to those adopted by the Federal Reserve for bank holding companies. Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on the taking of brokered deposits, and certain other restrictions on its business. As described below, substantial additional restrictions can be imposed upon FDIC-insured depository institutions that fail to meet applicable capital requirements. See “Prompt Corrective Action”.

~~Dramatic declines in the housing market over the past several years, with falling home prices and increasing foreclosures, unemployment,~~The ~~and~~federal ~~underemployment,~~bank ~~have~~agencies ~~negatively~~continue ~~impacted~~to ~~the~~indicate ~~credit~~their ~~performance~~desire ~~of real estate-related loans and resulted in significant write-downs of asset values by financial institutions, including us. These write-downs have caused many financial institutions~~ to ~~seek~~raise ~~additional~~ capital, torequirements ~~reduce~~applicable ~~or eliminate dividends,~~ to ~~merge~~banking ~~with~~organizations ~~larger~~beyond ~~and~~their ~~stronger~~current ~~institutions~~levels. ~~and,~~In inthis ~~some cases~~regard, ~~to fail. Reflecting concern about~~ the ~~stability~~Federal ofReserve ~~the financial markets generally, many lenders~~ and ~~institutional~~ ~~investors~~the ~~have~~FDIC ~~reduced~~require orregulators ~~ceased providing funding~~ to ~~borrowers,~~consider ~~including~~interest torate ~~other~~risk (when ~~financial~~the ~~institutions.~~interest ~~This~~rate ~~market~~sensitivity ~~turmoil and tightening~~ of ~~credit have led to~~ an ~~increased~~institution’s ~~level~~assets ofdoes ~~commercial~~not ~~and~~match ~~consumer~~the ~~delinquencies,~~sensitivity ~~lack~~ of ~~consumer~~ ~~confidence,~~its ~~increased~~liabilities ~~market~~or ~~volatility,~~its ~~and~~off-balance-sheet ~~widespread~~position) ~~reduction of business activity generally. The resulting economic pressure on consumers and lack of confidence~~ in the ~~financial~~evaluation ~~markets~~of ~~has~~a ~~adversely~~bank’s ~~affected~~capital ~~our business, financial condition, and results of operations~~adequacy. ~~Market~~The ~~developments~~regulatory ~~may~~agencies ~~affect~~have ~~consumer~~proposed ~~confidence~~a methodology ~~levels~~for ~~and~~evaluating ~~may~~interest ~~cause~~rate ~~adverse~~risk ~~changes~~that inwould ~~payment~~require ~~patterns,~~banks ~~causing~~with ~~increases~~excessive ininterest ~~delinquencies~~rate ~~and~~risk ~~default~~exposure ~~rates,~~to ~~which~~hold ~~may~~additional ~~impact~~amounts ~~our charge-offs and provision for loan losses. A worsening~~ of ~~these~~capital ~~conditions~~against ~~would~~such ~~likely exacerbate the adverse effects of these difficult market conditions on us~~exposures.

AsThe aBasel ~~result~~Committee ofon ~~the~~Banking ~~negative~~Supervision ~~developments~~has inissued ~~the~~proposed ~~financial~~reforms ~~industry,~~to ~~new~~international ~~federal~~bank ~~and~~capital ~~state laws~~ and ~~regulations~~liquidity ~~regarding~~regulation. ~~lending,~~In ~~funding practices~~December 2010, ~~liquidity~~the ~~standards,~~Basel ~~and~~Committee ~~other~~released ~~financial~~its ~~practices~~final ~~have~~framework for ~~been~~strengthening ~~enacted;~~international ~~the~~capital ~~Dodd-Frank~~and ~~Act,~~liquidity ~~which~~regulation is(“Basel ~~further~~III”). ~~discussed~~Basel ~~under~~III, ~~“Government~~when ~~Supervision~~implemented ~~and~~by ~~Regulation”~~the ~~above,~~U.S. isbanking aagencies ~~case~~and fully phased-in, ~~point.~~will ~~Additionally,~~require bank ~~regulatory~~holding ~~agencies~~companies ~~have been,~~ and ~~are~~their ~~expected~~bank subsidiaries to ~~continue~~maintain ~~being~~more capital, ~~aggressive~~with ~~in responding~~a togreater ~~concerns~~emphasis ~~and~~on ~~trends~~common ~~identified~~equity. inImplementation ~~examinations.~~is ~~Difficult~~presently ~~market~~scheduled ~~conditions~~to ~~and~~be ~~the~~phased ~~impact~~in ofbetween ~~new~~2013 ~~legislation~~and in2019, ~~response~~although toit ~~these~~is ~~developments~~possible ~~could~~that ~~restrict~~implementation ~~our~~may ~~business~~be ~~operations,~~delayed ~~including~~as ~~our~~a ~~ability~~result toof ~~originate~~multiple ~~loans,~~factors ~~and increase~~including ~~our~~the ~~cost~~current condition of ~~compliance,~~the ~~divert~~banking ~~our~~industry ~~resources,~~within ~~and~~the ~~adversely~~U.S. ~~affect~~and ~~our profitability~~abroad.

~~Deteriorating~~The ~~credit quality~~Basel III final capital framework, ~~particularly~~among ~~with~~other ~~respect~~things, to(i) introduces as ~~real~~a ~~estate~~new ~~loans~~capital measure “Common Equity Tier 1” (“CET1”), ~~has~~(ii) specifies ~~adversely~~that ~~impacted~~Tier us1 capital consists of CET1 and ~~may~~“Additional ~~continue~~Tier to1 ~~adversely~~capital” ~~impact~~instruments usmeeting specified requirements, ~~leading~~(iii) defines CET1 narrowly by requiring that most adjustments to ~~higher~~regulatory ~~charge-offs~~capital measures be made to CET1 and~~/or~~ annot ~~increase~~to inthe ~~our~~other ~~provision~~components ~~for~~of ~~loan~~capital ~~losses~~and (iv) expands the scope of the adjustments as compared to existing regulations.

~~Beginning~~When infully ~~late~~phased ~~2007~~in, ~~the~~Basel ~~housing~~III ~~and~~requires ~~real~~banks ~~estate~~to ~~sectors~~maintain in(i) as ~~our markets experienced~~ a ~~severe~~newly ~~economic~~adopted ~~downturn~~international ~~that accelerated through 2010 and continues in 2011. At December 31~~standard, ~~2010,~~a ~~approximately~~minimum ~~83%~~ratio of ~~our~~CET1 ~~total~~to ~~loans~~risk-weighted assets ~~were~~of ~~collateralized~~at byleast ~~real estate, including $86,972,052 in construction and development loans~~4. ~~Our construction and development loans comprised 76.57~~5% ~~of nonaccrual loans~~, ~~15.34%~~plus ofa ~~loans~~“capital ~~past~~conservation ~~due~~buffer” 90of ~~days or more, and 17~~2.995%; ~~of loans past 30 - 89 days at December~~(ii) ~~31,~~a ~~2010.~~minimum ~~The~~ratio ~~vast majority~~ of ~~our~~Tier ~~construction~~1 ~~and~~capital ~~development~~to ~~loans~~risk-weighted ~~as well as nonperforming~~ assets ~~are~~of ~~based~~at inleast ~~our coastal Georgia markets~~6.0%, ~~Most~~plus ~~of our residential builders construct houses in~~ the ~~$150,000~~capital -conservation ~~$250,000~~buffer; ~~selling~~(iii) a ~~price~~minimum ~~range~~ratio ~~and carry inventories~~ of ~~lots~~Total ~~for~~(Tier ~~new~~1 plus ~~construction.~~Tier ~~The~~2) ~~supply~~capital ofto ~~vacant,~~risk-weighted ~~developed~~assets ~~lots has increased as the number~~ of ~~new~~at ~~building~~least ~~permits and housing starts declined~~8.0% ~~Additionally,~~plus ~~since August 2008,~~ the ~~FDIC~~capital ~~has~~conservation ~~placed~~buffer ~~numerous Georgia~~ and ~~Florida-based~~(iv) as ~~financial~~a ~~institutions~~newly ~~into~~adopted ~~receivership~~international standard, ~~including~~a ~~institutions~~minimum inleverage ~~our~~ratio ~~geographic footprint. The sale~~ of ~~these~~3%, ~~financial institutions’~~calculated ~~assets~~as ~~at depressed prices could negatively affect~~ the ~~value~~ratio of ~~our~~Tier ~~real~~1 ~~estate~~capital ~~collateral~~to ~~and~~balance ~~other~~sheet exposures ~~real~~plus ~~estate.~~certain ~~Aggressive~~off-balance ~~discounting~~sheet ofexposures ~~foreclosed~~(computed ~~properties~~as bythe ~~larger~~average ~~banks will similarly affect asset values. We believe it may take more than three years~~ for ~~the~~each ~~market~~quarter toof ~~fully absorb~~ the ~~existing lot inventories in some areas. If economic conditions continue to worsen or deteriorate, particularly within our geographic footprint, additional charge~~month-~~offs~~end ~~and~~ratios ~~further increases~~for to the ~~allowance for loan losses will be necessary~~quarter).

IfBasel III ~~our~~also ~~allowance~~provides for ~~loan~~a ~~losses~~“countercyclical iscapital ~~not~~buffer,” ~~sufficient~~generally to ~~cover~~be imposed when national regulators determine that excess aggregate credit growth becomes associated with a buildup of systemic risk that would be a CET1 add-on to the ~~actual~~capital ~~loan~~conservation buffer in the range of 0% to 2.5% when fully implemented. The capital conservation buffer is designed to absorb losses, during periods of economic stress. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the conservation buffer (or ifbelow ~~credit~~the ~~delinquencies~~combined ~~increase~~capital conservation buffer and countercyclical capital buffer, ~~our~~when ~~earnings~~the ~~could~~latter ~~decline~~is ~~significantly~~applied) may face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.

~~Our~~The ~~success~~Basel ~~depends,~~III ~~to a~~final ~~significant~~framework ~~extent,~~provides onfor ~~the~~a ~~quality~~number of ~~our~~new ~~assets,~~deductions ~~particularly~~from ~~loans.~~and ~~Like~~adjustments ~~other financial institutions, we face the risk that our customers will not repay their loans, the collateral securing the payment of those loans may be insufficient~~ to ~~assure~~ ~~repayment, and we may be unsuccessful in recovering the remaining loan balances~~CET1. ~~The~~These ~~risk of loss varies with general economic conditions~~include, for ~~the type of loan being made~~example, the ~~creditworthiness~~requirement ofthat ~~the~~mortgage ~~borrower~~servicing ~~over the term of the loan~~rights, ~~and~~deferred ~~the value~~tax ofassets ~~the~~dependent ~~real~~upon ~~estate~~future ~~and~~taxable ~~other~~income ~~collateral, among other things. Management makes various assumptions~~ and ~~judgments~~significant ~~about~~investments ~~the collectibility of our loan portfolio after considering these and other factors. Based~~ in ~~part~~non-consolidated onfinancial ~~those~~entities ~~assumptions~~be ~~and judgments,~~deducted wefrom ~~maintain~~CET1 ~~an allowance for loan losses in an attempt~~ to ~~cover~~the ~~loan~~extent ~~losses~~that ~~which~~any ~~may~~one ~~occur.~~such Incategory exceeds ~~determining~~10% ~~the size~~ of ~~the~~CET1 ~~allowance,~~or weall ~~also~~such ~~rely~~categories onin ~~an analysis of~~ the ~~portfolio~~aggregate ~~based~~exceed on15% ~~historical loss experience, volume and types~~ of ~~loans,~~ ~~trends~~CET1. in

Implementation of the deductions and other adjustments to CET1 will begin on January 1, 2014 and will be phased-in over a five-year period (20% per year). The implementation of the capital conservation buffer will begin on January 1, 2016 at 0.625% and be phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019).

~~classification,~~The ~~delinquencies~~U.S. ~~and~~banking ~~nonaccruals,~~agencies ~~national~~have ~~and~~indicated ~~local~~that ~~economic~~they ~~conditions,~~expect ~~and~~to ~~other~~propose ~~pertinent~~regulations ~~information,~~implementing ~~including~~Basel ~~the~~III, with ~~results~~final adoption of ~~external~~implementing ~~loan~~regulations ~~reviews~~in mid-2012. ~~The~~Notwithstanding ~~current~~its ~~stress~~release onof ~~our local~~the ~~economies~~Basel ~~may~~III beframework ~~greater~~as ora ~~last~~final ~~longer~~framework, ~~than~~the ~~expected~~Basel ~~resulting~~Committee inis ~~additional~~considering ~~deterioration~~further inamendments ~~the~~to ~~credit~~Basel ~~quality~~III. ofIn ~~our~~addition ~~loans~~to Basel III, the Dodd-Frank Act requires or permits the ~~value~~federal ofbanking ~~collateral~~agencies ~~securing~~to ~~those~~adopt ~~loans.~~regulations ~~Market~~affecting ~~conditions~~banking ~~could~~institutions’ ~~disproportionately~~capital ~~affect~~requirements ~~our~~in ~~larger~~a ~~loans, exacerbating~~number ~~that~~of ~~stress~~respects, ~~even~~including potentially more stringent capital requirements for systemically important financial institutions. ~~Our~~Accordingly, ~~allowance~~the ~~may~~regulations ~~not~~ultimately applicable to us may be ~~adequate~~substantially todifferent ~~cover~~from ~~eventual~~the ~~loan~~Basel ~~losses,~~III ~~and~~final ~~future~~framework ~~provisions~~as ~~for~~published ~~loan~~in ~~losses~~December 2010. ~~could~~Requirements ~~have~~to amaintain ~~material~~higher ~~adverse~~levels ~~effect~~of oncapital or liquid assets could adversely impact our ~~financial~~net ~~condition~~income and ~~results~~return ofon ~~operations~~equity.

~~Additionally,~~Support ~~in order to maximize collection~~ of ~~loan~~Subsidiary ~~balances,~~Institutions we sometimes modify loan terms if such modification would allow our customer to continue servicing the debt. If such modifications are ultimately ineffective, we may incur loan losses in excess of any specific allowance associated with the modified loan. Such losses would result in additional charge-offs and higher provisions.

Under Federal ~~and~~Reserve ~~state~~policy, ~~regulators~~the ~~periodically~~Company ~~review~~is ~~our~~expected ~~allowance~~to ~~for~~act ~~loan~~as ~~losses~~a ~~and~~source ~~may~~of ~~require~~financial usstrength tofor, ~~increase~~and ~~our allowance~~to orcommit ~~recognize~~resources ~~additional~~to ~~charge-offs~~support, ~~based~~the onBank. ~~judgments~~This support ~~different~~may ~~than~~be ~~those~~required ofat ~~management.~~times ~~Higher~~when, ~~charge-off~~absent ~~rates~~such ~~and~~Federal anReserve ~~increase~~policy, inwe ~~our~~may ~~allowance~~not ~~may~~be ~~hurt~~inclined ~~our~~to ~~overall~~provide ~~financial~~such ~~performance~~support. In ~~2010~~addition, weany ~~recorded~~capital aloans ~~$14,265,000~~by ~~provision for~~a ~~loan~~bank ~~losses~~holding ~~compared~~company to ~~$5,890,000~~any inof ~~2009~~its ~~and~~banking ~~$1,348,000~~subsidiaries inare ~~2008.~~subordinate ~~The~~in ~~increase~~right inof payment ~~both~~to ~~2010~~deposits and ~~2009 was necessary~~ to ~~cover~~certain ~~substantial~~other ~~increases~~indebtedness inof ~~nonperforming~~such ~~loan~~subsidiary ~~volumes~~banks. WeIn ~~expect overall credit conditions and~~ the ~~performance~~event of ~~our~~a ~~loan portfolio~~bank toholding ~~continue~~company’s ~~deteriorating~~bankruptcy, inany ~~the~~commitment ~~near~~by ~~term.~~a ~~And,~~bank ~~although~~holding wecompany ~~expect~~ to ~~continue~~a ~~provisioning~~federal ~~for~~bank ~~loan~~regulatory ~~losses~~agency into ~~2011~~maintain ~~and~~the ~~beyond,~~capital weof ~~can~~a banking ~~make~~subsidiary ~~no assurance that our allowance~~ will ~~prove~~be ~~sufficient.~~assumed Inby the ~~first~~bankruptcy ~~quarter~~trustee ofand ~~2011,~~entitled ~~the~~to ~~Company provisioned~~a ~~$660,000~~priority ~~for~~of ~~loan losses~~payment.

WePrompt ~~will~~Corrective ~~realize future losses if the proceeds we receive upon liquidation of~~Action ~~nonperforming assets, particularly foreclosed real estate, are less than their carrying values.~~

~~Foreclosed~~FDICIA ~~real~~established ~~estate~~a ~~is carried~~system onof ~~our~~prompt ~~books~~corrective ataction ~~estimated~~to ~~net~~resolve ~~realizable~~the ~~value~~problems ~~upon~~of ~~disposition~~undercapitalized institutions. ~~Deteriorating~~Under ~~market~~this ~~conditions~~system, ~~could~~the federal ~~result~~banking inregulators ~~additional~~have ~~losses.~~established Infive ~~2010,~~capital ~~the~~categories ~~Company~~(“well ~~recognized~~capitalized”, a“adequately $2capitalized”,~~096~~ “undercapitalized”,~~163~~ ~~net~~“significantly ~~loss~~undercapitalized” onand ~~sales~~“critically undercapitalized”), and ~~other~~are ~~write-downs~~required onto ~~foreclosed~~take ~~real estate~~certain ~~versus~~mandatory ~~$368~~supervisory actions,~~146~~ and are authorized to take other discretionary actions, with respect to institutions in ~~2009~~the three undercapitalized categories. ~~Unless~~The ~~real~~severity ~~estate~~of ~~markets~~the ~~stabilize~~action ~~and~~will depend ~~nonperforming~~upon ~~levels~~the ~~moderate,~~capital category in which the ~~Company~~institution ~~expects~~is ~~additional~~placed. ~~write-downs~~Generally, subject to bea ~~necessary~~narrow inexception, ~~2011~~the banking regulator must appoint a receiver or conservator for an institution that is critically undercapitalized. ~~Write-downs~~The offederal ~~$161,127~~banking agencies ~~were~~have ~~recorded~~specified inby regulation the ~~first~~relevant ~~quarter~~capital oflevel ~~2011~~for each category.

WeAn ~~are~~institution ~~subject~~that is categorized as “undercapitalized”, “significantly undercapitalized”, or “critically undercapitalized” is required to ~~extensive~~submit ~~regulation~~an acceptable capital restoration plan to its appropriate federal banking agency. A bank holding company must guarantee that ~~could~~a ~~limit~~subsidiary depository institution meets its capital restoration plan, subject to certain limitations. The controlling holding company’s obligation to fund a capital restoration plan is limited to the lesser of 5.0% of an undercapitalized subsidiary’s assets or ~~restrict~~the ~~our~~amount ~~activities~~required ~~and~~to ~~adversely~~meet ~~affect~~regulatory ~~our~~capital ~~earnings~~requirements. An undercapitalized institution is also generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except under an accepted capital restoration plan or with FDIC approval. In addition, the appropriate federal banking agency may treat an undercapitalized institution in the same manner as it treats a significantly undercapitalized institution if it determines those actions are necessary.

WeAt ~~operate in a heavily regulated industry and are subject to examination~~December 31, ~~supervision~~2011, and comprehensive regulation by various federal and state agencies. Our compliance with these regulations is costly and restricts certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits, and locations of offices. Our failure to comply with these requirements can lead to administrative enforcement actions, termination or suspension of our licenses, rights of rescission for borrowers, and litigation, among other remedies. Many of these regulations are intended to protect depositors, the ~~public,~~Bank ~~and~~had the requisite ~~FDIC~~capital ~~rather~~level ~~than shareholders. The laws and regulations applicable~~ to ~~the~~qualify ~~banking~~as ~~industry~~“well ~~are~~capitalized” under ~~continual review and revision by federal and state legislative and regulatory bodies, and we cannot predict~~ the ~~effects of these changes on our business and profitability. Legislative and~~ regulatory ~~changes~~framework ~~could~~for ~~affect~~prompt uscorrective in substantial and unpredictable ways, including limiting the types of financial services and products we offer and/or increasing the ability of non-banks to offer competing financial services and productsaction. For example, on July 21, 2010, the Dodd-Frank Act was signed into law. This legislation, if enacted as proposed, could limit debit card interchange fees and collection of overdraft charges. Both of these changes would reduce our noninterest income.

~~Our~~FDIC ~~net~~Insurance ~~interest~~Assessments ~~income could be negatively affected by the lower level of short-term interest rates, recent developments in the credit and real estate markets, and competition in our primary market area.~~

AsThe aFDIC ~~financial~~maintains ~~institution,~~a ~~our~~risk-based ~~earnings~~assessment ~~are~~system ~~significantly~~for ~~dependent~~determining ~~upon~~deposit ~~our~~insurance ~~net~~premiums. ~~interest~~Four ~~income,~~risk ~~which is the difference between the~~categories ~~interest income we earn on interest~~(I-~~earning assets~~IV), ~~such~~each assubject ~~loans~~to ~~and~~different ~~investment~~premium ~~securities~~rates, ~~and~~are ~~the~~established, ~~interest~~based ~~expense~~upon wean ~~pay~~institution’s oncapital ~~interest-bearing~~category ~~liabilities,~~(discussed ~~such~~above) ~~as deposits~~ and ~~borrowings. Changes in general market interest rates, including changes resulting from~~ the ~~Federal Reserve~~institution’s ~~fiscal~~supervisory ~~and~~rating. ~~monetary~~The ~~policies,~~levels ~~affect~~of usrates ~~more~~are ~~than~~subject ~~non-financial~~to ~~institutions~~periodic ~~and~~adjustment ~~can~~by ~~have~~the aFDIC. Additionally, ~~significant~~the ~~effect~~FDIC onmay ~~our~~impose ~~net~~special ~~interest~~assessments ~~income~~from ~~and~~time ~~total~~to ~~income~~time.

The Dodd-Frank Act permanently increased the maximum deposit insurance amount for banks, savings institutions and credit unions to $250,000 per depositor, and extended unlimited deposit insurance to non-interest bearing transaction accounts through December 31, 2012. The Dodd-Frank Act also broadened the base for FDIC insurance assessments. Assessments are now based on a financial institution’s average consolidated total assets less tangible equity capital. The Dodd-Frank Act also requires the FDIC to increase the reserve ratio of the Deposit Insurance Fund from 1.15% to 1.35% of insured deposits by 2020 and eliminates the requirement that the FDIC pay dividends to insured depository institutions when the reserve ratio exceeds certain thresholds.

There are three adjustments that can be made to an institution’s initial base assessment rate: (1) a potential decrease for long-term unsecured debt, including senior and subordinated debt and, for small institutions, a portion of Tier 1 capital; (2) a potential increase for secured liabilities above a threshold amount; and (3) for non-Risk Category I institutions, a potential increase for brokered deposits above a threshold amount.

The ~~Federal~~current ~~Reserve~~schedule ~~most recently reduced benchmark interest rates~~ for ~~federal~~base ~~funds~~assessment ~~on three separate occasions in 2007 by a total of 100 basis points, to 4.25%, and by another 400 basis points, to a 0% - 0.25% range, during 2008. No changes were made to the federal funds~~ rates ~~in 2009~~ and ~~2010.~~potential Aadjustment ~~significant~~is ~~portion~~set offorth our loans, including residential construction and development loans and other commercial loans, bear interest at variable rates. The interest rates on these loans fall when the Federal Reserve reduces interest rates, while the interest we pay on deposits and other liabilities may not change in the ~~same~~following ~~amount or at the same rates~~table. ~~Accordingly, declines in interest rates may reduce our net interest income. Conversely, an increase in interest rates may reduce demand for consumer and commercial credit.~~ ~~Increases in interest rates will reduce borrowers’ cash flow, which may adversely affect their ability to repay their loans.~~

Changes in the level of interest rates may also negatively affect our ability to originate real estate loans, the value of our assets, and our ability to realize gains from the sale of assets, all of which ultimately affect earnings. A decline in the market value of our assets, including loans and securities, may limit our ability to borrow funds on a secured basis. We could be required to sell loans and investment securities under adverse market conditions, upon terms that are not favorable to us, in order to maintain liquidity. If those sales are made at prices lower than the amortized costs of the investments, we will incur losses. Changes in Federal Reserve policies and laws are beyond our ability to predict or control.


	Risk Category I	Risk Category II	Risk Category III	Risk Category IV	Large and Highly Complex Institutions

Initial Base Assessment Rate	5 to 9	14	23	35	5 to 35

Unsecured Debt Adjustment (added)	(4.5) to 0	(5) to 0	(5) to 0	(5) to 0	(5) to 0

Brokered Deposit Adjustment (added)	N/A	0 to 10	0 to 10	0 to 10	0 to 10

Total Base Assessment Rate	2.5 to 9	9 to 24	18 to 33	30 to 45	2.5 to 45

~~Gross~~The ~~loans~~FDIC ~~declined~~may toterminate ~~$245,688,555~~its atinsurance ~~December 31,~~of ~~2010~~deposits ~~from~~if ~~$275,828,915~~it ~~at December 31,~~finds ~~2009.~~that ~~This~~the ~~decline,~~institution ~~coupled~~has ~~with~~engaged ~~increased nonperforming loans and an overall decline~~ in ~~interest~~unsafe ~~rates, reduced our net interest income substantially during both 2010~~ and ~~2009 and could cause continued pressure on net interest~~unsound ~~income~~practices, inis ~~2011 and future periods. This reduction~~ in ~~net~~an ~~interest~~unsafe ~~income~~or ~~may~~unsound ~~also~~condition beto ~~exacerbated~~continue byoperations ~~the~~or ~~competition~~has weviolated ~~face~~any inapplicable ~~our~~law, ~~primary~~regulation, market area and the higher cash balances being carried currently. Any significant reduction in our net interest income will negatively affect our business and could have a material adverse impact on our capitalrule, ~~financial~~order or condition, ~~and~~imposed ~~results~~by ofthe ~~operations~~FDIC.

WeSafety ~~face~~and ~~strong~~Soundness ~~competition~~Standards ~~from other financial service providers.~~

~~We operate~~The inFederal aDeposit ~~highly~~Insurance ~~competitive~~Act, ~~market~~as ~~for~~amended by the ~~products~~FDICIA and the Riegle Community Development and ~~services~~Regulatory weImprovement ~~offer.~~Act ~~The~~of ~~competition~~1994, ~~among~~requires ~~financial~~the ~~services~~federal ~~providers~~bank regulatory agencies to ~~attract~~prescribe standards, by regulations or guidelines, relating to internal controls, information systems and ~~retain~~internal ~~customers~~audit systems, isloan ~~strong.~~documentation, ~~Customer~~credit ~~loyalty~~underwriting, ~~can~~interest berate ~~easily~~risk ~~influenced~~exposure, byasset agrowth, ~~competitor’s~~asset ~~new products~~quality, ~~especially~~earnings, ~~offerings~~stock ~~that~~valuation ~~could~~and ~~provide~~compensation, ~~cost~~fees ~~savings~~and orbenefits, aand ~~higher~~such ~~return~~other tooperational and managerial standards as the ~~customer~~agencies deem appropriate. ~~Some~~The ~~competitors~~federal ~~may~~bank beregulatory ~~better~~agencies ~~able~~have toadopted ~~provide~~ a ~~wider~~set ~~range~~ of ~~products~~guidelines prescribing safety and ~~services~~soundness ~~over~~standards apursuant ~~greater~~to ~~geographic~~FDICIA, ~~area~~as amended. WeThe ~~compete~~guidelines ~~with~~establish ~~commercial~~general standards relating to internal controls and information ~~banks~~systems, ~~credit~~internal ~~unions~~audit systems, ~~mortgage~~loan ~~banking~~documentation, ~~firms~~credit underwriting, ~~consumer~~interest ~~finance~~rate ~~companies~~exposure, ~~securities~~asset ~~brokerage~~growth ~~firms,~~and ~~insurance~~compensation ~~companies~~and fees and benefits. In general, ~~money~~the ~~market~~guidelines ~~funds~~require, ~~and~~among other ~~mutual funds~~things, asappropriate ~~well~~systems asand ~~super-regional~~practices to identify and ~~national~~manage ~~financial~~the ~~institutions~~risks ~~that~~and ~~operate~~exposures ~~offices~~ specified in ~~our~~the ~~market~~guidelines. ~~areas~~The ~~and~~guidelines ~~elsewhere.~~prohibit ~~Moreover,~~excessive ~~our~~compensation ~~highly~~as ~~competitive~~an ~~industry~~unsafe ~~could~~and ~~become~~unsound ~~even~~practice ~~more~~and ~~competitive~~describe compensation as aexcessive ~~result~~when ofthe amounts paid are unreasonable or disproportionate to the ~~Dodd-Frank~~services ~~Act~~performed by an executive officer, ~~and~~employee, ~~other~~director, ~~legislative~~or principal shareholder. In addition, ~~regulatory~~the agencies adopted regulations that authorize, ~~and~~but ~~technological~~do ~~changes~~not require, ~~and~~an ~~continued~~agency ~~consolidation.~~to ~~Many~~order ofan ~~our~~institution that has been given ~~competitors~~notice ~~have~~by ~~greater~~an ~~financial~~agency ~~resources~~that ~~and/or~~it ~~fewer~~is ~~regulatory~~not ~~constraints~~satisfying any of such safety and ~~some~~soundness ~~have~~standards ~~lower~~to ~~cost~~submit ~~structures~~a compliance plan. ~~While~~If, weafter ~~believe~~being weso ~~can~~notified, ~~and~~an doinstitution ~~successfully~~fails ~~compete~~to ~~with~~submit ~~these~~an ~~other~~acceptable ~~financial~~compliance ~~institutions~~plan or fails in ~~our~~any ~~market~~material ~~areas~~respect to implement an acceptable compliance plan, wethe agency must issue an order directing action to correct the deficiency and may ~~face~~issue ~~a competitive~~an ~~disadvantage~~order asdirecting aother ~~result~~actions of ~~our~~the ~~smaller~~types ~~size,~~to ~~lack~~which ofan ~~geographic~~undercapitalized ~~diversification,~~institution ~~and~~is ~~inability~~subject tounder ~~spread~~the ~~our~~“prompt corrective ~~marketing~~action” ~~costs~~provisions ~~across~~of aFDICIA. ~~broader~~See ~~market~~“Prompt Corrective Action”. AsIf aan ~~result~~institution offails ~~these~~to ~~various~~comply ~~sources~~with ofsuch ~~competition~~an order, wethe ~~could~~agency ~~lose~~may ~~business~~seek to ~~competitors~~ orenforce besuch ~~forced~~order toin ~~price~~judicial ~~products~~proceedings and ~~services~~to onimpose ~~less~~civil ~~advantageous~~money penalties. ~~terms~~The tofederal ~~keep~~regulatory oragencies ~~attract~~also ~~customers,~~proposed ~~either~~guidelines offor ~~which~~asset ~~could~~quality ~~adversely~~and ~~affect~~earnings ~~our profitability~~standards.

~~Additionally,~~Community ~~customers~~Reinvestment ~~could pursue alternatives to bank deposits and bank transactions, causing us to lose a relatively inexpensive source of funding and fee income. For example, customers may perceive~~Act other investments, such as the stock market, as providing superior returns. And, technology now allows consumers to completely bypass banks in paying bills, transferring funds, and completing other financial transactions. This process could result in loss of deposits and related fee income. Conversely, when customers move borrowing relationships to other parties, we lose interest income.

IfUnder ~~problem~~the ~~asset~~Community ~~levels~~Reinvestment Act (“CRA”) the Bank, as an FDIC insured institution, has a continuing and ~~real~~affirmative obligation ~~estate~~to ~~concentrations~~help ~~are~~meet ~~not~~the ~~reduced~~credit needs of the entire community, weincluding ~~could~~low- ~~face~~and ~~formal~~moderate-income ~~regulatory~~neighborhoods, ~~action~~consistent with safe and ~~loss~~sound banking practices. The CRA requires the appropriate federal regulator, in connection with its examination of ~~liquidity~~an ~~sources~~insured institution, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications, such as applications for a merger or the establishment of a branch. An unsatisfactory rating may be used as the basis for the denial of an application by the federal banking regulator. The Bank received satisfactory ratings in its most recent CRA examination.

IfRestrictions ~~our~~on ~~problem~~Transactions ~~asset~~with ~~levels~~Affiliates ~~and real estate concentrations are not reduced, we could face a formal regulatory order and loss of liquidity sources, including the Federal Reserve discount window. Our future lending activities and~~

The Company and the Bank are subject to the provisions of Section 23A of the Federal Reserve Act. Section 23A places limits on: the amount of a bank’s loans or extensions of credit to affiliates; a bank’s investment in affiliates; assets a bank may purchase from affiliates, except for real and personal property exempted by the Federal Reserve; the amount of loans or extensions of credit to third parties collateralized by the securities or obligations of affiliates; and a bank’s guarantee, acceptance or letter of credit issued on behalf of an affiliate.

The total amount of the above transactions is limited in amount, as to any one affiliate, to 10.0% of a bank’s capital and surplus and, as to all affiliates combined, to 20.0% of a bank’s capital and surplus. In addition to the limitation on the amount of these transactions, each of the above transactions must also meet specified collateral requirements. The Bank must also comply with other provisions designed to avoid an investment in low-quality assets.

~~growth~~The ~~prospects~~Company ~~could~~and bethe ~~significantly~~Bank ~~curtailed,~~are wealso ~~could~~subject beto ~~required~~the toprovisions ~~take~~of ~~significant~~Section 23B ~~write-downs~~of onthe ~~problem~~Federal ~~assets~~Reserve Act which, ~~and~~among ~~our~~other ~~deposit~~things, ~~insurance~~prohibit ~~assessments~~an ~~could~~institution ~~increase~~from ~~substantially. Publication~~engaging ofin anthe ~~enforcement~~above ~~order~~transactions ~~could~~with ~~harm~~affiliates ~~our~~unless ~~reputation~~the ~~and~~transactions ~~result~~are inon ~~loss~~terms ofsubstantially ~~deposits~~the ~~and~~same, ~~market~~or ~~share.~~at ~~Besides~~least ~~our~~as ~~financial~~favorable ~~condition~~to ~~and~~the ~~operating~~institution ~~results~~or its subsidiaries, ~~our~~as ~~stock~~those prevailing ~~price~~at ~~could~~the betime ~~materially~~for ~~and~~comparable ~~adversely~~transactions ~~affected~~with nonaffiliated companies.

The Bank is also subject to restrictions on extensions of credit to its executive officers, directors, principal shareholders and their related interests. These extensions of credit must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties, and must not involve more than the normal risk of repayment or present other unfavorable features.

Effect of Governmental Monetary Policies

The earnings of the Bank are affected by domestic and foreign conditions, particularly by the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve has had, and will continue to have, an important impact on the operating results of commercial banks through its power to implement monetary policy in order, among other things, to mitigate recessionary and inflationary pressures by regulating the national money supply. The techniques used by the Federal Reserve include setting the reserve requirements of member banks and establishing the discount rate on member bank borrowings. The Federal Reserve also conducts open market transactions in United States government securities.

Monitoring and Reporting Suspicious Activity

Under the Bank Secrecy Act, Internal Revenue Service (“IRS”) rules and other regulations, we are required to monitor and report unusual or suspicious account activity as well as transactions involving the transfer or withdrawal of amounts in excess of prescribed limits. Under the USA PATRIOT Act, financial institutions are subject to prohibitions against specified financial transactions and account relationships as well as enhanced due diligence and “know your customer” standards in their dealings with financial institutions and foreign customers. For example, the enhanced due diligence policies, procedures and controls generally require financial institutions to take reasonable steps:

•

to conduct enhanced scrutiny of account relationships to guard against money laundering and report any suspicious transaction;

•

to ascertain the identity of the nominal and beneficial owners of, and the source of funds deposited into, each account as needed to guard against money laundering and report any suspicious transactions;

•

to ascertain for any foreign bank, the shares of which are not publicly traded, the identity of the owners of the foreign bank, and the nature and extent of the ownership interest of each such owner; and

•

to ascertain whether any foreign bank provides correspondent accounts to other foreign banks and, if so, the identity of those foreign banks and related due diligence information.

Under the USA PATRIOT Act, financial institutions are also required to establish anti-money laundering programs. The USA PATRIOT Act sets forth minimum standards for these programs, including:

•

the development of internal policies, procedures, and controls;

•

the designation of a compliance officer;

•

an ongoing employee training program; and

•

an independent audit function to test the programs.

In addition, under the USA PATRIOT Act, the Secretary of the Treasury has adopted rules addressing a number of related issues, including increasing the cooperation and information sharing between financial institutions, regulators, and law enforcement authorities regarding individuals, entities and organizations engaged in, or reasonably suspected based on credible evidence of engaging in, terrorist acts or money laundering activities. Any financial institution complying with these rules will not be deemed to violate the privacy provisions of the GLB Act that are discussed above. Finally, under the regulations of the Office of Foreign Asset Control (“OFAC”), we are required to monitor and block transactions with certain “specially designated nationals” who OFAC has determined pose a risk to U.S. national security.

Consumer Laws and Regulations

We are also subject to certain consumer laws and regulations that are designed to protect consumers in transactions with banks. While the following list is not exhaustive, these laws and regulations include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair and Accurate Credit Transactions Act, the Real Estate Settlement Procedures Act and the Fair Housing Act, among others. These laws and regulations, among other things, prohibit discrimination on the basis of race, gender or other designated characteristics and mandate various disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits or making loans to such customers. These and other laws also limit finance charges or other fees or charges earned in our activities. We must comply with the applicable provisions of these consumer protection laws and regulations as part of our ongoing customer relations.

Technology Risk Management and Consumer Privacy

State and federal banking regulators have issued various policy statements emphasizing the importance of technology risk management and supervision in evaluating the safety and soundness of depository institutions with respect to banks that contract with outside vendors to provide data processing and core banking functions. The use of technology-related products, services, delivery channels and processes exposes a bank to various risks, particularly operational, privacy, security, strategic, reputational and compliance. Banks are generally expected to prudently manage technology-related risks as part of their comprehensive risk management policies by identifying, measuring, monitoring and controlling risks associated with the use of technology.

Under Section 501 of the GLB Act, the federal banking agencies have established appropriate standards for financial institutions regarding the implementation of safeguards to ensure the security and confidentiality of customer records and information, protection against any anticipated threats or hazards to the security or integrity of such records and protection against unauthorized access to or use of such records or information in a way that could result in substantial harm or inconvenience to a customer. Among other matters, the rules require each bank to implement a comprehensive written information security program that includes administrative, technical and physical safeguards relating to customer information.

Under the GLB Act, a financial institution must also provide its customers with a notice of privacy policies and practices. Section 502 prohibits a financial institution from disclosing nonpublic personal information about a customer to nonaffiliated third parties unless the institution satisfies various notice and opt-out requirements and the customer has not elected to opt out of the disclosure. Under Section 504, the agencies are authorized to issue regulations as necessary to implement notice requirements and restrictions on a financial institution’s ability to disclose nonpublic personal information about customers to nonaffiliated third parties. Under the final rule the regulators adopted, all banks must develop initial and annual privacy notices which describe in general terms the bank’s information sharing practices. Banks that share nonpublic personal information about customers with nonaffiliated third parties must also provide customers with an opt-out notice and a reasonable period of time for the customer to opt out of any such disclosure (with certain exceptions). Limitations are placed on the extent to which a bank can disclose an account number or access code for credit card, deposit or transaction accounts to any nonaffiliated third party for use in marketing.

Regulatory Reform and Legislation

The U.S. and global economies have experienced and are experiencing significant stress and disruptions in the financial sector. Dramatic slowdowns in the housing industry with falling home prices, elevated levels of foreclosures and high unemployment have created strains on financial institutions, including government-sponsored entities and investment banks. As a result, many financial institutions sought and continue to seek additional capital, merged or continue to seek mergers with other institutions and, in some cases, failed.

In response to the financial crisis affecting the banking and financial markets, in October 2008, the Emergency Economic Stabilization Act of 2008 (the “EESA”) was signed into law. Pursuant to the EESA, the U.S. Treasury (“the Treasury”) was authorized to purchase equity stakes in U.S. financial institutions. Under this program, known as the Troubled Asset Relief Program Capital Purchase Program (the “TARP Capital Purchase Program”), the Treasury made $250 billion of capital available to U.S. financial institutions through the purchase of preferred stock or subordinated debentures by the Treasury. In conjunction with the purchase of preferred stock from publicly-held financial institutions, the Treasury received warrants to purchase common stock with an aggregate market price equal to 15% of the total amount of the preferred investment. Participating financial institutions were required to adopt the Treasury’s standards for executive compensation and corporate governance for the period during which the Treasury holds equity issued under the TARP Capital Purchase Program and were restricted from increasing dividends to common shareholders or repurchasing common stock for three years without the consent of the Treasury. The Company did not participate in the TARP Capital Purchase Program.

New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations, and competitive relationships of the nation’s financial institutions. Included among current proposals are discussions around restructuring the regulatory framework in which we and the Bank operate. Further, under the EESA, Congress has the ability to impose “after-the-fact” terms and conditions on participants in the TARP Capital Purchase Program. On February 10, 2009, the Treasury announced the Financial Stability Plan under the EESA (the “Financial Stability Plan”) which was intended to further stabilize financial institutions and stimulate lending across a broad range of economic sectors. On February 18, 2009, President Obama signed the America Recovery and Reinvestment Act (“ARRA”), a broad economic stimulus package that included additional restrictions on, and potential additional regulation of, financial institutions. Additional regulations adopted as part of the EESA, the Financial Stability Plan, the ARRA, or other legislation may subject us to additional regulatory requirements. We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute.

ITEM 1A.

RISK FACTORS

Our business is subject to certain risks, including those described below. The risks below do not describe all risks applicable to our business and are intended only as a summary of certain material factors that affect our operations in our industry and markets. New risks may emerge at any time, and we cannot predict such risks or estimate the extent to which they may affect our financial performance. More detailed information concerning these and other risks is contained in other sections of this Report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Our business faces unpredictable economic conditions, which have had and could continue to have an adverse effect on us.

General economic conditions impact the banking industry. The credit quality of our loan portfolio necessarily reflects, among other things, the general economic conditions in the areas in which we conduct our business. Our continued financial success depends somewhat on factors beyond our control, including:

•

general economic conditions, including national and local real estate markets;

•

the supply of and demand for deposits and other investable funds;

•

demand for loans and access to credit;

•

interest rates; and

•

federal, state and local laws affecting these matters.

Any substantial deterioration in any of the foregoing conditions could have a material adverse effect on our financial condition, results of operations and liquidity, and would also likely adversely affect the market price of our common stock.

In our business, we must effectively manage our credit risk.

As a lender, we are exposed to the risk that our loan customers may not repay their loans according to the terms of these loans and the collateral securing the payment of these loans may be insufficient to fully compensate us for the outstanding balance of the loan plus the costs to dispose of the collateral. We may experience significant loan losses, which could have a material adverse effect on our operating results and financial condition. Management makes various assumptions and judgments about the collectability of our loan portfolio, including the diversification by industry of our commercial loan portfolio, the amount of nonperforming loans and related collateral, the volume, growth and composition of our loan portfolio, the effects on the loan portfolio of current economic indicators and their probable impact on borrowers and the evaluation of our loan portfolio through our internal loan review process and other relevant factors.

We maintain an allowance for loan losses, which is an allowance established through a provision for loan losses charged to expense that represents management’s best estimate of probable losses inherent in our loan portfolio. Additional credit losses will likely occur in the future and may occur at a rate greater than we have experienced to date. In determining the amount of the allowance, we rely on an analysis of our loan portfolio, our experience and our evaluation of general economic conditions. If our assumptions prove to be incorrect, our current allowance may not be sufficient and adjustments may be necessary to allow for different economic conditions or adverse developments in our loan portfolio. Material additions to the allowance could materially decrease our net income.

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

Our business is concentrated in southeast Georgia and northeast Florida and a downturn in the local economy may adversely affect our business.

The business of the Bank is concentrated in southeast Georgia and northeast Florida. Most of our customers and revenue are derived from this area. The economy of this region is focused on real estate development, tourism and recreation, shipping and transportation, military, agriculture (including timber), governmental, commercial and industrial, medical, and education. Because we generally do not derive revenue or customers from other parts of the region or nation, our business and operations are dependent on economic conditions in our markets. Any significant decline in one or more segments of the local economy could adversely affect our business, revenue, operations and properties.

If the communities in which we operate do not recover and grow as anticipated or if prevailing economic conditions locally or nationally do not improve, our business may continue to be negatively impacted. The current economic downturn, increase in unemployment, and other events that have negatively affected household and corporate incomes both nationally and locally have decreased the demand for loans and our other products and services and have increased the number of customers who fail to pay interest or principal on their loans. Furthermore, if the economy improves in the future, we may not benefit from any market growth or favorable economic conditions in our market areas if they do occur.

Changes in economic conditions could cause an increase in delinquencies and non-performing assets, including loan charge-offs, which could depress our net income and growth.

If we continue to see negative economic conditions in the United States as a whole or in the portions of Georgia and Florida that we serve, we could continue to experience a high rate of delinquencies and loan charge-offs, which would continue to reduce our net income and adversely affect our financial condition.

The value of real estate collateral may fluctuate significantly resulting in an under-collateralized loan portfolio.

The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located. We are in the fourth year of a local real estate market depression where we have seen dramatic declines in real estate valuations. At December 31, 2011, approximately 85.6% of our loan portfolio includes real estate secured loans. If the value of the real estate serving as collateral for our loan portfolio were to continue to decline materially, a significant part of our loan portfolio could become under-collateralized. As we have experienced in recent years, if the loans that are collateralized by real estate become troubled during a time when market conditions are declining or have declined, then, in the event of foreclosure, we may not be able to realize the amount of collateral that we anticipated at the time of originating the loan. These factors have had a material adverse effect on our provision for loan losses and our operating results and financial condition.

Furthermore, to the extent that real estate collateral is obtained through foreclosure, the costs of holding and marketing the real estate collateral, as well as the ultimate values obtained from disposition, could continue to reduce our earnings and adversely affect our financial condition.

We will realize future losses if the proceeds we receive upon liquidation of nonperforming assets, particularly foreclosed real estate, are less than their carrying values.

Foreclosed real estate is carried on our books at fair value (typically based on appraisals) less estimated selling costs. Deteriorating market conditions could result in additional losses. Over the last two years, we have written-down foreclosed real estate by $4,274,026. Unless real estate markets stabilize and nonperforming levels moderate, the Company expects additional write-downs to be necessary in 2012.

Difficult market conditions and economic trends have adversely affected our industry and our business and may continue to do so.

As a result of the negative developments in the financial industry, new federal and state laws and regulations regarding lending, funding practices, liquidity standards, and other financial practices have been enacted; the Dodd-Frank Act, which is further discussed in this Report under the section “Supervision and Regulation”, is a case in point. Additionally, bank regulatory agencies have been, and are expected to continue being, aggressive in responding to concerns and trends identified in examinations. Difficult market conditions and the impact of new legislation in response to these developments could restrict our business operations, including our ability to originate loans, and increase our cost of compliance, divert our resources, and adversely affect our profitability.

Since August 2008, 132 banks and thrifts failed in Georgia and Florida, including numerous institutions with a presence in our markets. The closure of these institutions and the subsequent liquidation of their assets in our markets at depressed values by the FDIC and the acquiring institutions have had a negative impact on our business and on our customers in real estate-related businesses. It could take several years for the market to absorb the real estate inventories held by the FDIC and other financial institutions in our markets.

We are subject to extensive legislation and regulation that could limit or restrict our activities and adversely affect our earnings and financial condition.

We operate in a highly regulated industry and are subject to examination, supervision and comprehensive regulation by various federal and state agencies. Many of these regulations are further discussed in this Report under the section “Supervision and Regulation”. Our compliance with these regulations is costly and restricts certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits, and locations of offices. Our failure to comply with these requirements can lead to, among other remedies, administrative enforcement actions, termination or suspension of our licenses, rights of rescission for borrowers, and class action lawsuits. Many of these regulations are intended to protect depositors, the public and the FDIC rather than shareholders. The laws and regulations applicable to the banking industry are changing rapidly to reflect the government’s concerns about the economy and the banking system, and these changes may adversely affect our business and profitability. Changes to statutes, regulations or regulatory policies, and the interpretation and implementation of new statutes, regulations or policies could affect us in substantial and unpredictable ways, including limiting the types of financial services and products we may offer and/or increasing the ability of nonbanks to offer competing financial services and products.

Further, the legislation and regulations recently enacted in an effort to either stabilize or reform the financial and capital markets may have unintended harmful consequences on the U.S. financial system and our business. The overall effects of these and other legislative and regulatory efforts on the financial markets remain uncertain and they may not have the intended results. Should these or other legislative or regulatory initiatives have unintended effects, our business, financial condition, results of operations and prospects could be materially and adversely affected.

In addition, we may need to modify our strategies and business operations in response to these changes. We may also incur increased capital requirements and constraints or additional costs to satisfy new regulatory requirements. Given the volatile nature of the current regulatory environment and the uncertainties underlying efforts to mitigate or reverse disruptions, we may not timely anticipate or manage existing, new or additional risks, contingencies or developments in the current or future environment. Our failure to do so could materially and adversely affect our business, financial condition, results of operations and prospects.

We may need to raise additional capital in the future, but that capital may not be available when we need it or may be dilutive.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. At some point, particularly if our asset quality or earnings were to continue to deteriorate significantly, we may need to raise additional capital to support our operations and any future growth, to protect against any further deterioration in our loan portfolio, or to meet our other commitments and business needs.

Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and on our financial performance. Volatility and disruption in the capital and credit markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength. Such market conditions may disrupt our ability to raise additional capital when needed.

If we cannot raise additional capital when needed, our results of operations and financial condition may be adversely affected, and our banking regulators may subject the Bank to a formal regulatory enforcement action. In addition, the issuance of additional shares of our common stock will dilute the ownership interest of our common shareholders.

Diminished access to alternative sources of liquidity could adversely affect our net income, net interest margin and overall liquidity.

Although we have seldom used them, we have historically had access to a number of alternative sources of liquidity such as advances from the Federal Home Loan Bank of Atlanta (the “FHLB”), secured and unsecured lines of credit from other banks and the Federal Reserve’s discount window. Given the recent volatility in the credit and liquidity markets and a deterioration in our financial condition resulting from an increase in nonperforming assets and a decrease in earnings, we may not be able to obtain liquidity on terms that are favorable to us, or at all. In addition, financial institutions are unwilling to extend credit to banks because of concerns about the banking industry and the economy generally and, as discussed above, there may not be a viable market for raising equity capital. If our access to these sources of liquidity is diminished, or if it is only available on unfavorable terms, then our net income, net interest margin and overall liquidity could be adversely affected.

Our net interest income could be negatively affected by the continued low level of short-term interest rates, a sudden rising interest rate environment, recent developments in the credit and real estate markets and competition in our primary market area.

As a community bank, our earnings significantly depend on our net interest income, which is the difference between the income that we earn on interest-earning assets, such as loans and investment securities, and the expense that we pay on interest-bearing liabilities, such as deposits and borrowings. Therefore, any change in general market interest rates, including changes resulting from changes in the Federal Reserve’s fiscal and monetary policies, affects us more than non-financial institutions and can have a significant effect on our net interest income and net income.

Through monetary policy, the Federal Reserve has held short-term interest rates at historic lows since 2008. A significant portion of our loans, including residential construction and development loans and other commercial loans, bears interest at variable rates. The interest rates on a significant part of these loans decreased when the Federal Reserve reduced interest rates. In response, we instituted interest rate floors on most of our variable rate loans that are now considered “above” market rates. In addition, many of our customers have taken advantage of the low interest rate environment to borrow at fixed rates for terms up to five years. Accordingly, an increase in interest rates may not result in an increase in our interest income. Also, as interest rates rise, our interest expense for deposits and other borrowings will likely also rise. In addition, an increase in interest rates may decrease the demand for consumer and commercial credit, including real estate loans, which are a major component of our loan portfolio. Furthermore, increases in interest rates will add to the borrowing costs of our loan customers, which may adversely affect their ability to repay their loans.

Changes in the level of interest rates also may negatively affect our ability to originate real estate loans, the value of our assets and our ability to realize gains from the sale of our assets, all of which ultimately affect our earnings. A decline in the market value of our assets has limited our ability to borrow additional funds and could result in our lenders requiring additional collateral from us under our borrowing agreements. As a result, we could be required to sell some of our loans and investments under adverse market conditions, upon terms that are not favorable to us, to maintain our liquidity. If those sales are made at prices lower than the recorded amounts of the investments and loans, we will incur losses.

A decline in loans outstanding, increases in nonperforming loans and the continued low interest rate environment reduced our net interest income during the three years ended December 31, 2011 and could cause additional pressure on net interest income in future periods. This reduction in net interest income may also be exacerbated by the high level of competition that we face in our markets. Any significant reduction in our net interest income could negatively affect our business and could have a material adverse impact on our capital, financial condition and results of operations.

We face strong competition from other financial services providers.

We operate in highly competitive markets for the products and services we offer. The competition among financial services providers to attract and retain customers is strong. Customer loyalty can be easily influenced by a competitor’s new products, especially offerings that could provide cost savings or a higher return to the customer. Some of our competitors may be better able to provide a wider range of products and services over a greater geographic area. We compete with commercial banks, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, and other mutual funds, as well as other super-regional, national and international financial institutions that operate in our market areas and elsewhere. Moreover, this competitive industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Many of our competitors have greater financial resources, fewer regulatory constraints and some have lower cost structures. While we believe we can and do successfully compete with these other financial institutions in our market areas, we may face a competitive disadvantage as a result of our smaller size, lack of geographic diversification and inability to spread our marketing costs across a broader market. As a result of these various sources of competition, we could lose business to competitors or be forced to price products and services on less advantageous terms to keep or attract customers, either of which could adversely affect our profitability.

Additionally, customers could pursue alternatives to bank deposits and bank transactions, causing us to lose a relatively inexpensive source of funding and fee income. For example, customers may perceive other investments, such as the stock market, as providing superior returns. And, technology now allows consumers to completely bypass banks in paying bills, transferring funds, and completing other financial transactions. This process could result in loss of deposits and related fee income. Conversely, when customers move borrowing relationships to other parties, we lose interest income.

If problem asset levels and real estate concentrations are not reduced, we could face formal regulatory action and loss of liquidity sources.

If our problem asset levels and real estate concentrations are not reduced, we could face a formal regulatory order and loss of liquidity sources, including the Federal Reserve discount window. Our future lending activities and growth prospects could be significantly curtailed, we could be required to take significant write-downs on problem assets, and our deposit insurance assessments could increase substantially. Publication of an enforcement order could harm our reputation and result in loss of deposits and market share. Besides our financial condition and operating results, our stock price could be materially and adversely affected.

Our financial instruments carried at fair value expose us to certain market risks.

We maintain an investment portfolio of securities available-for-sale ~~securities portfolio~~, which includes various types of debt instruments and maturities. Instruments carried at fair value are exposed to market risks related to changes in interest rates, market liquidity, and default risks. Changes in the market values of these instruments could have a material adverse impact on our financial condition. Additionally, accounting regulations may require us to record other-than-temporary impairment losses ~~as further disclosed in Notes 1 and 2 to the Consolidated Financial Statements~~. We may classify additional financial assets or liabilities at fair value in the future.

Diminished access to historical and alternative sources of liquidity could adversely affect our operating results, net interest margin, and our overall liquidity.

Deposits are our primary source of liquidity. In the current environment, customer confidence is a critical element in growing and retaining deposits, and heightened sensitivity to our asset quality could affect the stability of our deposit base. If our asset quality continues to deteriorate, our ability to grow and retain deposits could be curtailed, increasing our costs of funds and negatively impacting our overall liquidity and financial condition. We have historically had access to alternative sources of liquidity, including unsecured lines of credit from correspondent banks. Due to nonperforming assets and other trends, certain of these sources, including correspondent lines, are nocurrently ~~longer~~not available. The reduction in these alternative sources of liquidity has increased our reliance on deposits.

Recapture of our deferred tax asset balance (i.e. reversal of the valuation allowance) is subject to considerable judgment.

InAt ~~the~~December 31, ~~fourth quarter of 2010~~2011, we recorded a $47,~~777~~464,~~526~~854 valuation allowance for deferred tax assets. The establishment of the valuation allowance has significantly and adversely affected the Company’s operating results and financial conditions, including regulatory capital ratios~~, in 2010~~. We expect to reverse the majority of the valuation allowance for deferred tax assets once we return to a sustained level of profitability. Like other estimates, the reversal of the valuation allowance is subject to considerable judgment, and we cannot affirm with certainty when the deferred tax asset balance will be restored.

Issuance or sale of common stock or other equity securities resulting in an “ownership change,” as defined in the Internal Revenue Code, could impair our ability to fully utilize certain tax benefits.

Our ability to use realized net operating losses to offset future taxable income may be significantly limited if we experience an “ownership change” as defined by Section 382 of the Internal Revenue Code of 1986, as amended. An ownership change under Section 382 generally occurs when the aggregate percentage of stock held by 5% shareholders increases by more than 50% over a rolling three year period. In general, the rules of Section 382 allow post-change corporations to use pre-change net operating losses, but impose an annual limitation equal to the value of the corporation’s stock immediately before the ownership change multiplied by the long-term tax-exempt rate, as defined by the Internal Revenue Code. Because a valuation allowance already exists for our entire deferred tax assets, no additional charge to earnings would result from an ownership change; however, such ownership change could adversely impact our ability to recover the deferred tax asset in the future.

Departures of our key personnel may harm our ability to operate successfully.

Our success has been and continues to bedepend largely ~~dependent~~ on the services of our senior management team, including our senior loan officers and our Board of Directors, many of whom have significant relationships with our customers. Our continued success will depend, to a large extent, on the continued service of these key personnel.

Fluctuations in our expenses and other costs may hurt our financial results.

Our expenses and other costs, such as operating and marketing expenses, directly affect our earnings results. In light of the extremely competitive environment in which we operate, and because the size and scale of many competitors provides them with increased operational efficiencies, we must successfully manage such expenses. As our business develops, changes, or expands, additional expenses can arise. Changes in business strategies, including the possible sale or closure of some of our branches, may be warranted to manage our expenses and improve our results of operations.

13Higher FDIC deposit insurance premiums and assessments could adversely affect our financial condition.

~~Table~~FDIC deposit insurance premiums increased substantially for all insured financial institutions in 2009 as the large number of ~~Contents~~bank failures depleted the Deposit Insurance Fund. In addition, the FDIC required all financial institutions, including the Bank, to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010 through and including 2012 to re-capitalize the Deposit Insurance Fund. Furthermore, the FDIC also increased the assessment rates by three basis points effective January 1, 2011. If FDIC deposit insurance premiums and assessments continue to increase, it could adversely affect our financial condition.

We must respond to rapid technological and other changes that may be more difficult or expensive than anticipated.

~~Our~~If ~~success~~our ~~depends,~~competitors inintroduce ~~part~~new products and services embodying new technologies, onor ~~the~~if ~~ability~~new toindustry ~~adapt~~standards ~~products~~and practices emerge, our existing product and ~~services~~service toofferings, ~~evolving~~technology ~~industry~~and ~~standards~~systems may become obsolete. ~~Financial~~ ~~institutions~~Further, ~~face~~if ~~mounting~~we ~~pressure~~fail to ~~provide~~adopt or develop new technologies or to adapt our products and services atto ~~lower~~emerging ~~prices~~industry ~~which~~standards, ~~can~~we ~~significantly~~may ~~reduce~~lose ~~profitability.~~current ~~This~~and ~~practice~~future ~~can~~customers, ~~reduce~~which ~~net~~could ~~interest~~have ~~income~~a ~~and~~material ~~noninterest~~adverse ~~income~~effect ~~from~~on ~~fee-based~~our ~~products~~business, financial condition and ~~services~~results of operations. ~~In addition,~~The ~~the~~financial ~~widespread~~services ~~adoption~~industry ofis changing ~~new~~rapidly, ~~technologies~~and ~~could~~to ~~require~~remain uscompetitive, we must continue to ~~make~~enhance ~~substantial~~and ~~capital~~improve ~~expenditures~~the tofunctionality ~~modify~~and orfeatures ~~adapt~~of ~~existing~~our products, services and ~~services~~technologies. orThese ~~develop~~changes ~~new~~may ~~products~~be ~~and~~more ~~services~~difficult or expensive than we anticipate. We may not be successful in introducing new products and services in response to industry trends or development in technology, or those new products may not achieve market acceptance. As a result, we could lose business, be forced to price products and services on less advantageous terms to retain or attract customers, or be subject to cost increases.

We rely on other companies to provide key components of our business infrastructure.

Third parties provide key components of our business infrastructure such as processing, internet connections, and network access. Any disruption in services provided by these third parties could adversely affect our ability to deliver products and services to customers and otherwise conduct business. Technological or financial difficulties of a third party service provider could adversely affect our business if those difficulties result in the interruption or discontinuation of services provided by that party. Our insurance coverage may be inadequate to cover losses resulting from system failures or other disruptions. Failures in our business infrastructure could increase the costs of doing business.

We rely on our systems, employees, and certain counterparties, and certain failures could materially and adversely affect our operations.

We are exposed to many types of operational risk, including the risk of fraud by employees and outsiders, clerical and record-keeping errors, and computer/telecommunications malfunctions. Our business is dependent on our ability to process a large number of increasingly complex transactions. If any of our financial, accounting, or other data processing systems fail or have other significant shortcomings, we could be materially and adversely affected. We are similarly dependent on our employees. We could be adversely affected if one of our employees causes a significant operational breakdown or failure of our operations or systems, either as a result of human error, sabotage, or fraudulent manipulation. Third parties with whom we do business could also be sources of operational risk to us due to breakdowns or failures of such parties’ own systems or employees. Any of these occurrences could diminish our ability to operate.

Disruptions of our operating systems from events wholly or partially beyond our control, including computer viruses, electrical or telecommunications outages, or natural or man-made disasters could occur. Such disruptions may interrupt our customer services and cause loss or liability to us. In addition, our controls and procedures as well as business continuity and data security systems could prove inadequate. For example, we could be susceptible to hacking or identity theft. Any such failure could require us to expend significant resources to correct the defect and expose us to litigation or losses not covered by insurance.

We depend on the accuracy and completeness of information about customers and counterparties.

In deciding whether to extend credit, invest, or enter into other transactions with clients and counterparties, we may rely on information furnished by or on behalf of customers and counterparties, including financial statements and other data. We may also rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on independent auditors’ reports.

~~The~~We ~~soundness~~do ofbusiness with other financial institutions that could ~~adversely~~experience ~~affect~~financial usdifficulty.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. ~~Financial~~Because ~~services~~these financial institutions ~~are~~have ~~interrelated~~many ~~as a result of clearing~~risks, ~~counterparty,~~as ordo ~~other relationships. We have exposure to industries and counterparties~~we, ~~and~~ we ~~routinely~~could ~~execute~~be ~~transactions~~adversely ~~with~~affected ~~other parties,~~should ~~including broker-dealers and other commercial banks. As a result, defaults by, or even rumors or questions about,~~ one orof ~~more~~these financial ~~services~~ institutions, orexperience ~~the~~significant financial ~~services~~difficulties ~~industry~~or ~~generally,~~fail ~~have led~~ to ~~market-wide~~comply ~~liquidity problems~~with ~~and~~our ~~could~~agreements ~~lead~~with tothem. Financial ~~losses~~services ~~or defaults by us or other~~ institutions. ~~Many~~are ofinterrelated ~~these~~as ~~transactions~~a ~~expose~~result ~~us to credit risk in the event~~ of ~~default~~clearing, ofcounterparty, ~~the~~or other ~~party or customer~~relationships. ~~Resultant losses could materially and adversely affect our results of operations.~~

14We have exposure to industries and counterparties, and we routinely execute transactions with other parties, including broker-dealers, correspondent banks and other commercial banks. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or other institutions. Many of these transactions expose us to credit risk in the event of default of the other party or customer. Resultant losses could materially and adversely affect our results of operations.

Hurricanes and other natural or man-made disasters may adversely affect our loan portfolio and operations and increase the cost of doing business.

Large scale natural or man-made disasters may significantly affect our loan portfolio by damaging properties pledged as collateral and impairing the ability of certain borrowers to repay their loans. Such events may also disrupt our operations and ability to provide financial services to our customers. The impact of such an event may not be fully-protected by our insurance. Furthermore, the nature and level of natural disasters cannot be predicted and may be intensified by global climate change. The ultimate impact of a natural disaster on future financial results is difficult to predict and will be affected by numerous factors, including the extent of damage to ~~collateral~~our facilities, the extent to which ~~damaged~~damages ~~collateral~~are is not covered by insurance, the extent to which unemployment and other economic conditions caused by the disaster affect borrowers’ ability to repay their loans, the impact on real estate markets, and the cost of collection, foreclosure moratoriums, loan forbearances, and other accommodations granted to borrowers and other customers.

Negative public opinion could damage our reputation and adversely impact business and revenues.

As a financial institution, our earnings and capital are subject to risks associated with negative public opinion. Negative public opinion could result from our actual or alleged conduct in any number of activities, including lending practices, the failure of any product or service sold by us to meet our customers’ expectations or applicable regulatory requirements, corporate governance, or from actions taken by regulators and community organizations in response to those activities. Negative public opinion can adversely affect our ability to keep or attract customers and expose us to litigation and regulatory action.

Changes in accounting policies or standards could materially impact our financial statements.

Our accounting policies and processes are fundamental to how we record and report our financial condition and results of operations. From time to time, the Financial Accounting Standards Board (“FASB”) and SEC change the financial accounting and reporting standards that govern the preparation of our financial statements and related disclosures. These changes, which can be hard to predict, can materially impact how we record and report our financial condition and results of operations. Because of the uncertainty surrounding our judgments and estimates pertaining to our accounting policies, we cannot guarantee that wein the future we will not be required to adjust accounting policies or restate prior period financial statements. ~~See the Critical Accounting Policies in Part II, Item 7, and Note 1 to the Consolidated Financial Statements for more information.~~

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

Our disclosure controls and procedures over financial reporting are designed to ~~reasonably~~provide ~~assure~~reasonable assurance that information required to be disclosed in the reports we file or submit to the SEC is accurately accumulated and communicated to management, and recorded, processed, summarized, and reported in accordance with the SEC’s rules and ~~forms~~regulations. We believe that any disclosure controls and procedures over financial reporting or internal controls and procedures, no matter how well ~~conceived~~designed and operated, can ~~provide~~ only provide reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, that alternative reasoned judgments can be drawn, or that breakdowns can occur because of a 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 an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

The costs and effects of litigation, investigations, or similar matters, or adverse facts and developments related thereto, could materially affect our business, operating results, and financial condition.

From time to time, we may be involved in litigation, investigations, or similar matters arising out of our business. Our insurance may not cover all claims asserted against us, and such claims, regardless of merit or eventual outcome, may harm our reputation. Should the ultimate judgments or settlements in any litigation or investigation significantly exceed our insurance coverage, our business, financial condition, and results of operations will be impacted. In addition, we may not be able to obtain appropriate types or levels of insurance in the future, nor may we be able to obtain adequate replacement policies with acceptable terms, if at all.

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

~~Our~~The directors and executive officers of the Company and the Bank, as a group, beneficially owned approximately 29.5% of our outstanding common stock as of December 31, ~~2010~~2011. As a result of their ownership, ~~the~~these directors and executive officers will have the ability, by voting their shares in concert, to significantly influence the outcome of all matters submitted to our shareholders for approval, including the election of directors.

ability, by voting their shares in concert, to significantly influence the outcome of all matters submitted to our shareholders for approval, including the election of directors.

The trading volume in our common stock has been low, and the sale of substantial amounts of our common stock in the public market could depress the price of our common stock.

The trading volume in our common stock has been relatively low. We cannot say with any certainty that a more active and liquid trading market for our common stock will develop. As a result, it may be more difficult for you to sell a large block of shares at the same price you could sell a smaller number of shares.

Sales of substantial amounts of common stock, or the potential for large amounts of sales, may cause the price of our common stock to decline or impair our future ability to raise capital through sales of stock.

Our stock price can be volatile.

The current market price of our common stock may not be indicative of future prices. Our stock price could fluctuate widely in response to a variety of factors including:

• Actual or anticipated variations in earnings;

• Legislation or actions by government regulators;

• Changes in dividends;

• Issuance of common stock or other equity securities in the future;

• Operating and stock performance of other companies deemed to be peers;

• Announcement of developments related to our business;

• New technology or services offered by traditional and non-traditional competitors;

• Changes in analysts’ recommendations or projections; and

• Cyclical fluctuations

We may be required to raise capital in the future.

If real estate conditions in the Company’s markets do not moderate or continue to deteriorate over a protracted period, negatively affecting our net interest income and increasing provisions and write-downs associated with nonperforming assets, additional capital could be required in the future. Such capital may not be available on favorable terms and could significantly dilute the ownership of existing shareholders. The Company and SEB are currently deemed “well-capitalized” under regulatory guidelines. The Company’s current capital position is disclosed in Note 14 to the Consolidated Financial Statements.

We have suspended dividend payments until our operating performance improves. Regulatory approval will be required prior to payment of a future dividend.

The Company has suspended dividends until operating performance improves and credit losses abate. As a result, common shareholders will not receive any current cash payouts. The dividend reduction could adversely affect the market price of our common stock.

Item 1B. Unresolved Staff Comments.

None

Item 2. Properties.

Company Property. The Company’s executive offices are located in SEB’s main banking office at 1010 North Way, Darien, Georgia.

Banking Facilities. Besides its main office in Darien, SEB has fifteen other banking offices in northeast Florida and southeast Georgia as shown in the next table.

Banking Offices
Florida	542238 US Highway 1 Nassau County Callahan, Florida 32011	463128 State Road 200 Nassau County Yulee, Florida 32097
	15885 County Road 108 Nassau County Hilliard, Florida 32046
Georgia	15 Trade Street Glynn County Brunswick, Georgia 31525	1501 GA Highway 40 East Camden County Kingsland, Georgia 31548
	620 S. Peterson Avenue Coffee County Douglas, Georgia 31533	105 Bacon Street Brantley County Nahunta, Georgia 31553
	15039 Highway 17 McIntosh County Eulonia, Georgia 31331	910 Van Streat Highway Coffee County Nicholls, Georgia 31554
Georgia	4233 Second Street North Charlton County Folkston, Georgia 31537	2004 Highway 17 Bryan County Richmond Hill, Georgia 31324
	14 Hinson Street Jeff Davis County Hazlehurst, Georgia 31539	2512 Osborne Road Camden County St. Marys, Georgia 31558
	4604 Main Street East Brantley County Hoboken, Georgia 31542	414 Bedell Avenue Camden County Woodbine, Georgia 31569

The Company owns all of its main office and branch facilities. All properties except Eulonia have been renovated in the last seven years.

The Company also owns four parcels of land that are being held for future expansion; three parcels are located in Glynn County, in the St. Simons, Southport, and Sterling areas, and the fourth in Brantley County, near Waynesville.

See Note 4 to the Consolidated Financial Statements for further property information.

Item 3. Legal Proceedings.

The Company and its subsidiary are parties to claims and lawsuits arising in the course of their normal business activities. Although the ultimate outcome of these suits cannot be ascertained at this time, it is the opinion of management and counsel that none of these matters, when resolved, will have a material effect on the Company’s results of operations or financial position.

Item 4. (Removed and Reserved).

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The Company’s stock, which is not listed on a national securities exchange, trades over-the-counter under the symbol “SEBC.” The high and low sales prices shown below are based on information being posted to automated quotation systems by broker-dealers. These market prices may include dealer mark-up, markdown, and/or commission. Prices paid on treasury stock purchases with non-brokers are excluded from these results.

The following table sets forth the high and low sales prices, the cash dividends declared, and earnings per share on the Company’s common stock during the periods indicated.

Market Sales Price, Dividends Declared, & Earnings (Loss) Per Share	Quarter			Sales Price				Dividends Declared		Basic & Diluted Earnings (Loss)
				High		Low
2010		4	th	$	9.00	$	7.60	$	-		$(2.16)
		3	rd		10.60		6.75		-		(0.85)
		2	nd		11.00		10.50		0.06 1/2		(0.66)
		1	st		11.01		10.00		0.06 1/2		(0.37)
2009		4	th	$	11.75	$	8.25	$	0.06 1/2		$(0.09)
		3	rd		13.00		11.00		0.06 1/2		0.09
		2	nd		16.00		11.50		0.08 1/2		0.03
		1	st		14.00		11.00		0.08 1/2		0.20
2008		4	th	$	19.00	$	12.90	$	0.12 1/2		$(0.02)
		3	rd		20.75		16.25		0.25		0.36
		2	nd		21.00		20.00		-		0.40
		1	st		23.15		19.75		0.25		0.38

The Company had approximately 500 shareholders of record at December 31, 2010.

On July 21, 2010, the Company’s Board of Directors voted to suspend dividends 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 II, Item 7 for more details on the Company’s capital position. Refer to the Nonperforming Assets section of Part II, Item 7 for particulars on problem asset trends and their resultant effect on earnings.

The Company has also suspended its treasury stock program. Purchases made prior to the suspension are summarized in the table below:

Share Repurchases - 2010	Total Numberof SharesPurchased		AveragePrice Paidper Share		Number of SharesPurchased as Part ofPublicly AnnouncedPlans or Programs		Maximum Dollar Valueof Shares that May Yetbe Purchased under thePlans or Programs
January 1 – March 31		-		-		-		$6,196,969
April 1- 30		9,143		$10.00		9,143		6,105,539
May 1 – July 21		-		-		-		6,105,539
Total		9,143		$10.00		9,143

Shares of common stock available for issuance under the Company’s Stock Option Plan are detailed in the next table.

Equity Compensation Plans December 31, 2010	Number of Securitiesto be Issued UponExercise ofOutstanding Options,Warrants, and Rights		Weighted AverageExercise Price ofOutstanding Options,Warrants, and Rights			Number of SecuritiesRemaining Availablefor Future IssuanceUnder EquityCompensation Plans
Equity Compensation PlansApproved by Shareholders1		70,250		$15.23	2		79,750
Equity Compensation PlansNot Approved by Shareholders		-		-			-
Total		70,250		$15.23	2		79,750

1Comprises the 2006 Stock Option Plan.

2The weighted average contractual term of the outstanding options is 7.35 years.

See Note 9 to the Consolidated Financial Statements for additional information on outstanding options.

Item 6. Selected Financial Data.

Selected financial data for the last five years is provided in the next table.

Financial Data	2010			2009			2008		2007		2006
(Dollars in thousands except per share data)
Summary of Operations:
Interest income	$	17,460		$	21,120		$	24,798	$	29,148	$	26,513
Interest expense		4,647			5,833			8,093		9,905		6,869
Net interest income		12,813			15,287			16,705		19,243		19,644
Provision for loan losses		14,265			5,890			1,348		305		110
Noninterest income		3,891			4,450			3,570		5,153		3,728
Noninterest expense		15,276			13,626			14,048		13,708		13,577
Income before income tax expense (benefit)		(12,837	)		221			4,879		10,383		9,685
Income tax expense (benefit)		(192	)		(513	)		1,329		3,352		3,110
Net income (loss)	$	(12,645	)	$	734		$	3,550	$	7,031	$	6,575
Net interest income – FTE2	$	13,355		$	15,887		$	17,356	$	19,982	$	20,371
Selected Average Balances:
Total assets	$	431,627		$	413,957		$	429,152	$	410,126	$	388,869
Earning assets4		392,338			380,018			393,756		379,257		360,589
Loans, net of unearned income		256,088			282,946			270,133		268,445		236,120
Investment securities		65,145			89,642			118,486		106,369		117,055
Deposits		367,966			341,863			356,559		343,209		328,491
Shareholders’ equity		54,856			57,146			57,310		54,852		51,615
Selected Year-End Balances:
Total assets	$	427,633		$	421,056		$	434,987	$	436,386	$	410,302
Earning assets4		393,759			369,683			396,795		390,952		375,140
Loans, net of unearned income		245,624			275,726			279,757		269,477		247,765
Allowance for loan losses		9,916			7,170			4,929		4,510		4,240
Investment securities		74,300			74,626			115,480		120,460		126,286

Financial Data, continued:	2010			2009			2008			2007			2006
(Dollars in thousands except per share data)
Selected Year-End Balances:
Deposits	$	375,195		$	351,771		$	349,810		$	362,056		$	341,951
Long-term debt		5,000			5,000			5,000			5,000			5,000
Treasury stock		8,894			8,803			8,350			8,308			7,356
Shareholders’ equity		44,806			56,559			57,184			56,737			52,186
Per Share Ratios:
Basic and diluted earnings (loss)	$	(4.04	)	$	0.23		$	1.12		$	2.19		$	2.04
Dividends declared		0.13			0.30			0.62 1/2			0.67			1.02
Book value		14.32			18.02			18.00			17.85			16.24
Market price:
High		11.00			16.00			23.15			30.00			30.00
Low		6.75			8.25			12.90			24.10			26.00
Common Share Data:
Outstanding at end of year		3,129,388			3,138,531			3,176,331			3,178,331			3,213,600
Basic and diluted weighted average outstanding		3,131,642			3,155,757			3,177,101			3,204,024			3,223,104
Financial Ratios and Other Data:
Profitability:
Return on average assets		(2.93	)%		0.18	%		0.83	%		1.71	%		1.68	%
Return on beginning equity		(22.36	)		1.28			6.26			13.47			13.31
Return on average equity		(23.05	)		1.28			6.19			12.82			12.74
Net interest margin – FTE2		3.40			4.18			4.41			5.27			5.65
Liquidity:
Net loans1 to total deposits		65.47			78.38			79.97			74.43			72.46
Average loans1 to average earnings assets		65.27			74.46			68.60			70.78			65.48
Noninterest-bearing deposits to total deposits		14.76			15.73			15.90			17.80			23.68
Asset Quality:
Net charge-offs to average loans1		4.50			1.28			0.34			0.01			0.08
Nonperforming assets to net loans1 plus foreclosed/repossessed assets		20.35			10.43			3.59			0.40			0.51
Allowance for loan losses to net loans1		4.04			2.60			1.76			1.67			1.71
Allowance to nonperforming loans		0.24			0.33			0.69			6.16			4.40
Capital Adequacy:
Tier 1 capital ratio3		15.88			17.90			17.40			17.93			18.36
Total capital ratio		17.16			19.17			18.66			19.18			19.61
Tier 1 leverage ratio		10.29			14.00			13.61			13.60			13.05
Dividend payout ratio		N/A			129.11			55.94			30.45			49.90

1 Net of unearned income

2 Financial ratios marked “FTE” are presented on a federal taxable-equivalent basis, using a tax rate of 34%.

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

4 Bank-owned life insurance is not included in the earning assets total.

In accordance with generally accepted accounting principles, prior period amounts have not been restated to reflect treasury stock purchases. The FTE adjustments, totaling approximately $542,000, $600,000, $651,000, $739,000, and $727,000 in 2010 - 2006, apply to interest earnings on tax-exempt loans and municipal securities.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “Analysis”) should be read in conjunction with the Consolidated Financial Statements and related Notes. The Company’s accounting policies, which are described in Note 1 to the Consolidated Financial Statements and in the Critical Accounting Policies section of this Analysis, 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 section entitled Forward-Looking Statements within this Analysis.

DESCRIPTION OF BUSINESS

Southeastern Banking Corporation, with assets exceeding $427,633,000, is a financial services company with operations in southeast Georgia and northeast Florida. Southeastern Bank, 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 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.

On December 10, 2010, the Company closed its branch at 601 Palisade Drive in the Southport area of Brunswick, Georgia. The leased facility, which opened in January 2007, had nominal loan and deposit volume.

FINANCIAL CONDITION

Consolidated assets totaled $427,633,057 at December 31, 2010, up $6,577,432 or 1.56% from December 31, 2009. A substantial increase in cash & cash equivalents offset by declines in net loans and investment securities was the primary factor in the 2010 results. Specifically, cash & cash equivalents, which include correspondent balances at the Federal Reserve and federal funds sold, increased $38,236,046, while other real estate grew $3,106,728; net loans declined $32,848,164, and investment securities dropped $326,227. A $23,423,778 increase in deposits precipitated the asset rise. Loans comprised approximately 62%, investment securities, 19%, and interest-bearing deposits in other banks, 18%, of earning assets at December 31, 2010 versus 75%, 20%, and 4%, at December 31, 2009. Overall, earning assets approximated 92% of total assets at December 31, 2010. During the year-earlier period, total assets declined $13,930,924 or 3.20%. Declines in investment securities and net loans were the predominant factors in the 2009 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.

Investment Securities

Overall, investment securities declined $326,227 or 0.44% at December 31, 2010 compared to 2009. Purchases of securities, all during the fourth quarter and primarily comprising short-term securities with original maturities of 90 days or less, approximated $40,084,000, and redemptions, $42,035,000. The short-term securities, mainly Agency discount notes and U.S. Treasury bills, were purchased primarily to collateralize public funds as required by law. Earlier in 2010 and also, 2009, participation in the FDIC Temporary Liquidity Guarantee Program reduced the need for securities collateral for public funds deposits. Effective December 31, 2010, the FDIC amended its deposit insurance program to eliminate insurance coverage above $250,000 on NOW accounts, which are the predominant account type used by public funds. The change in insurance coverage necessitated and will continue to necessitate the purchase of securities to collateralize affected public funds. Other purchase activity has been nominal as management sought to improve the Company’s overall liquidity position by maintaining available cash in interest-bearing deposits in other banks.

Five securities were sold in 2010. Specifically, a municipal holding with a cost basis of $320,000 was sold at a $2,320 loss, and four corporate holdings of the same issuer were sold at a $141,088 loss. Proceeds from the corporate sales totaled $4,274,250. In 2009, securities totaling $15,431,591 were sold at a net gain of $160,014. Approximately $11,239,740 or 73% of the 2009 sales occurred in the corporate sector, 15% in the U.S. Government and federal agency sector, and 12% in the municipal sector. The remaining redemptions both years were largely

attributable to various issuers’ exercise of call options and prepayments in the normal course of business and also, the relatively low-rate interest environment. The effective repricing of redeemed securities impacts current and future earnings results; refer to the Interest Rate and Market Risk/Interest Rate Sensitivity and Operations sections of this Analysis for more details. At December 31, 2010, agency residential mortgage-backed securities, municipals, and corporates comprised 15%, 23%, and 11% of the portfolio; other agency and U.S. Government enterprise securities together comprised 51%. Overall, securities comprised 19% of earning assets at December 31, 2010, down from 20% at year-end 2009. The portfolio yield approximated 5.19% in 2010, down 12 basis points from 5.31% in 2009. Yields are expected to decline further during 2011 due largely to anticipated purchases, including short-term purchases, and year-over-year reductions in corporate securities; on a weighted average basis, these corporate securities had higher yields than many of the other holdings in the portfolio.

Management believes the credit quality of the investment portfolio remains fundamentally sound, with 66.45% of the carrying value of debt securities, including mortgage-backed securities, being backed by U.S. Government agency and U.S. Government-sponsored enterprises at December 31, 2010. The Company does not own any collateralized debt obligations, widely known as CDOs, secured by subprime residential mortgage-backed securities. Additionally, the Company does not own any private label mortgage-backed securities. The Company held $10,766,005 residential mortgage-backed securities issued by Fannie Mae (“FNMA”) and Freddie Mac (“FHLMC”) at December 31, 2010. Residential mortgage-backed securities issued by FNMA and FHLMC are collateralized foremost by the underlying mortgages and secondly, by FNMA and FHLMC themselves. Management continues to monitor the viability of both FNMA and FHLMC as going concerns: In 2010 and early 2011, the U.S. Treasury again reiterated its support of FNMA and FHLMC although changes in the FNMA and FHLMC business model are expected going forward. Besides FNMA and FHLMC, the Company also owned Ginnie Mae mortgage securities with a carrying value of $199,616 at December 31, 2010. U.S. Government and federal agency holdings comprised U.S. Small Business Administration obligations, and U.S. Government-sponsored enterprise holdings comprised Federal Home Loan Bank (“FHLB”), FHLMC, and Federal Farm Credit Bank obligations at December 31, 2010. Credit concern surrounding the FHLB system continues to be widespread. The FHLB obligations owned by the Company carry the highest rating available from Moody’s and Standard and Poor’s. Nonetheless, the Company reviewed its holdings of FHLB debt securities and stock and concluded that its bond and stock holdings are recoverable at par. The Company’s ownership of FHLB stock, which totaled $1,173,700 at December 31, 2010, is included in other assets and recorded at cost.

At December 31, 2010 and also, year-end 2009, the entire corporate portfolio comprised issues of banks and bank holding companies domiciled in the southeastern United States. These corporate debt obligations were all rated “B+” or higher by at least one nationally recognized rating agency at December 31, 2010 except for three non-rated trust preferred securities with an aggregate carrying value of $3,102,003 and unrealized loss of $372,391. The $774,787 net unrealized loss on the total corporate portfolio, down $2,489,498 or 76.26% from year-end 2009 and 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 still affecting the banking industry. As discussed further above and in Note 2 to the Consolidated Financial Statements, the Company sold four “B+” at a $141,088 loss in 2010 and also recorded a $45,059 other-than-temporary impairment charge; refer to the next paragraph for more details on the impairment charge. Except for seventeen non-rated issues with fair values aggregating $4,301,826, all securities in the municipal portfolio were rated, investment grade securities. 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 December 31, 2010, management reviewed securities with an unrealized loss and concluded that no material individual securities were other-than-temporarily impaired. In 2010, the Company recognized a $45,059 impairment loss on one holding; this security was subsequently sold – also in 2010 - at no additional loss. The Company still holds a security from the same issuer; this residual holding had a carrying

~~value~~The oftrading ~~$452,500~~volume ~~and~~in ~~unrealized~~our ~~loss~~common ofstock ~~$39,338~~has atbeen ~~December 31,~~low ~~2010.~~compared Inwith ~~2009,~~larger nobank ~~impairment~~holding ~~charge~~companies, ~~was~~and the ~~recorded.~~sale ~~Additional~~of ~~impairment~~substantial ~~charges~~amounts onof ~~the~~our ~~Company’s~~common ~~holdings~~stock ~~could become necessary~~ in the ~~future~~public ifmarket ~~the~~could ~~economic~~depress ~~crisis facing~~ the ~~banking~~price ~~industry~~of ~~does~~our ~~not~~common ~~abate and various issuers’ financial condition continues to weaken~~stock.

The ~~weighted~~trading volume ~~average~~in ~~life~~our ofcommon ~~the~~stock ~~portfolio~~has ~~approximated~~generally ~~2.60~~been ~~years~~lower atthan ~~year-end~~other ~~2010;~~similarly ~~management~~sized, public bank holding companies. Furthermore, this trading volume does not ~~expect~~compare ~~any~~with ~~material~~bank ~~extension~~holding incompanies ~~duration~~with ~~during~~similar ~~2011~~market capitalization listed on a major stock exchange. ~~The~~Thus, ~~amortized~~the ~~cost~~market in our common stock is somewhat limited in scope relative to some other companies, and ~~estimated~~a ~~fair~~more ~~value of~~active ~~investment~~and ~~securities~~liquid ~~are~~trading ~~delineated~~market for our common stock may not develop in the ~~following~~future. ~~table~~As a result, it may be more difficult for our shareholders to sell a large block of shares for the same price at which a smaller number of shares could be sold.

Investment Securities by Category December 31,	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
(Dollars in thousands)
Available-for-sale:
Debt securities:
U.S. Government and federal agencysecurities
2010		$ 4,551		$ 188		$ -		$ 4,739
2009		4,243		161		-		4,404
2008		7,457		259		-		7,716
U.S. Government-sponsored enterprisesecurities
2010		33,550		118		-		33,668
2009		19,538		395		1		19,932
2008		28,643		660		-		29,303
Agency residential mortgage-backedsecurities
2010		10,323		642		-		10,965
2009		16,872		694		-		17,566
2008		26,185		403		36		26,552
Obligations of states and politicalsubdivisions
2010		16,588		370		137		16,821
2009		22,263		510		126		22,647
Corporate debt obligations
2010		8,881		21		795		8,107
2009		13,341		-		3,264		10,077
2008		24,598		191		3,106		21,683
Total available-for-sale
2010		73,893		1,339		932		74,300
2009		76,257		1,760		3,391		74,626
2008		86,883		1,513		3,142		85,254
Held-to-maturity:1
Debt securities:
Obligations of states and politicalsubdivisions
2010		-		-		-		-
2009		-		-		-		-
2008		30,226		418		345		30,299
Total investment securities:
2010		$ 73,893		$1,339		$ 932		$74,300
2009		76,257		1,760		3,391		74,626
2008		117,109		1,931		3,487		115,553

Sales of substantial amounts of common stock in the market, or the potential for large amounts of sales in the market, may cause the price of our common stock to decline or impair our future ability to raise capital through sales of our common stock.

~~1All~~If ~~investment~~enacted, ~~securities~~recently ~~classified~~passed aslegislation ~~held-to-maturity~~called ~~were~~the ~~transferred~~Jumpstart Our Business Startups Act (or “JOBS Act”) may allow us to terminate the registration ~~available-for-sale~~of ~~category~~our oncommon ~~February~~stock 2under the Securities Exchange Act of 1934. The deregistration of our stock would enable us to save significant expenses relating to our public disclosure and reporting requirements under the Exchange Act. However, ~~2009~~a deregistration of our stock may further limit the liquidity of our stock.

The price of our common stock may fluctuate significantly, which may make it difficult for shareholders to sell our common stock at times or at prices they may find favorable.

Our stock price has been volatile in the past, and several factors could cause the price to fluctuate substantially in the future. These factors include:

•

actual or anticipated variations in earnings;

•

legislation or actions by government regulators;

•

changes in dividends;

•

a new issuance of common stock or other equity securities;

•

deregistration of our common stock with the SEC;

•

operating and stock performance of other companies deemed to be peers;

•

announcement of developments related to our business;

•

new technology or services offered by traditional and non-traditional competitors;

•

news reports of trends, concerns and other issues related to the financial services industry;

•

changes in analysts’ recommendations or projections; and

•

cyclical fluctuations.

Our stock price may fluctuate significantly in the future, and these fluctuations may be unrelated to our performance. General market price declines or market volatility in the future could adversely affect the price of our common stock, and the current market price of our common stock may not be indicative of future market prices. In addition, in recent years, the stock market in general has experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies and particularly those in the financial services and banking sector, including for reasons unrelated to their operating performance. These broad market fluctuations may adversely affect our stock price, notwithstanding our operating results.

We suspended payment of dividends in 2010 and currently are not permitted to declare or pay any dividend without the prior written approval of our regulators. As a result, capital appreciation, if any, of our common stock may be the sole opportunity for a return on an investment in our common stock for the foreseeable future.

In 2010, we suspended payment of dividends on our common stock until our operating performance improved and credit losses abated. In addition, we are not permitted to declare or pay any dividend without the prior written approval of our regulators. As a result, we do not intend to declare a dividend on our common shares in 2012. The dividend restriction could adversely affect the market price of our common stock.

AtITEM ~~December 31, 2010, the market value of the investment portfolio reflected $932,192 in gross unrealized losses, mostly in the corporate portfolio~~1B. ~~Management~~UNRESOLVED ~~continues~~STAFF 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 other 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. COMMENTS

~~The Company did not have a concentration in the obligations of any issuer at December 31, 2010 other than U~~None.~~S. Government agencies, U.S. Government enterprises, and certain corporate holdings. At December 31, 2010, the Company held $5,380,199 in corporate securities issued by two~~ separate regional bank holding companies; these holdings comprised 7.24% of the total securities portfolio and 66.37% of the corporate portfolio. These particular securities remained in the corporate portfolio at March 31, 2011.

~~The~~ITEM ~~distribution of maturities and the weighted average yields of debt securities at December 31, 2010 are shown in the following table~~2. ~~Actual maturities may differ from contractual maturities because borrowers may, in many instances, have the right to call or prepay obligations.~~ PROPERTIES

Maturity Distribution of Investment Securities December 31, 2010	1 Year or Less			1 – 5 Years			5 – 10 Years			After10 Years			Total
(Dollars in thousands)
Distribution of maturities
Amortized cost:
U.S. Government and federal agencysecurities	$	-		$	1,325		$	2,191		$	1,035		$	4,551
U.S. Government-sponsored enterprisesecurities		28,709			2,841			-			2,000			33,550
Agency residential mortgage-backedsecurities1		996			8,346			128			853			10,323
Obligations of states and politicalsubdivisions2		1,240			7,894			5,591			1,863			16,588
Corporate debt obligations		-			492			1,476			6,913			8,881
Total investment securities	$	30,945		$	20,898		$	9,386		$	12,664		$	73,893
Fair value:
U.S. Government and federal agencysecurities	$	-		$	1,378		$	2,326		$	1,035		$	4,739
U.S. Government-sponsored enterprisesecurities		28,724			2,855			-			2,089			33,668
Agency residential mortgage-backedsecurities1		1,016			8,899			142			908			10,965
Obligations of states and politicalsubdivisions2		1,244			8,131			5,684			1,762			16,821
Corporate debt obligations		-			453			1,497			6,157			8,107
Total investment securities	$	30,984		$	21,716		$	9,649		$	11,951		$	74,300
Weighted average yield:
U.S. Government and federal agencysecurities		-			4.70	%		5.47	%		1.17	%		4.27	%
U.S. Government-sponsored enterprisesecurities		0.73	%		2.18	%		-			5.05	%		1.11	%
Agency residential mortgage-backedsecurities1		3.98	%		4.93	%		6.57	%		5.06	%		4.87	%
Obligations of states and politicalsubdivisions2		7.14	%		6.34	%		6.55	%		6.40	%		6.48	%
Corporate debt obligations		-			5.70	%		6.00	%		7.25	%		6.95	%
Total investment securities		1.09	%		5.09	%		6.21	%		6.13	%		3.74	%

Company Property

1The ~~Distribution~~Company’s ofexecutive ~~maturities~~offices ~~for~~are ~~mortgage-backed~~located ~~securities~~within isthe ~~based~~Bank’s onmain ~~expected~~office ~~average~~at ~~lives,~~1010 ~~which~~North ~~may~~Way, ~~differ~~Darien, ~~from~~McIntosh ~~the~~County, ~~contractual terms~~Georgia 31305.

2Bank ~~The~~Property weighted average yields for tax-exempt securities have been calculated 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 pertaining to tax-exempt income.

In addition to its main office in Darien, the Bank has fifteen other banking offices in northeast Florida and southeast Georgia as shown in the following table.

Banking Offices


Florida	542238 US Highway 1 Nassau County Callahan, Florida 32011	463128 State Road 200 Nassau County Yulee, Florida 32097

	15885 County Road 108 Nassau County Hilliard, Florida 32046

Georgia	15 Trade Street Glynn County Brunswick, Georgia 31525	1501 GA Highway 40 East Camden County Kingsland, Georgia 31548

	620 S. Peterson Avenue Coffee County Douglas, Georgia 31533	105 Bacon Street Brantley County Nahunta, Georgia 31553

	15039 Highway 17 McIntosh County Eulonia, Georgia 31331	910 Van Streat Highway Coffee County Nicholls, Georgia 31554

	4233 Second Street North Charlton County Folkston, Georgia 31537	2004 Highway 17 Bryan County Richmond Hill, Georgia 31324

	14 Hinson Street Jeff Davis County Hazlehurst, Georgia 31539	2512 Osborne Road Camden County St. Marys, Georgia 31558

	4604 Main Street East Brantley County Hoboken, Georgia 31542	414 Bedell Avenue Camden County Woodbine, Georgia 31569

The Bank owns all of its banking facilities. All properties except Eulonia have been renovated within the last eight years. All of the properties are in a good state of repair and are designed for the purposes for which they are used.

The Bank also owns four parcels of land that are being held for future expansion; three parcels are located in Glynn County, in the St. Simons, Southport, and Sterling areas, and the fourth in Brantley County, near Waynesville.

ITEM 3.

LEGAL PROCEEDINGS

The nature of the business of the Company and the Bank ordinarily results in a certain amount of litigation. Accordingly, we are party to a limited number of lawsuits incidental to our respective businesses. In our opinion, the ultimate disposition of these matters will not have a material adverse impact on our consolidated financial position or results of operations.

~~Loans~~ITEM 4. REMOVED AND RESERVED

~~Loans,~~PART ~~net~~II of unearned income, fell 10.92% or $30,102,308 since year-end 2009. The net loans to deposits ratio aggregated 65.47% at December 31, 2010 versus 78.38% and 79.97% at December 31, 2009 and 2008, respectively. The loan categorization table below reflects declines of $24,130,689 in real estate - construction balances, $3,478,467 in real estate – residential mortgage balances, $743,632 in the commercial portfolio, and $1,787,572 in consumer loans at year-end 2010 compared to 2009. The $24,130,689 or 21.72% decline in real estate - construction balances resulted from multiple factors, including pay-downs, and as further discussed in the next two subsections, significant charge-offs and foreclosures. These loans, widely known as acquisition and development loans, continued to be predominantly residential in nature and concentrated in the Company’s coastal markets at December 31, 2010. 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 increased during the last year and is expected to increase further in 2011. The escalation in nonperforming assets attributable to these loans is also expected to continue into 2011. 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 for its participation in these origination transactions; refer to the disclosures provided under Results of Operations for more details. Overall, the commercial portfolio declined $743,632 or 0.75% from year-end 2009 to 2010. Nonfarm real estate loans, agricultural loans, and other commercial/industrial loans within this portfolio declined $472,259, $1,200,013, and $2,788,770; tax-free government loans grew $3,717,410. 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 13.25% and 6.67% declines in consumer and real estate – residential mortgage loans in 2010.

~~Due~~ITEM 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 in 20115. ~~Additionally,~~MARKET asFOR ~~further discussed in the next subsection of this Analysis, management expects problem asset volumes to remain elevated given the Company~~REGISTRANT’sS ~~significant~~COMMON ~~real estate portfolio. During the same period in 2009~~EQUITY, ~~net~~RELATED ~~loans~~STOCKHOLDER ~~declined~~MATTERS ~~1.44%~~AND orISSUER ~~$4,030,839.~~PURCHASES ~~The~~OF ~~real~~EQUITY ~~estate portfolio contributed most of the 2009 decline. Loans outstanding are presented by type in the following table.~~ SECURITIES

Loans by Category December 31,	2010			2009			2008			2007			2006
(Dollars in thousands)
Commercial, financial, and agricultural1	$	98,329		$	99,073		$	96,492		$	88,844		$	87,255
Real estate – construction3		86,972			111,103			121,194			123,095			104,212
Real estate – residential mortgage2, 3		48,687			52,165			47,239			39,988			39,340
Consumer, including credit cards		11,701			13,488			14,961			17,686			17,071
Loans, gross		245,689			275,829			279,886			269,613			247,878
Unearned income		(65	)		(103	)		(129	)		(136	)		(112	)
Loans, net	$	245,624		$	275,726		$	279,757		$	269,477		$	247,766

1The ~~Includes~~following ~~obligations~~table ofsets ~~states~~forth the high and ~~political~~low ~~subdivisions~~sales prices, the cash dividends declared, and earnings per share on the Company’s common stock during the periods indicated.

2 Typically have final maturities of 15 years or less.


	Quarter	Sales Price				Dividends Declared		Earnings (Loss) Per Share
Year	Quarter	High		Low		Dividends Declared		Basic			Diluted
2011	4th	$	5.70	$	4.20	$	—	$	(0.90	)	$	(0.90	)
	3rd		7.00		4.50		—		(0.64	)		(0.64	)
	2nd		7.00		6.00		—		(0.07	)		(0.07	)
	1st		7.74		6.99		—		0.01			0.01
2010	4th	$	9.00	$	7.60	$	—	$	(2.16	)	$	(2.16	)
	3rd		10.60		6.75		—		(0.85	)		(0.85	)
	2nd		11.00		10.50		0.065		(0.66	)		(0.66	)
	1st		11.01		10.00		0.065		(0.37	)		(0.37	)
2009	4th	$	11.75	$	8.25	$	0.065	$	(0.09	)	$	(0.09	)
	3rd		13.00		11.00		0.065		0.09			0.09
	2nd		16.00		11.50		0.085		0.03			0.03
	1st		14.00		11.00		0.085		0.20			0.20

3The ToCompany ~~comply~~had ~~with~~approximately ~~recent~~400 ~~regulatory~~shareholders guidelines, certain loans that formerly would have been classified as real estate - mortgages 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~~record ~~estate~~at ~~loans~~December 31, ~~are residential in nature~~2011.

~~The~~In ~~amount~~July 2010, the Company’s Board of ~~commercial~~Directors voted to suspend dividends until the Company’s operating performance improved and ~~real~~credit losses ~~estate~~abated. -The ~~construction~~Company’s ~~loans~~ability ~~outstanding~~to atpay ~~December 31,~~dividends ~~2010,~~in ~~based~~the onfuture ~~remaining~~will ~~contractual repayments~~be ofdependent ~~principal~~on earnings, ~~are~~capital ~~shown~~adequacy, bythe ~~maturity~~availability ~~and~~of ~~interest~~liquid ~~rate~~assets ~~sensitivity~~for indistribution ~~the~~and ~~following~~regulatory ~~table~~approval. The ~~maturities~~Company ~~shown~~is ~~are~~a ~~not~~legal ~~necessarily~~entity ~~indicative~~separate offrom ~~future~~the Bank, ~~principal~~and ~~reductions~~its orrevenues ~~cash~~depend ~~flow~~primarily ~~since~~on ~~borrowers~~the ~~may~~payment ~~prepay~~of ~~balances,~~dividends ~~and additionally,~~from ~~loans~~the ~~may~~Bank. Separate regulatory approval will be ~~renewed~~required inbefore ~~part~~the orBank ~~total~~can atitself ~~maturity~~pay a dividend.

In July 2010, the Company also suspended its treasury stock program. Purchases made for the years ended December 31, 2010 and 2009 prior to the suspension are summarized below.


Year	Quarter	Total # of Shares Purchased		Average Price Paid Per Share		# of Shares Purchased as Part of Publicly Announced Program		Maximum $ Value of Shares that May Yet be Purchased under the Program
2010	3rd		—	$	—		—	$	6,105,539
	2nd		9,143		10.00		9,143		6,105,539
	1st		—		—		—		6,196,969
2009	4th		—		—		—		6,196,969
	3rd		19,800		11.46		19,800		6,196,969
	2nd		—		—		—		6,423,882
	1st		18,000		12.56		18,000		6,423,882

Loan Maturity and Interest Rate Sensitivity – Selected Loans December 31, 2010	Total		Within One Year		One- Five Years		After Five Years
(Dollars in thousands)
Loan maturity:
Commercial, financial, and agricultural1		$ 96,527		$46,663	$	43,900		$5,964
Real estate – construction1		65,132		50,053		14,691		388
Total		$161,659		$96,716	$	58,591		$6,352
Interest rate sensitivity:
Selected loans with:
Predetermined interest rates2					$	57,024		$5,507
Floating or adjustable interest rates						1,567		845
Total					$	58,591		$6,352

Shares of common stock available for issuance under the Company’s 2006 Stock Option Plan are summarized below.

1 Excludes nonaccrual loans totaling approximately $1,802 in commercial, financial, and agricultural category and $21,840 in real estate - construction category.

As of December 31, 2011

# of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights

Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights

# of Securities Remaining
Available for Future
Issuance under Equity
Compensation Plans

Equity compensation plans approved by shareholders

70,250

15.23

79,750

Equity compensation plans not approved by shareholders

—

Total

70,250

15.23

79,750

2ITEM ~~Includes~~6. ~~loans~~SELECTED ~~with~~FINANCIAL ~~floating rates that have reached a contractual floor or ceiling.~~DATA

~~Many~~The ~~commercial and real estate credits with floating rates have reached their contractual floors. Additionally, many recent originations~~following ~~and~~table ~~renewals~~presents ~~have~~selected ~~been~~consolidated ~~priced~~financial atdata ~~fixed~~for ~~rather~~the ~~than adjustable rates, unless floors applied~~Company. ~~Loans~~This ~~with~~selected ~~floating~~financial ~~rates~~data ~~that~~is ~~had~~derived ~~reached~~in apart ~~contractual floor approximated $105~~from,~~800,000~~ ~~at year-end 2010 compared to $134,500,000 at December 31, 2009~~ and ~~$77,400,000~~should atbe ~~December 31,~~read ~~2008.~~in ~~The~~conjunction ~~average yield on these particular outstandings~~with, ~~which~~the ~~included~~Consolidated ~~all~~Financial ~~loan~~Statements ~~types,~~and ~~was~~the ~~5.38%,~~Notes orin ~~213 basis points above New York prime, at December~~Item ~~31,~~8 ~~2010. In 2009~~ and ~~also, in 2010, management~~ ~~shortened~~Management’s ~~maturity~~Discussion ~~options~~and onAnalysis ~~commercial~~of ~~credits,~~Financial aCondition ~~move~~and ~~that~~Results ~~should~~of ~~mitigate~~Operations ~~the~~in ~~Company’s~~Item 7 ~~interest~~of ~~sensitivity~~this ~~position when prime adjusts upward~~Report.

Although the Company’s loan portfolio is diversified, significant portions of its loans are collateralized by real estate. At December 31, 2010, approximately 82.62% 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 $31,685,000 at year-end 2010, down $2,689,000 from year-end 2009. 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. The Company funded letters of credit totaling $0 and $19,672 during 2010 and 2009; no losses resulted from this funding. 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.


As of and for the years ended December 31, (Dollars in thousands except per share data)	2011			2010			2009			2008		2007
Summary of Operations:
Interest income	$	15,431		$	17,460		$	21,120		$	24,798	$	29,148
Interest expense		3,205			4,647			5,833			8,093		9,905

Net interest income		12,226			12,813			15,287			16,705		19,243
Provision for loan losses		6,185			14,265			5,890			1,348		305
Noninterest income		3,803			3,891			4,450			3,570		5,153
Noninterest expense		14,836			15,276			13,626			14,048		13,708

Income (loss) before income tax expense (benefit)		(4,992	)		(12,837	)		221			4,879		10,383
Income tax expense (benefit)		—			(192	)		(513	)		1,329		3,352

Net income (loss)	$	(4,992	)	$	(12,645	)	$	734		$	3,550	$	7,031


Net interest income on a taxable-equivalent basis	$	12,674		$	13,355		$	15,887		$	17,356	$	19,982

Selected Average Balances:
Total assets	$	423,130		$	431,627		$	413,957		$	429,152	$	410,126
Earning assets		378,328			392,338			380,018			393,756		379,257
Loans, net of unearned income		227,413			256,088			282,946			270,133		268,445
Investment securities		72,956			65,145			89,642			118,486		106,369
Deposits		370,977			367,966			341,863			356,559		343,209
Shareholders’ equity		43,855			54,856			57,146			57,310		54,852
Selected Year-End Balances:
Total assets	$	416,610		$	427,633		$	421,056		$	434,987	$	436,386
Earning assets		376,513			393,759			369,683			396,795		390,952
Loans, net of unearned income		202,263			245,624			275,726			279,757		269,477
Allowance for loan losses		6,777			9,916			7,170			4,929		4,510
Investment securities		88,002			74,300			74,626			115,480		120,460
Deposits		369,872			375,195			351,771			349,810		362,056
Treasury stock		8,894			8,894			8,803			8,350		8,308
Shareholders’ equity		40,125			44,806			56,559			57,184		56,737
Per Share Ratios:
Basic and diluted earnings (loss)	$	(1.60	)	$	(4.04	)	$	0.23		$	1.12	$	2.19
Dividends declared		—			0.13			0.30			0.625		0.67
Book value		12.82			14.32			18.02			18.00		17.85
Market price:
High		7.74			11.00			16.00			23.15		30.00
Low		4.20			6.75			8.25			12.90		24.10
Common Share Data:
Outstanding at end of year		3,129,388			3,129,388			3,138,531			3,176,331		3,178,331
Basic and diluted weighted average outstanding		3,129,388			3,131,642			3,155,757			3,177,101		3,204,024

Nonperforming Assets

Nonperforming assets, which consist of nonaccrual loans, restructured loans, foreclosed real estate, and other repossessions, totaled $52,240,017 at December 31, 2010. Overall balances jumped 76.59% or $22,657,834 at year-end 2010 from December 31, 2009 but fell $1,367,903 from September 30, 2010. As a percent of total assets, nonperforming assets totaled 12.22% at December 31, 2010 versus 7.03% at December 31, 2009 and 2.33% at December 31, 2008. Nonperforming assets materially and adversely affected the Company’s business, resources, and operating results in 2010, and management expects continuing adverse effects in 2011. Acquisition and development loans 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 December 31,	2010			2009			2008			2007			2006
As of and for the years ended December 31,	2011			2010			2009			2008			2007
(Dollars in thousands)
Financial Ratios and Other Data:
Nonaccrual loans:
Profitability:
Commercial, financial, and agricultural	$	1,802		$	1,483		$	1,232		$	112		$	235
Return on average assets		-1.18	%		-2.93	%		0.18	%		0.83	%		1.71	%
Real estate – construction		21,840			13,410			3,594			109			121
Return on average equity		-11.38	%		-23.05	%		1.28	%		6.19	%		12.82	%
Real estate – residential mortgage		4,507			2,312			1,595			350			318
Net interest margin		3.35	%		3.40	%		4.18	%		4.41	%		5.27	%
Consumer, including credit cards		373			459			241			161			290
Liquidity:
Total nonaccrual loans	$	28,522		$	17,664		$	6,662		$	732		$	964
Net loans to total deposits		54.68	%		65.47	%		78.38	%		79.97	%		74.43	%
Troubled debt restructured loans2		12,669			3,998			468			-			-
Average loans to average earning assets		60.11	%		65.27	%		74.46	%		68.60	%		70.78	%
Total nonperforming loans	$	41,191		$	21,662		$	7,130		$	732		$	964
Noninterest-bearing deposits to total deposits		17.20	%		14.76	%		15.73	%		15.90	%		17.80	%
Foreclosed real estate3		11,034			7,916			3,005			305			288
Asset Quality:
Other repossessed assets		15			5			10			30			15
Net charge-offs to average loans		4.10	%		4.50	%		1.29	%		0.34	%		0.01	%
Total nonperforming assets	$	52,240		$	29,583		$	10,145		$	1,067		$	1,267
Nonperforming assets to total assets		12.70	%		12.24	%		7.08	%		2.36	%		0.42	%
Accruing loans past due 90 days or more	$	121		$	211		$	135		$	776		$	647
Allowance for loan losses to net loans		3.35	%		4.04	%		2.60	%		1.76	%		1.67	%
Ratios:
Allowance to nonperforming loans		16.60	%		24.00	%		32.78	%		67.85	%		299.07	%
Nonperforming loans to net loans4		16.77	%		7.86	%		2.55	%		0.27	%		0.39	%
Capital Adequacy:
Nonperforming assets to net loans4 plusforeclosed/repossessed assets		20.35	%		10.43	%		3.59	%		0.40	%		0.51	%
Tier 1 capital ratio		16.37	%		15.88	%		17.90	%		17.40	%		17.93	%
Total capital ratio		17.63	%		17.16	%		19.17	%		18.66	%		19.18	%
Tier 1 leverage ratio		9.70	%		10.29	%		14.00	%		13.61	%		13.60	%
Dividend payout ratio		N/A			N/A			129.11	%		55.94	%		30.45	%

1ITEM ~~See~~7. ~~Note~~MANAGEMENT’S 3DISCUSSION toAND ~~the~~ANALYSIS ~~Consolidated~~OF ~~Financial~~FINANCIAL ~~Statements~~CONDITION ~~for~~AND ~~definitional~~RESULTS ~~variance~~OF ~~between impaired and nonperforming loans and also, categorization differences resulting from disaggregation of loan portfolio required in footnote disclosure.~~OPERATIONS

2The ~~Does~~following ~~not~~discussion ~~include~~and ~~restructured~~analysis ~~loans~~of ~~reported~~the consolidated financial condition and results of operations of the Company should be read in conjunction with the Consolidated Financial Statements and related Notes, and is qualified in its entirety by the foregoing and other more detailed financial information appearing elsewhere. Historical results of operations and the percentage relationships among any amounts included, and any trends which may appear to be inferred, should not be taken as ~~nonaccrual~~being necessarily indicative of trends in operations or results of operations for any future periods.

3We ~~Includes~~have ~~only~~made, ~~other~~and ~~real~~will ~~estate~~continue ~~acquired~~to ~~through~~make, ~~foreclosure~~various orforward-looking statements with respect to financial and business matters. Comments regarding our business which are not historical facts are considered forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in ~~settlement~~these offorward-looking ~~debts~~statements. ~~previously~~For ~~contracted~~additional information regarding our cautionary disclosures, see the “Cautionary Notice Regarding Forward-Looking Statements” at the beginning of this Report.

4Overview ~~Net of unearned income.~~

~~Nonaccrual~~Southeastern ~~Loans.~~Banking ~~Nonaccrual~~Corporation ~~loans~~is ~~comprised~~a ~~$28~~bank holding company headquartered in Darien,~~521,942~~ orMcIntosh 54County, Georgia.~~60%~~ ofSoutheastern ~~nonperforming~~Bank, ~~asset~~our ~~balances~~wholly-owned atcommercial ~~December 31,~~bank ~~2010.~~subsidiary ~~Approximately~~chartered ~~$31~~in 1888,~~345,000~~ offers a full line of ~~loans~~commercial ~~were~~and ~~placed~~retail onbanking ~~nonaccrual~~services ~~status~~to meet the financial needs of our customer base through 16 branch ~~during~~locations ~~2010,~~and ~~$11,472,000~~a ~~charged-off,~~network ~~$6,185,000~~of ~~transferred~~ATMs ~~out~~across bysoutheast ~~foreclosure,~~Georgia and $2northeast Florida. For additional information on our markets,~~830,000~~ ~~reduced~~see bythe ~~payments~~“Markets orand ~~other~~Competition” ~~repossession~~section in Part I of this Report. AtAs ~~December 31,~~a ~~2010~~bank, ~~real~~we ~~estate-secured~~operate ~~loans~~in ~~comprised~~a ~~$27,922,483~~highly regulated orand 97competitive environment.~~90%~~ For a summary of ~~total~~the ~~nonaccrual balances~~regulations that have a material impact our business, see the “Supervision and Regulation” section in Part I of this Report. ~~Nonaccrual~~Our ~~balances~~primary ~~did~~objective ~~not~~is ~~contain~~to ~~any~~increase ~~other~~the ~~industry~~return on ~~concentrations~~our atshareholders’ ~~year~~investment over the long-~~end~~term ~~2010.~~by ~~The~~accepting ~~collateral~~deposits ~~underlying~~and ~~nonaccrual~~borrowing ~~balances~~additional funds as needed at ~~December 31,~~low ~~2010~~costs isand ~~presented~~investing those funds in a safe and sound manner in loans and investments at a higher yield. Competition, regulation, credit risk, and interest rate risk are the ~~next~~primary ~~table~~factors that we must manage in order to be successful.

Nonaccrual Loans by Collateral Type December 31,	2010		2009
(Dollars in thousands)
Collateral type:
Real estate:
Land tracts	$	6,027	$	6,869
Lots within developments		11,682		5,005
Residential dwellings		8,828		3,993
Commercial buildings		1,385		965
Total real estate		27,922	$	16,832
Equipment		442		586
Other		158		246
Total nonaccrual loans	$	28,522	$	17,664

Like many financial institutions across the United States, our operations have been severely affected by the economic recession and financial crisis that began in 2007. The recession has had a detrimental impact on the labor, capital and real estate markets. Dramatic declines in the housing market, specifically in our coastal markets, negatively affected the credit performance of our residential construction and development loans and the value of the underlying collateral on those loans. The economic recession has also lowered commercial real estate values in all of our markets and substantially reduced general business activity and investment. We are entering the fifth year of what may possibly be a seven- to ten-year local real estate market depression. Combined, the deterioration in the residential and the commercial real estate markets has materially increased our level of nonperforming assets and charge-offs of problem loans. These market conditions and the tightening of credit led to increased delinquencies in our loan portfolio, added pressure on our capital, a lower net interest margin and net losses in 2010 and 2011.

Approximately 92% of the real estate collateral underlying nonaccrual balances at December 31, 2010 was located in Georgia, predominantly coastal Georgia, with the balance in Florida. Nonaccrual balances included one participation loan at December 31, 2010. This particular loan, with a balance of $697,186, is the only purchased participation on the Company’s books.

Relationships above $250,000 comprised 85.12% or $24,278,384 of nonaccrual balances at December 31, 2010. Cumulative charge-offs recognized on these 14 large relationships, primarily acquisition and development

~~relationships,~~STATISTICAL ~~totaled~~DISCLOSURES $9,519,921 at December 31, 2010; $1,283,248 of these charge-offs were recognized in 2009 and $8,236,673 in 2010. The specific allowance allocated to these 14 relationships totaled $977,974 at December 31, 2010. Additional charge-offs recognized on these particular credits since year-end 2010 aggregated $836,237. The table below presents nonaccrual loans by relationship tiers.

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 nonaccrual loans		159	$	28,522		100.00%		$ 179
Nonaccrual Loans by Relationship Tiers December 31, 2009	Number ofRelationships		Balances		Percent ofTotalBalance		AverageBalancewithin Tier
(Dollars in thousands)
Relationship tier:
< $250,000		127	$	3,618		20.48%		$ 28
> $250,000 - $750,000		4		1,844		10.44%		461
> $750,000		6		12,202		69.08%		2,034
Total nonaccrual loans		137	$	17,664		100.00%		$ 129

Distribution of Assets, Liabilities and Stockholders’ Equity; Interest Rates and Interest Differential

~~Management~~From ~~continues~~September 2007 to ~~evaluate~~December ~~collateral~~2008, ~~underlying~~the ~~nonaccrual~~Federal ~~loans~~Open ~~and~~Market ~~adjusts~~Committee ~~valuations~~of ~~based~~the onFederal ~~appraisal~~Reserve ~~and~~(“FOMC”) ~~similar~~reduced ~~information~~the ~~available.~~federal ~~Unfortunately,~~funds ~~valuation~~rate ~~estimates~~10 ~~can change~~times, ~~resulting~~in various increments, from 5.25% to 0.25%. The FOMC has held the federal funds rate at 0.25% since December 2008. Being in ~~additional~~an ~~charge~~asset-~~offs~~sensitive ~~and~~interest ~~provisioning~~rate ~~for~~position ~~loan~~on ~~losses.~~our ~~Unless~~statements ~~collected~~of condition (our earning assets reprice more frequently than our rate-sensitive liabilities), ~~higher~~we ~~nonaccrual~~generally ~~balances~~benefit ~~also~~during ~~adversely~~periods ~~affect~~of rising interest ~~income~~rates ~~versus~~and ~~performing~~our ~~loans~~earnings decrease during periods of declining interest rates. ~~The~~We ~~impact~~discuss our interest rate risk in further detail in Item 7A of ~~nonaccrual~~this ~~loans~~Report. Below, onwe have summarized the ~~Company’s~~impact that changes in interest ~~income~~ rates and ~~other~~changes ~~operating~~in ~~results~~the isvolume ~~further~~and ~~discussed~~composition inof the ~~Operations~~assets ~~section~~and liabilities on our statements of ~~this~~condition ~~Analysis~~have had on our earnings over the past three years.

~~Subsequent~~Average ~~to year-end~~Balances, ~~loans with~~Interest ~~principal balances approximating $3,751,000 were placed on nonaccrual status, reduced by charge-offs totaling $1,211,590. The largest credit within this group, formerly TDR~~ and ~~secured~~Yields by residential lots and timberland, had a $4,200,000 balance at December 31, 2010 and was charged down $1,166,296; the balance was also reduced by a $700,000 principal payment during early 2011. The specific allowance applying to this credit totaled $1,167,280 at December 31, 2010. An additional $461,033 TDR relationship which migrated to nonaccrual status since year-end is discussed in the next paragraph. Management is currently reappraising the underlying real estate on both credits and reviewing legal remedies and other solutions prior to foreclosure. Unless pricing and demand in the real estate markets improve, management expects other borrowers, including borrowers with loan balances above $250,000, to also stop servicing their loans. As noted in the Operations section of this Analysis, management expects the Company to be only marginally profitable in 2011, if at all. The Company regularly stress tests its capital position to measure its ability to withstand deterioration in operating performance and asset quality. Nonaccrual and other impaired loans, including acquisition and development loans, figure prominently in these stress tests. Fortunately, the Company’s capital levels remain strong and able to withstand significant reductions before reaching regulatory minimums. At March 31, 2011, nonaccrual loans totaled $26,652,249, reflecting a $1,869,693 reduction since December 31, 2010. Although nonaccrual levels are expected to remain elevated in the near-term, management is optimistic that charge-offs and the associated provision peaked in 2010.

~~TDRs.~~ The ~~troubled~~following ~~debt restructurings~~table ~~(“TDR”)~~details the average balance of ~~$12,669,230~~interest-earning atassets ~~December 31,~~and ~~2010~~interest-bearing ~~comprised~~liabilities, ~~loan~~the ~~relationships~~amount ~~for~~of ~~which~~interest ~~payment~~earned ~~concessions~~and ~~were~~paid, ~~granted.~~and the ~~Seven~~average ~~large~~yields ~~relationships~~and ~~with~~rates ~~balances~~realized ~~ranging~~for ~~from~~each ~~$267,000~~of ~~- $4,200,000 comprised~~ the ~~entire~~ ~~TDR~~last ~~balance~~three ~~at December 31, 2010~~years. ~~These~~Federally ~~balances~~tax-exempt ~~were~~income ~~variously~~is ~~secured~~presented byon ~~commercial &~~a ~~residential~~taxable-equivalent ~~real~~basis ~~estate~~assuming ~~and~~a ~~accounts~~34% ~~receivable,~~Federal ~~inventory, &~~tax ~~equipment~~rate. ~~The~~Loan ~~specific~~average ~~allowance~~balances ~~allocated~~include toloans ~~the~~on ~~aggregate~~nonaccrual ~~TDR~~status. Other ~~balance~~interest-earning ~~totaled~~assets ~~$1,539,405~~include atinterest-bearing ~~December 31,~~deposits ~~2010.~~in ~~During~~other ~~the 2011 first quarter~~banks, ~~two~~federal ~~relationships~~funds –sold ~~one~~and ~~approximating~~FHLB ~~$4,200,000~~stock. ~~and~~Interest-bearing ~~the~~demand ~~other,~~deposits ~~$461,000~~includes –NOW ~~were~~and ~~moved~~money tomarket ~~nonaccrual~~ accounts.


	2011								2010								2009
	Average Balance			Interest Income/ Expense		Average Yield/ Rate			Average Balance			Interest Income/ Expense		Average Yield/ Rate			Average Balance			Interest Income/ Expense		Average Yield/ Rate
For the Years Ended December 31, (Dollars in thousands)
ASSETS
Interest-earning assets:
Loans	$	227,413		$	13,159		5.79	%	$	256,088		$	14,449		5.64	%	$	282,946		$	16,935		5.99	%
Taxable securities		60,674			1,705		2.81	%		47,825			2,256		4.72	%		67,053			3,267		4.87	%
Nontaxable securities		12,282			795		6.48	%		17,320			1,126		6.50	%		22,589			1,494		6.61	%
Other interest-earning assets		77,959			220		0.28	%		71,105			171		0.24	%		7,430			25		0.34	%

Total interest-earning assets		378,328			15,879		4.20	%		392,338			18,002		4.59	%		380,018			21,721		5.72	%


Noninterest-earning assets:
Cash		15,643								10,500								14,247
Allowance for loan losses		(8,543	)							(7,647	)							(6,130	)
Unrealized gains (losses) on securities available-for-sale		739								434								(1,976	)
Other assets		36,963								36,002								27,798

Total assets	$	423,130							$	431,627							$	413,957


LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	123,026		$	593		0.48	%	$	117,827		$	822		0.70	%	$	94,315		$	720		0.76	%
Savings deposits		57,715			268		0.46	%		54,991			384		0.70	%		59,030			426		0.72	%
Time deposits		129,734			2,213		1.71	%		137,640			3,248		2.36	%		132,135			4,286		3.24	%
FHLB advances		5,000			131		2.62	%		6,027			193		3.20	%		10,329			389		3.77	%
Other short-term borrowings		604			—		0.00	%		632			—		0.00	%		1,887			13		0.69	%

Total interest-bearing liabilities		316,079			3,205		1.01	%		317,117			4,647		1.47	%		297,696			5,834		1.96	%


Noninterest-bearing liabilities and shareholders’ equity:
Demand deposits		60,503								57,508								56,383
Other liabilities		2,693								2,146								2,732
Shareholders’ equity		43,855								54,856								57,146

Total liabilities and shareholders’ equity	$	423,130							$	431,627							$	413,957


Interest rate spread							3.19	%							3.12	%							3.76	%


Net interest income				$	12,674							$	13,355							$	15,887


Net interest margin							3.35	%							3.40	%							4.18	%

~~status;~~During ~~subsequent to the nonaccrual move~~2011, awe ~~$1,166,296~~had ~~charge-off,~~an asaverage ~~discussed~~investment ~~further~~ in ~~the~~loans ~~preceding~~on ~~paragraph,~~nonaccrual ~~was~~status ~~recorded~~of on$28.95 ~~the larger credit~~million. InIf ~~accordance~~these ~~with~~impaired loans ~~regulatory~~had ~~guidance,~~remained ~~a $2,328,000~~current ~~relationship~~and inon ~~compliance~~accrual ~~with~~status ~~its~~during ~~modified~~2011, ~~terms~~we ~~and~~would ~~yielding~~have arecorded ~~market~~an ~~rate~~additional ~~was~~$2.05 ~~also~~million ~~removed~~of ~~from~~interest ~~TDR~~income ~~status~~compared ~~subsequent~~ to ~~year-end~~$1.75 ~~The~~million ~~TDR~~of ~~balance~~lost ~~totaled~~interest ~~$5,665,958~~income aton ~~March 31,~~an ~~2011~~average ~~and~~investment isof ~~not~~$38.57 ~~expected~~million toof ~~increase~~nonaccrual ~~further in~~loans ~~2011~~during 2010.

~~The~~Rate ~~allowance~~/ ~~for~~Volume ~~loan~~Analysis losses approximated 0.24X the nonperforming loans balance at December 31, 2010 versus 0.33X at December 31, 2009 and 0.69X at December 31, 2008. As noted earlier, management expects overall credit conditions and the performance of the loan portfolio to remain weak in the near term, resulting in additional charge-offs and more provisioning until the real estate markets stabilize.

~~Foreclosed~~The ~~Real~~following ~~Estate.~~table ~~Foreclosures,~~shows ~~constructive~~a ~~sales,~~summary of the changes in interest income and ~~subsequent~~ ~~devaluations~~interest ~~within~~expense ~~foreclosed~~on ~~real~~a ~~estate~~fully ~~balances~~taxable-equivalent ~~totaled~~basis ~~$6,184,591,~~resulting ~~$959,342,~~from changes in volume and ~~$2,107,118~~changes ~~during~~in ~~2010.~~rates ~~Foreclosures~~for each category of interest-earning ~~one~~assets ~~residential~~and ~~dwelling,~~interest-bearing ~~two~~liabilities. ~~land~~The ~~tracts,~~change ~~and~~in ~~one~~interest ~~commercial~~attributable ~~lot~~to ~~comprised~~rate ~~77%~~has ofbeen determined by applying the ~~2010~~change ~~foreclosures; charge-offs~~in ~~totaling~~rate ~~$1,187,134~~between ~~were~~years ~~recognized~~to onaverage ~~these~~balances ~~properties~~outstanding ~~prior~~in tothe ~~foreclosure~~later ~~followed~~year. byThe achange ~~$271,440~~in ~~devaluation~~interest ~~charge~~due ~~after~~to volume ~~foreclosure.~~has ~~Charge-offs~~been ~~recognized~~determined onby ~~all~~applying ~~underlying~~the ~~credits~~rate ~~prior~~from the earlier year to ~~their~~the ~~2010~~change ~~foreclosures~~in ~~approximated $1,833,935~~average balances outstanding between years. ~~The~~Thus, ~~next~~changes ~~table~~that ~~details~~are ~~foreclosed~~not ~~real~~solely ~~estate~~due byto ~~real~~volume ~~estate~~have ~~type~~been consistently attributed to rate.

Foreclosed Real Estate by Type December 31,	2010			2009
	2011 vs. 2010									2010 vs. 2009
(Dollars in thousands)
	Increase(Decrease)			Changes Due To						Increase(Decrease)			Changes Due To
Real estate:
For the Years Ended December 31,				Rate			Volume						Rate			Volume
Land tracts	$	5,584		$	3,598
(Dollars in thousands)
Lots within developments		2,025			1,809
Increase (decrease) in income from interest-earning assets:
Residential dwellings		2,986			2,033
Loans	$	(1,290	)	$	328		$	(1,618	)	$	(2,486	)	$	(878	)	$	(1,608	)
Commercial buildings		439			476
Taxable securities		(551	)		(1,157	)		606			(1,011	)		(74	)		(937	)
Total foreclosed real estate	$	11,034		$	7,916
Nontaxable securities		(331	)		(3	)		(328	)		(368	)		(20	)		(348	)
Other interest-earning assets		49			33			16			146			(68	)		214
Total interest income		(2,123	)		(799	)		(1,324	)		(3,719	)		(1,040	)		(2,679	)
Increase (decrease) in expense from interest-bearing liabilities:
Interest-bearing demand deposits		(229	)		(265	)		36			102			(77	)		179
Savings deposits		(116	)		(135	)		19			(42	)		(13	)		(29	)
Time deposits		(1,035	)		(848	)		(187	)		(1,038	)		(1,217	)		179
FHLB advances		(62	)		(29	)		(33	)		(196	)		(34	)		(162	)
Other short-term borrowings		—			—			—			(13	)		(4	)		(9	)
Total interest expense		(1,442	)		(1,277	)		(165	)		(1,187	)		(1,345	)		158
Net interest income	$	(681	)	$	478		$	(1,159	)	$	(2,532	)	$	305		$	(2,837	)

~~Approximately~~Investment ~~80%~~Portfolio of year-end holdings were located in Georgia with the balance in Nassau County, Florida. Aggregate holdings in a single established subdivision increased from $1,330,000 at December 31, 2009 to $2,747,280 at year-end 2010 due to foreclosure activity. Additional foreclosure activity, net of sales, increased the Company’s holdings in this one subdivision to approximately $3,350,000 at March 31, 2011; this activity is discussed further on the next page. The next largest holding in any established subdivision approximated $366,000 at December 31, 2010.

The ~~following~~composition ~~table~~of ~~presents~~our ~~foreclosed~~investment ~~real~~portfolio ~~estate~~as ~~based~~of onthe ~~collateral~~indicated ~~values~~dates is presented below. Changes in the mix of ~~individual~~our ~~properties~~investment portfolio will vary over time in response to changes in market conditions, pledging requirements and liquidity needs of the Bank. During 2011, we reduced our exposure to direct obligations of U.S. Government-sponsored enterprises such as the Federal National Mortgage Association (“FNMA” or “Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”) and increased our exposure to agency residential mortgage-backed securities. For regulatory capital purposes, shifting into agency mortgage-backed securities from direct agency obligations had no impact on our risk-weighted assets. We also increased our interest in investment pools issued by the U.S. Small Business Administration (“SBA”) included in the U.S. Government and agency securities category in an effort to diversify our portfolio and reduce our risk-weighted assets.

Foreclosed Real Estate by Property Valuations December 31, 2010	Number ofProperties			Balances			Percent ofTotalBalance			AverageBalancewithin Tier
	2011						2010						2009
(Dollars in thousands)
(As of December 31, Dollars in thousands)	FairValue			% ofTotal			FairValue			% ofTotal			FairValue			% ofTotal
Property Valuation:
U.S. Government and agency securities	$	13,574			15.4	%	$	4,739			6.4	%	$	4,404			5.9	%
< $250,000		49			$ 2,940			26.64%			$ 60
U.S. Government-sponsored enterprise securities		6,637			7.6	%		33,668			45.3	%		19,932			26.7	%
> $250,000 - $750,000		4			2,365			21.44%			591
Agency residential mortgage-backed securities		41,985			47.7	%		10,965			14.8	%		17,566			23.5	%
> $750,000		5			5,729			51.92%			1,146
Obligations of states and political subdivisions		17,012			19.3	%		16,821			22.6	%		22,647			30.4	%
Total foreclosed real estate		58			$11,034			100.00%			$ 190
Corporate debt obligations		8,794			10.0	%		8,107			10.9	%		10,077			13.5	%
Total investment securities	$	88,002			100.0	%	$	74,300			100.0	%	$	74,626			100.0	%
Total investments as a percentage of total assets		21.1	%					17.4	%					17.7	%

Foreclosed Real Estate by Property Valuations December 31, 2009	Number ofProperties		Balances		Percent ofTotalBalance		AverageBalancewithin Tier
(Dollars in thousands)
Property Valuation:
< $250,000		30		$2,589		32.71%		$ 86
> $250,000 - $750,000		5		2,627		33.18%		525
> $750,000		2		2,700		34.11%		1,350
Total foreclosed real estate		37		$7,916		100.00%		$ 214

At December 31, 2011, the overall estimated fair market value of our investment portfolio was approximately $810,000 (or 1%) greater than our amortized cost; however, market values may fluctuate significantly as interest rates change.

AsThe ~~shown~~following ~~in the preceding~~ table, ~~foreclosed~~shows ~~real~~the ~~estate~~maturities ~~balances~~of ~~included~~non-equity ~~nine~~investment ~~material~~securities ~~properties aggregating $8,093,889~~ at December 31, ~~2010;~~2011 ~~individual~~and ~~values~~the ~~ranged~~weighted-average ~~from~~yields ~~$570,000~~(on -a ~~$1,402,000.~~fully ~~Charge-offs~~taxable ~~recognized~~basis onassuming ~~these~~a ~~larger~~34% ~~properties~~tax ~~prior~~rate) toon ~~foreclosure~~such ~~approximated~~securities. ~~$1,960,000;~~The ~~except~~maturities presented for ~~charges~~mortgage-backed ~~totaling~~securities ~~$674,976,~~are ~~these~~based ~~charge-offs~~on ~~were~~the ~~all~~average ~~recognized~~lives ~~prior~~of tothose ~~2010.~~bonds ~~Charge-offs~~at ~~recognized~~the ~~life-to-date~~then onprojected ~~all~~prepayment ~~active~~speeds. ~~properties totaled~~Actual ~~$2,782,307;~~maturities ~~devaluations~~usually ~~recognized~~differ ~~subsequent~~from contractual tomaturities ~~foreclosure~~because oncertain ~~these~~security ~~properties~~issuers ~~totaled~~have ~~$2,327,124~~the ~~life-~~right to~~-date~~ atcall ~~December 31,~~or ~~2010.~~prepay ~~Approximately~~obligations ~~85%~~with or ~~$1,970,545~~without ofcall ~~these~~or ~~devaluation~~prepayment ~~charges were recorded in 2010~~penalties.

Certain foreclosed real estate balances pertain to the same borrower. The next table presents foreclosed real estate aggregated by relationship tiers.

Due within
One Year

Due from
One to Five Years

Due from
Five to Ten Years

Due after
Ten Years

Total
Portfolio

As of December 31, 2011

Fair
Value

Wtd.
Avg.
Yield

Fair
Value

Wtd.
Avg.
Yield

Fair
Value

Wtd.
Avg.
Yield

Fair
Value

Wtd.
Avg.
Yield

Fair
Value

Wtd.
Avg.
Yield

(Dollars in thousands)

U.S. Government and agency securities

—

3,867

4.09

4,039

2.65

5,668

1.10

13,574

2.39

U.S. Government-sponsored enterprise securities

281

8.03

4,279

2.20

—

2,077

5.05

6,637

3.32

Agency residential mortgage-backed securities

5.79

39,687

2.04

1,445

2.60

809

2.59

41,985

2.07

Obligations of states and political subdivisions

2,799

5.44

6,559

5.06

4,549

4.99

3,105

5.34

17,012

5.16

Corporate debt obligations

—

2,553

4.17

—

6,241

7.11

8,794

6.31

Totals

3,124

5.68

56,945

2.62

10,033

3.68

17,900

4.54

88,002

3.25

Foreclosed Real Estate by Relationship Tiers December 31, 2010	Number ofRelationships		Balances		Percent ofTotalBalance		AverageBalancewithin Tier
(Dollars in thousands)
Relationship tier:
< $250,000		31		$ 1,995		18.08%		$ 64
> $250,000 - $750,000		2		1,058		9.59%		529
> $750,000		6		7,981		72.33%		1,330
Total foreclosed real estate		39		$11,034		100.00%		$ 283
Foreclosed Real Estate by Relationship Tiers December 31, 2009	Number ofRelationships		Balances		Percent ofTotalBalance		AverageBalancewithin Tier
(Dollars in thousands)
Relationship tier:
< $250,000		16		$1,216		15.36%		$ 76
> $250,000 - $750,000		5		2,284		28.85%		457
> $750,000		3		4,416		55.79%		1,472
Total foreclosed real estate		24		$7,916		100.00%		$ 330

The objectives of our investment portfolio policy stress quality and liquidity. At the time of acquisition, the bonds were either assigned an investment grade credit rating by a nationally-recognized statistical rating organization (“NSRO”) or reviewed for credit and market risk and deemed appropriate for the Company’s portfolio by management. The portfolio is monitored to assure there is no unreasonable concentration of securities in the obligations of a single issuer. We do not carry any “sub-prime” mortgages, structured investment vehicles, or collateralized debt obligations in our portfolio. We also monitor the insurers of our state and political subdivision securities, and the distribution of such securities among the insurers. At December 31, 2011, we had no obligations of state and political subdivisions rated below investment grade by an NSRO, but we had 11 issues of state and political subdivisions with an amortized cost of $3.35 million and a fair market value of $3.45 million that were not rated by an NSRO, of which 93% were issued by state and political subdivisions of Georgia or Florida. At December 31, 2011, we had two corporate debt obligations with an amortized cost of $3.36 million and a fair market value of $2.83 million rated below investment grade by an NSRO and three corporate debt obligations with an amortized cost of $3.46 million and a fair market value of $3.41 million that were not rated by an NSRO.

~~Foreclosures~~The ~~subsequent~~corporate tobond ~~year-end~~portfolio ~~approximated~~included ~~$2,500,000,~~debt ~~sales,~~issuances ~~$588,000,~~of banks and ~~devaluations,~~bank ~~$161,000.~~holding ~~One~~companies ~~foreclosure~~domiciled ~~of raw land~~ in anthe ~~established~~southeastern ~~neighborhood~~United ~~comprised~~States. ~~47%~~The or $1551,~~173,~~000 ofnet unrealized loss on the ~~2011 foreclosures~~corporate ~~to-date;~~portfolio nois ~~charge-off~~largely ~~applied~~reflective toof ~~this~~the ~~property.~~illiquidity ~~The~~and ~~remaining~~risk ~~foreclosures~~premiums reflected in ~~2011~~the tomarket for bank-~~date,~~issued ~~including~~securities ~~hunting~~due ~~acreage~~to pervasive capital, ~~residential~~asset ~~tracts~~quality, and aother ~~former~~issues ~~barbecue~~which ~~restaurant,~~have ~~had~~continued ~~values~~to ~~ranging~~afflict ~~from~~the banking ~~$4,600~~industry. -Although ~~$334,000.~~the ~~Separately,~~NSROs ~~a single~~have ~~home~~downgraded ~~sale~~certain inof ~~the~~these ~~same~~securities ~~subdivision~~since ~~noted~~our ~~above~~acquisition ~~comprised~~and ~~97%~~uncertainty ofand ~~sales~~volatility ~~activity~~continues ~~through~~to ~~March 31~~surround a few of these issuers, ~~2011~~recent profitability and long-term earnings forecasts by industry analysts reflect continued improvement.

~~Although foreclosed~~At ~~properties~~December 31, ~~continue~~2011, toapproximately be71% ~~marketed~~of ~~aggressively~~the fair market value of the Company’s investment portfolio, ~~management~~including ~~expects~~mortgage-backed tosecurities, ~~incur~~is ~~carrying~~supported ~~costs~~by ~~for~~the atU.S. ~~least~~Government, ~~one~~a ~~year~~U.S. ~~Any~~Government ~~additional~~agency ~~devaluation~~or ~~will~~a beU.S. ~~charged~~Government-sponsored toenterprise ~~operations~~(“GSE”). ~~The~~On ~~Company~~August 5, 2011, Standard & Poor’s ~~foreclosed~~rating agency ~~real~~lowered ~~estate~~the ~~holdings~~long-term ~~can~~rating beof ~~viewed via~~the aU.S. ~~link~~Government, its federal agencies and GSEs from ~~its~~“AAA” ~~website~~to at“AA+”. ~~www~~The rating agency maintained the “AAA” rating for short-term (one year or less) obligations of the U.~~southeasternbank~~S.~~com~~ Government, orits ~~directly~~federal atagencies ~~www~~and GSEs.~~liveatthecoast~~ Despite this downgrade, management believes the credit quality of the bonds issued by the U.~~com~~S. NoGovernment, ~~significant~~its ~~activity~~federal ~~occurred~~agencies ~~within~~and ~~other~~GSEs ~~repossessed~~in ~~assets~~the ~~during~~Company’s ~~2010~~investment portfolio remains fundamentally sound.

~~Accruing~~Approximately ~~Loans~~44% ~~Past~~of ~~Due.~~the ~~Loans~~fair ~~past~~market ~~due~~value 90of ~~days~~the orCompany’s ~~more~~investment ~~and~~portfolio ~~still~~is ~~accruing~~invested ~~totaled~~in ~~$120,939,~~mortgage-backed orsecurities ~~less~~issued ~~than~~by 1%GSEs ofFannie ~~net~~Mae ~~loans,~~and atFreddie ~~December 31~~Mac. In addition to the issuers’ guarantee, ~~2010.~~these ~~Management~~obligations isare ~~unaware~~collateralized ofby ~~any~~the ~~material~~underlying ~~concentrations~~mortgages ~~within~~in ~~these~~each ~~past~~investment ~~due~~pool ~~balances;~~which ~~the~~serves ~~vast~~to ~~majority,~~further orenhance ~~78%,~~and diversify the credit risk of ~~these~~the ~~past~~investment. ~~due~~The ~~balances~~U.S. ~~were~~Treasury ~~secured~~continues byto ~~real~~reiterate ~~estate~~its support for Fannie Mae and Freddie Mac although changes are expected in these entities’ business model going forward.

~~Loans~~Management ~~past~~evaluates ~~due~~investment 30securities for other-than-temporary 89impairment ~~days~~on ~~comprised~~an ~~1.25%~~annual ofbasis, ~~net~~and ~~loans~~more atfrequently ~~December 31,~~when ~~2010,~~conditions ~~totaling $3,076,239~~warrant. ~~Approximately~~This analysis ~~83%~~requires ofus ~~these~~to ~~past due~~consider ~~loans~~various ~~were~~factors, ~~secured~~including bythe ~~real~~duration ~~estate,~~and ~~including~~magnitude ~~$1,197,251~~of the decline in ~~owner-occupied~~value; ~~properties.~~the ~~Four~~financial ~~loans,~~condition ~~averaging~~of ~~$299,313~~the ~~each,~~issuer ~~comprised~~or ~~100%~~issuers; structure of the ~~owner-occupied~~security; and, ~~39%~~notwithstanding classification of ~~total~~the 30portfolio –as available-for-sale, 89our ~~day~~intent ~~past~~to ~~due~~sell ~~balances~~the atsecurity ~~December 31,~~or ~~2010.~~whether ~~The two~~it’s ~~largest~~more ~~owner-occupied~~likely ~~credits,~~than ~~which~~not ~~aggregated~~that ~~$734,000,~~we ~~were~~would ~~individually~~be ~~evaluated~~required ~~for~~to ~~impairment~~sell ~~during~~the security before the ~~first~~anticipated ~~quarter~~recovery ofin market value. At December 31, 2011, we reviewed those securities with aan ~~$40,730~~unrealized ~~valuation~~loss ~~allowance~~and ~~applied~~concluded ~~although~~that ~~they~~no ~~are~~material ~~now~~individual ~~current.~~securities ~~Other~~were other-than-temporarily ~~the~~impaired. ~~owner-occupied credits~~However, noimpairment ~~loans~~charges ~~within~~could ~~these~~become ~~past~~necessary ~~due~~in ~~balances~~the ~~exceeded~~future ~~$250,000~~if atthe ~~December 31,~~economic ~~2010~~crisis facing the banking industry does not fully abate and various issuers’ financial condition weakens.

~~Other.~~Loan ~~Accruing~~Portfolio loans classified as individually impaired under accounting guidance to creditors on impairment of loans totaled $4,520,331 at December 31, 2010, down $12,262,652 or 73.07% from December 31, 2009. The 2010 decline resulted primarily from transfers of certain loans classified as “individually impaired” to nonaccrual status. The year-end 2010 balance pertained to seven 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 coastal real estate 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 seven classified credits totaled $865,909 at December 31, 2010. The $865,909 assumes a loss if the underlying real estate required liquidation currently. Management fully expects additional relationships to be identified as impaired in 2011, necessitating specific allowances for the underlying loans.

~~Fluctuations~~We inmake ~~nonperforming~~both ~~assets~~secured and unsecured loans to individuals, ~~charge-offs~~corporations, and ~~recoveries~~other ~~for~~entities ~~earlier~~with ~~periods~~the ~~are~~goals ~~discussed~~of insafety, ~~the~~soundness, ~~Form~~profitability ~~10-Ks~~and ~~filed~~responsiveness ~~for~~to ~~those years~~community needs. ~~Simply~~Our ~~put,~~loan ~~variations~~portfolio contains inno ~~these~~foreign ~~nonpeformings~~or ~~pale~~energy-related loans or significant concentrations in ~~comparison~~any toone ~~2009~~industry or loan type, with the exception of loans secured by residential and ~~2010~~commercial ~~results~~real estate in our market areas.

~~Allowance~~Loans, ~~for~~net ~~Loan~~of ~~Losses~~unearned income, decreased $43.36 million (or 17.7%) since the end of 2010 to $202.26 million at December 31, 2011. The net loans-to-deposits ratio dropped to 54.7% at December 31, 2011 versus 65.5% at December 31, 2010. The largest decline within the loan portfolio in 2011 was in the construction and development segment. The decline in construction and development loans resulted from multiple factors, including pay-downs, and as further discussed in the next two subsections, significant charge-offs and foreclosures. These loans continued to be predominantly residential in nature and concentrated in our coastal markets. The elevated level of nonperforming assets attributable to these loans is expected to continue into 2012. Due to economic uncertainties within the Company’s markets, particularly in the real estate sector, and resultant concerns regarding credit opportunities, we expect loan volumes to flatten or decline further in 2012.

~~The~~Although ~~Company continuously reviews its loan portfolio and maintains an allowance for loan losses available to absorb losses inherent in~~ the ~~portfolio. The 2010 provision for loan losses totaled $14~~Company,~~265,000,~~ ~~and net charge-offs, $11,519,144. The~~ comparable provision and charge-off amounts for 2009 were $5,890,000 and $3,649,474 and in 2008, $1,348,000 and $929,054. Deterioration in the real estate portfolio, particularly land acquisition and development loans, was the overriding factor in the 2010 provision; these and other loans will continue to ~~be monitored, and the provision adjusted accordingly. Net~~ ~~charge-offs~~banking ~~represented~~institutions ~~4.50%~~ of ~~average~~similar ~~loans in 2010~~size, uporiginates ~~significantly~~permanent ~~from~~mortgages ~~1.28%~~for inresidential ~~2009~~properties ~~and 0.34%~~ in ~~2008.~~its ~~Charge-offs on acquisition and development credits~~markets, ~~which~~it ~~were~~historically ~~discussed~~has innot ~~the~~held ~~nonaccrual and foreclosed property section, comprised $9,511,063,~~ or ~~81%~~serviced ~~of total charge~~long-~~offs~~term inmortgage ~~2010.~~loans ~~No material recoveries were recognized in 2010. Refer to the Nonperforming Assets subsection~~ of ~~this~~any ~~Analysis~~volume ~~for references on charge-offs and recoveries recognized~~ in ~~2010~~its ~~and~~own ~~prior years~~portfolio. ~~As further mentioned in other sections of this Analysis~~Rather, ~~the~~permanent ~~Company~~mortgages isare typically ~~committed~~originated tofor ~~prompt~~a ~~recognition~~third ~~of problem loans and an appropriate and adequate level of allowance~~party. The ~~adequacy~~Company ofreceives ~~the~~mortgage ~~allowance~~origination isfees ~~further~~for ~~discussed~~its inparticipation ~~the next subsection of this Analysis. Activity~~ in ~~the~~these ~~allowance is presented in the next table~~transactions.

Over the past five years, the composition of the loan portfolio has shifted as we have reduced our concentrations in construction and development lending and focused more on commercial real estate mortgages. The amount of loans outstanding at the indicated dates is presented in the following table according to type of loan.


As of December 31,	2011			2010			2009			2008			2007
(Dollars in thousands)
Commercial real estate:
Construction and development	$	61,947		$	86,972		$	111,103		$	121,194		$	123,095
Owner-occupied		36,389			35,301			36,819			7,219			2,518
Non owner-occupied		27,772			29,524			28,478			51,293			53,290
Residential real estate - mortgage		44,202			48,686			52,165			47,239			39,988
Other commercial, financial, and agricultural		22,446			33,505			33,776			37,980			33,036
Consumer, including credit cards		9,552			11,701			13,488			14,961			17,686

Loans, gross		202,308			245,689			275,829			279,886			269,613
Unearned income		(45	)		(65	)		(103	)		(129	)		(136	)
Allowance for loan losses		(6,777	)		(9,916	)		(7,170	)		(4,929	)		(4,510	)

Net loans	$	195,486		$	235,708		$	268,556		$	274,828		$	264,967

Allowance for Loan Losses Years Ended December 31,	2010		2009		2008		2007		2006
(Dollars in thousands)
Allowance for loan losses at beginning of year	$	7,170	$	4,929	$	4,510	$	4,240	$	4,311
Provision for loan losses		14,265		5,890		1,348		305		110
Charge-offs:
Commercial, financial, and agricultural		525		397		247		33		142
Real estate – construction		9,511		3,305		388		16		4
Real estate – residential mortgage		1,443		239		211		10		26
Consumer, including credit cards		211		300		197		208		192
Total charge-offs		11,690		4,241		1,043		267		364
Recoveries:
Commercial, financial, and agricultural		47		63		21		71		47
Real estate – construction		43		446		1		1		-
Real estate – residential mortgage		16		7		9		45		20
Consumer, including credit cards		65		76		83		115		116
Total recoveries		171		592		114		232		183
Net charge-offs		11,519		3,649		929		35		181
Allowance for loan losses at end of period	$	9,916	$	7,170	$	4,929	$	4,510	$	4,240
Net loans outstanding1 at end of period	$	245,624	$	275,726	$	279,757	$	269,477	$	247,766
Average net loans outstanding1 at end of period	$	256,088	$	282,946	$	270,133	$	268,445	$	236,120
Ratios:
Allowance to net loans		4.04%		2.60%		1.76%		1.67%		1.71%
Net charge-offs to average loans		4.50%		1.28%		0.34%		0.01%		0.08%
Provision to average loans		5.57%		2.08%		0.50%		0.11%		0.05%
Recoveries to total charge-offs		1.46%		13.96%		10.93%		86.89%		50.27%

The percentage of loans outstanding at the indicated dates is presented in the following table according to type of loan.

1Net of unearned income


As of December 31,	2011			2010			2009			2008			2007
Commercial real estate:
Construction and development		30.62	%		35.40	%		40.28	%		43.30	%		45.66	%
Owner-occupied		17.99	%		14.37	%		13.35	%		2.58	%		0.93	%
Non owner-occupied		13.73	%		12.02	%		10.32	%		18.33	%		19.77	%
Residential real estate - mortgage		21.85	%		19.81	%		18.91	%		16.88	%		14.83	%
Other commercial, financial, and agricultural		11.09	%		13.64	%		12.25	%		13.57	%		12.25	%
Consumer, including credit cards		4.72	%		4.76	%		4.89	%		5.34	%		6.56	%

Loans, gross		100.00	%		100.00	%		100.00	%		100.00	%		100.00	%
Unearned income		-0.02	%		-0.03	%		-0.04	%		-0.05	%		-0.05	%
Allowance for loan losses		-3.35	%		-4.04	%		-2.60	%		-1.76	%		-1.67	%

Net loans		96.63	%		95.93	%		97.36	%		98.19	%		98.28	%

~~The~~Although ~~Company~~we ~~prepares~~seek ato ~~comprehensive~~diversify ~~analysis of~~ the ~~allowance~~risk ~~for~~within our loan ~~losses~~portfolio, ~~monthly.~~a ~~SEB’s~~significant ~~Board~~portion of ~~Directors~~our isloans ~~responsible~~are ~~for affirming the allowance methodology and assessing the general and~~collateralized ~~specific~~by ~~allowance~~real ~~factors~~estate in ~~relation~~our ~~to estimated and actual net charge-off trends~~markets. ~~Such~~At ~~evaluation considers numerous factors~~December 31, ~~including~~2011, ~~but~~loans ~~not~~with ~~limited~~real ~~to,~~estate ~~net~~as ~~charge-off~~the ~~trends,~~primary ~~internal risk ratings, loss forecasts,~~ collateral ~~values, geographic~~comprised ~~location,~~approximately ~~delinquency rates, nonperforming loans, underwriting practices, industry conditions, and economic trends~~85.6% ~~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~~portfolio. ~~future~~As ~~cash~~required ~~flows,~~by ~~the loan’s estimated market value~~policy, orreal ~~the estimated~~estate ~~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~~collateralized based on ~~an analysis of historical~~certain ~~charge~~loan-~~off experience and expected loss~~to-~~given-default~~appraised ~~derived~~value ~~from~~ratios ~~the~~at ~~Company’s internal risk rating process~~origination. ~~Other~~A ~~adjustments~~geographic ~~may~~concentration bein ~~made~~loans toexists ~~the~~given ~~allowance for~~ the ~~pools~~Company’s ~~after~~operations anwithin 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~~regional ~~degree~~area of ~~managerial~~southeast ~~judgment~~Georgia ~~to anticipate the impact that economic trends, legislative or governmental actions, or other unique market~~ and~~/or~~ ~~portfolio~~northeast ~~issues will have on credit losses~~Florida. ~~Unallocated allowances relate to inherent losses that are not included elsewhere in the allowance.~~ The ~~qualitative~~Company ~~factors~~continues ~~associated~~to ~~with~~closely ~~unallocated~~monitor ~~allowances~~real ~~include~~estate valuations ~~the inherent imprecisions~~ in ~~models~~its ~~and~~markets ~~lagging or incomplete data. Because of their subjective nature, these risk factors are carefully reviewed by management~~ and ~~revised~~consider asany ~~conditions~~implications ~~indicate. Based~~ on ~~its analyses, management believes~~ the allowance ~~was~~for ~~adequate~~loan atlosses ~~December 31,~~and ~~2010 but expects further provisioning in 2011. During~~ the ~~first~~related quarter of 2011, an additional $660,000 was provisioned and $2,205,368 charged-off, net of recoveries; specific allowances established in 2010 applied to a substantial percentage of these first quarter 2011 charge-offsprovision.

A schedule of loans maturing, based on contractual terms, is presented in the following table for selected loan types.

Due
within
One
Year

Due
from
One to
Five
Years

Due
after
Five
Years

Total

Maturing after One Year

As of December 31, 2011

with Pre-
determined
Fixed Rates

with Floating
or Adjustable
Rates

(Dollars in thousands)

Commercial real estate:

Construction and development

45,131

16,512

304

61,947

10,197

6,619

Owner-occupied

10,556

20,167

5,666

36,389

14,074

11,759

Non owner-occupied

9,998

17,091

683

27,772

5,262

12,512

Residential real estate - mortgage

21,600

16,877

5,725

44,202

12,466

10,136

Other commercial, financial, and agricultural

13,797

7,652

997

22,446

5,587

3,062

Consumer, including credit cards

4,625

4,327

600

9,552

4,289

638

Loans, gross

105,707

82,626

13,975

202,308

51,875

44,726

At December 31, 2011, approximately 74.4% of our loan portfolio will either mature or reprice within the next 12 months. As interest rates fell in 2008, we began implementing interest rate floors on our variable rate commercial loans. As of December 31, 2011, excluding loans on nonaccrual status, we had included interest rate floors on approximately $88.74 million of our variable rate loans with a weighted average floor of 5.70%. In contrast, the remaining approximately $4.57 million variable rate loans without interest rate floors carried a weighted average rate of 5.10%.

On an aggregate basis, commitments to extend credit and standby letters of credit approximated $22.53 million at December 31, 2011, compared to $31.68 million at year-end 2010. The decline in overall commitments is a general reflection of the weaker commercial loan demand in our markets as well as our decision to reduce our exposure to construction and development lending. 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~~Nonperforming ~~allowance~~Assets ~~is summarized by loan categories in the next table.~~

Allocation of Allowance for Loan Losses December 31,	2010		2009		2008		2007		2006
(Dollars in thousands)
Allocation of allowanceby loan category:
Commercial, financial, and agricultural	$	716	$	853	$	1,109	$	1,281	$	1,616
Real estate – construction1		7,133		5,300		2,339		1,825		986
Real estate – residential mortgage1		1,748		562		866		686		633
Consumer, including credit cards		262		455		615		636		650
Unallocated		57		-		-		82		355
Total	$	9,916	$	7,170	$	4,929	$	4,510	$	4,240
Allocation of allowanceas a percent of total allowance:
Commercial, financial, and agricultural		7%		12%		22%		29%		38%
Real estate – construction1		72%		74%		48%		40%		23%
Real estate – residential mortgage1		18%		8%		18%		15%		15%
Consumer, including credit cards		3%		6%		12%		14%		16%
Unallocated		-		-		-		2%		8%
Total		100%		100%		100%		100%		100%
Year-end loan categoriesas a percent of total loans:
Commercial, financial, and agricultural		40%		36%		35%		33%		35%
Real estate – construction1		35%		40%		43%		46%		42%
Real estate – residential mortgage1		20%		19%		17%		15%		16%
Consumer, including credit cards		5%		5%		5%		6%		7%
Total		100%		100%		100%		100%		100%

Nonperforming assets, which consist of nonaccrual loans, restructured loans, other accruing loans past due 90 days or more, foreclosed real estate, and other repossessions, totaled $52.92 million at December 31, 2011. The aggregate balance of nonperforming assets increased $558,000 (or 1.1%) since December 31, 2010. As a percent of total assets, nonperforming assets totaled 12.70% at December 31, 2011 versus 12.24% at December 31, 2010.

1Since To2008, ~~comply~~the ~~with~~elevated ~~recent~~level ~~regulatory~~of ~~guidelines,~~nonperforming ~~certain~~assets ~~loans~~has ~~that~~materially ~~formerly~~and ~~would~~adversely ~~have~~affected ~~been~~our ~~classified~~business, asresources, and ~~real~~operating ~~estate~~results, -and ~~mortgage~~we ~~are~~expect ~~now~~continued ~~being~~adverse ~~coded~~effects asuntil real estate -markets, ~~construction~~particularly the coastal markets, stabilize and improve. ~~Comparable~~Construction and development loans ~~from~~secured ~~prior~~by ~~periods~~land ~~have~~tracts ~~not~~and ~~been~~lots ~~reclassified~~remained tothe ~~reflect~~primary ~~this~~factor ~~change~~in the nonperforming trends. ~~The~~Summary ~~majority~~information ofabout ~~real~~our ~~estate~~nonperforming ~~loans~~assets ~~are~~is ~~residential~~provided in ~~nature~~the following table.

Refer to the Nonperforming Assets subsection of this Analysis for details on the allowance allocated to classified loans at December 31, 2010. Growth in the allowance allocated to real estate – construction loans was largely attributable to loss experience within that portfolio.


As of December 31,	2011			2010			2009			2008			2007
(Dollars in thousands)
Nonaccrual loans:
Commercial real estate:
Construction and development	$	23,450		$	21,840		$	13,410		$	3,594		$	109
Owner-occupied		313			681			195			—			—
Non owner-occupied		152			697			848			907			—
Residential real estate - mortgage		6,220			4,507			2,312			1,595			350
Other commercial, financial, and agricultural		385			424			440			325			112
Consumer, including credit cards		278			373			459			241			161

Total nonaccrual loans		30,798			28,522			17,664			6,662			732
Troubled debt restructurings not included above		9,778			12,669			3,998			468			—
Accruing loans past due 90 days or more		248			121			211			135			776

Total nonperforming loans		40,824			41,312			21,873			7,265			1,508
Foreclosed real estate		12,063			11,034			7,916			3,005			305
Other repossessed assets		32			15			5			10			30

Total nonperforming assets	$	52,919		$	52,361		$	29,794		$	10,280		$	1,843

Nonperforming loans to total loans, net of unearned income		20.18	%		16.82	%		7.93	%		2.60	%		0.56	%

Nonperforming assets to total assets		12.70	%		12.24	%		7.08	%		2.36	%		0.42	%

~~Other~~Nonaccrual ~~Commitments~~Loans

~~The~~Nonaccrual ~~Company~~loans ~~had~~totaled no$30.80 ~~material~~million ~~plans~~at December 31, 2011, a $2.28 million (or ~~commitments~~7.9%) ~~for~~increase since the end of 2010. During 2011, approximately $20.76 million of loans were placed on nonaccrual ~~capital~~status, ~~expenditures~~$9.29 asmillion charged-off, $5.71 million transferred out by foreclosure or repossession, and $3.48 million reduced by payments or other activity. As of December 31, ~~2010~~2011, the unpaid principal balance owed on nonaccrual loans totaled $46.47 million. Thus, as a result of partial charge-offs, the $30.80 million in recorded balances on our books represented 66.3% of the balances owed by our customers.

~~LIQUIDITY~~Loans restructured in troubled debt restructurings that are on nonaccrual status at December 31, 2011 totaled $9.30 million, a 29.1% increase compared to $7.20 million at December 31, 2010.

~~Liquidity~~At ~~is managed to ensure sufficient cash flow to satisfy demands for credit~~December 31, ~~deposit withdrawals~~2011, ~~and~~real ~~other~~estate-secured ~~corporate~~loans ~~needs.~~comprised ~~Liquidity is vital to any financial institution and its importance cannot be overstated, particularly during periods of economic crisis~~98.7% ~~Overall liquidity position is determined by the types~~ of ~~assets,~~total ~~and~~nonaccrual ~~their duration, on the balance sheet; encumbrances; borrowing capacity from customer deposits or other sources; and retained earnings~~balances. ~~In short, assets, predominantly loans and investment securities, are funded by customer deposits, borrowed funds, and retained earnings.~~ The ~~last~~collateral ~~few~~underlying ~~years, in an effort to become more liquid, the Company has increased its most~~nonaccrual ~~liquid~~balances 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 $38,236,046 or 89.69% at ~~year-end 2010 compared to~~ December 31, ~~2009~~2011 and ~~$26,245,111~~2010 inis ~~2009~~presented ~~compared~~in tothe ~~2008.~~following ~~Cash and cash equivalents represented 18~~table.~~91%~~ ~~of total assets at December 31, 2010 versus 10.13% at December 31, 2009 and~~


As of December 31,	2011		2010
(Dollars in thousands)
Collateral type:
Real estate:
Land tracts	$	6,527	$	6,027
Lots within developments		13,363		11,682
Residential dwellings		10,040		8,828
Commercial buildings		476		1,385

Total real estate		30,406		27,922
Equipment		263		442
Other		129		158

Total nonaccrual loans	$	30,798	$	28,522

~~3.77%~~Relationships atabove ~~December 31~~$250,000 ~~2008~~comprised 85.5% ~~The~~or ~~cost~~$26.34 ofmillion ~~the liquidity improvement has been a sacrifice~~ of ~~some~~nonaccrual ~~earnings~~balances ~~potential.~~at ~~Certain liquidity ratios are presented in the Selected Financial Data table in Part II, Item~~December 631, 2011. ~~Liquidity~~The ~~sources~~table ~~are~~below ~~discussed~~presents ~~further~~nonaccrual inloans ~~the~~by ~~next~~relationship ~~subsections of this Analysis~~tiers.

Cash flows from the loan and securities portfolios represent important components of the Company’s overall liquidity position. At December 31, 2010, loans1 and investment securities with carrying values exceeding $147,000,000 were scheduled to mature in one year or less. The investment portfolio has also been structured to meet liquidity needs prior to asset maturity when necessary. Refer to the Maturity Distribution table in the Investment Securities subsection of this Analysis for pertinent information on contractual and other redemptions of these 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 December 31, 2010, 87.66% or $65,127,641 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 $19,000,000 or 26% of the securities portfolio was unencumbered at December 31, 2010. 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 are no longer insured above $250,000. The change in insurance coverage necessitated the purchase of securities to collateralize affected public funds at year-end 2010 and will continue in 2011 and beyond.


(Dollars in thousands)	Number of Relationships		Balances		Percent of Total Balance			Average Balance within Tier
*As of December 31, 2011*
Relationship tier:
£ $250,000		181	$	4,457		14.5	%	$	25
> $250,000 - £ $750,000		3		1,408		4.6	%		469
> $750,000		11		24,933		80.9	%		2,267

Total nonaccrual loans		195	$	30,798		100.0	%		158


As of December 31, 2010
Relationship tier:
£ $250,000		145	$	4,244		14.9	%	$	29
> $250,000 - £ $750,000		5		2,223		7.8	%		445
> $750,000		9		22,055		77.3	%		2,451

Total nonaccrual loans		159	$	28,522		100.0	%		179

~~The~~At ~~Company has long benefited from a relatively large~~December 31, ~~stable deposit base. Customer-based core deposits~~2011, ~~traditionally~~ the ~~Company’s~~ largest ~~and~~relationship ~~most~~within ~~cost-effective~~this ~~source~~group ofhad ~~funding,~~a ~~comprised~~$4.35 ~~81%~~million ofbook ~~the funding base at December 31, 2010, down 100 basis points from year-end 2009 levels~~balance. ~~The~~It ~~variation in core deposits~~ is ~~largely attributable to an increase in~~anticipated ~~time~~that ~~certificates~~the ~~with~~majority ~~balances~~ of ~~$100,000~~the orcollateral ~~more~~securing atthe ~~December 31,~~loans ~~2010~~in ~~compared~~this torelationship ~~year-end~~will ~~2009;~~be ~~these~~foreclosed ~~particular~~on ~~balances grew over $5,955,000~~ in ~~2010~~2012. ~~Funding~~Unless ~~sources~~pricing ~~primarily comprise customer-based core deposits but also include borrowed funds~~ and ~~cash flows from operations. Borrowed funds, which variously encompass U.S. Treasury~~ demand notes, federal funds purchased, Federal Reserve discount window borrowings, and FHLB advances, totaled $5,762,782 at December 31, 2010 versus $10,753,595 at December 31, 2009. The $4,990,813 or 46.41% decline in ~~borrowed funds resulted primarily from~~ the ~~maturity~~real ofestate amarkets $5improve,~~000,000~~ ~~FHLB~~management ~~advance~~expects ~~discussed~~other ~~further~~borrowers, ~~below.~~including ~~The~~other ~~maximum~~borrowers ~~amount of U.S. Treasury demand notes available to~~with ~~the Company at year~~collateral-~~end~~dependent ~~2010~~loan ~~totaled~~balances above $2250,000,~~000,~~ ofmay ~~which $762,782 was outstanding. At December 31, 2010, the Company~~ also ~~had~~stop ~~$5,584,581~~servicing oftheir borrowing capacity at the Federal Reserve Bank discount window; no amounts were outstanding against the capacity at December 31, 2010, and except for periodic testing of availability, the Company intends to use this capacity on a limited basisloans. ~~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~~The ~~cash~~accrual ~~from~~of ~~operations~~interest ~~derives~~on ~~primarily~~loans ~~from~~is ~~net income~~discontinued ~~adjusted~~when, ~~for~~in ~~noncash~~our ~~items~~judgment, ~~such~~the borrower may be unable to meet payments as ~~depreciation~~they ~~and~~become ~~amortization~~due, ~~accretion,~~unless ~~and~~the loan is well secured. All interest accrued on loans that are placed on nonaccrual status is reversed against interest income. Interest income on nonaccrual loans is subsequently recognized only to the ~~provision~~extent ~~for~~cash payments are received or until the loan ~~losses~~is returned to accrual status. ~~The~~For ~~Statements~~the ofyear ~~Cash~~ended ~~Flows~~December 31, ~~within~~2011, ~~this~~the ~~Form~~gross ~~10-K~~interest ~~provide~~income athat ~~comprehensive~~would ~~breakdown~~have been recorded if our nonaccrual loans had been current in accordance with their original terms was approximately $2.05 million. The amount of ~~cash~~interest ~~flows~~income ~~provided~~on bythe orabove ~~used~~nonaccrual loans that was included in ~~operating~~net income for the year ended December 31, 2011 was ~~investing~~approximately $54,000. ~~and~~The ~~financing~~allowance ~~activities~~for loan losses related to our nonaccrual loans amounted to approximately $1.12 million at December 31, 2011.

InManagement ~~the~~continues ~~third quarter of 2009, the FDIC announced its plan~~ to ~~restore~~evaluate ~~DIF~~collateral ~~balances as~~underlying anonaccrual ~~result~~loans ofand ~~recent~~adjusts ~~bank~~valuations ~~failures. The restoration plan required all FDIC-insured banks to prepay their risk-~~based ~~assessments~~on ~~for~~appraisal ~~the~~and ~~years~~similar ~~2010,~~information ~~2011, and 2012~~available. ~~The assessments~~Unfortunately, ~~usually~~valuation ~~due~~estimates ~~quarterly~~can change, resulting ~~were~~in ~~instead~~additional ~~estimated~~charge-offs ~~for the three future years~~ and ~~paid~~provisioning ~~prior~~for toloan ~~December 31, 2009~~losses. The Company ~~paid~~has adopted the ~~required~~following ~~assessment~~policy onfor ~~December 29,~~obtaining ~~2009~~updated ~~and~~appraisals ~~concurrently~~for ~~recorded~~impaired aloans, ~~prepaid~~which ~~asset~~is ~~within~~differentiated ~~other~~based ~~assets~~ on ~~the Consolidated Balance Sheets. This prepaid asset totaled $1~~terms,~~125,000~~ atloan ~~December 31,~~balance ~~2010.~~and ~~Any~~status ~~differences~~of ~~between~~ the ~~prepaid and actual amounts due each quarter will be funded using existing available liquidity~~loan.

~~Management~~• ~~believes~~Impaired ~~the~~loans ~~Company~~with ~~has~~interest-only ~~the~~payment ~~funding~~terms ~~capacity, from operating activities~~ or ~~otherwise, to meet its financial commitments in 2011. Refer to the Capital Adequacy section of this Analysis for details~~ on ~~dividend~~nonaccrual ~~policy~~status ~~and the Financial Condition section for details on unfunded loan commitments.~~ with:

~~1No~~• ~~cash~~Balances ~~flow~~greater ~~assumptions~~than ~~other~~or ~~than~~equal ~~final~~to ~~contractual~~$250,000 ~~maturities~~– ~~have~~Updated ~~been~~external ~~made~~appraisals ~~for~~are ~~installment~~obtained ~~loans~~at least every two years. ~~Nonaccrual~~For such loans, internal evaluations are ~~excluded.~~required for each year in which an external appraisal is not obtained.

•

Balances less than $250,000 – Updated external appraisals are obtained at least every two years on more complex properties. For less complex properties, such as single-family residences, internal evaluations may be utilized.

•

Impaired loans with amortizing principal and interest terms that are performing:

•

The underlying collateral on these loans are reevaluated each time the loan matures and is considered for renewal, or when the terms of the loan are materially modified. The decision of whether to order an external appraisal or perform an internal evaluation varies based on the age of original appraisal, the complexity of property, and the credit risk characteristics of the loan relationship.

~~Deposits~~Troubled Debt Restructurings

~~Deposits~~Troubled ~~increased~~debt ~~6.66%~~restructurings or(“TDRs”) ~~$23,423,778~~are ~~since~~loans ~~year-end~~where ~~2009.~~concessions ~~Interest-bearing~~were ~~deposits~~granted ~~grew~~by ~~$23,366,638~~the orCompany ~~7.88%~~to ~~while~~borrowers ~~noninterest-bearing~~experiencing ~~deposits~~financial ~~increased a marginal $57,140~~difficulties. ~~Within~~At ~~interest-bearing deposits~~December 31, ~~NOW~~2011, ~~money~~the ~~market,~~Company ~~savings,~~had ~~and time certificate balances grew~~ $~~13,635,443,~~19.08 million ~~$2,442,192,~~in ~~$409,645, and $6,879,358, respectively~~TDRs. ~~The~~Based ~~majority~~on ofperformance ~~the growth~~ in ~~NOW~~accordance ~~balances~~with ~~occurred~~the inrestructured ~~local government balances~~terms, ~~predominantly Georgia-based. Conversely,~~ the ~~growth~~Company inhas ~~money~~elected ~~market balances resulted largely from Florida-based non-personal accounts. The modest increase in savings deposits was due~~ to ~~customers~~accrue ~~seeking~~interest ~~FDIC-insured~~on ~~investments in this low rate environment~~$9.78 ~~Time~~million ~~certificate balances of $100,000 or more increased $5,955,375~~ in ~~2010~~TDRs ~~and~~outstanding ~~represented 50.39% of certificate totals~~ at December 31, ~~2010~~2011. ~~Lower~~Certain ~~balance~~TDRs ~~certificate~~are ~~totals grew $923,923 or 1.37% since December 31, 2009. The Company has focused certificate pricing~~ on ~~customers~~nonaccrual ~~who~~status ~~also have non-certificate deposit and/or loan balances. Funding costs associated with deposits declined 18.00% overall in 2010 versus 2009~~ due to ~~reductions~~a inlack ~~cost~~ of ~~funds; see the Results of Operations section~~ ofperformance ~~this~~or ~~Analysis~~management’s ~~for~~concern ~~more~~regarding ~~details.~~future Norepayment ~~single~~ability ~~factor~~or ~~precipitated the slight increase in noninterest-bearing deposits; these balances tend to be somewhat cyclical~~performance. ~~Noninterest-bearing~~The ~~deposits~~TDRs ~~continue~~that toare ~~carry~~on ~~unlimited~~nonaccrual ~~deposit~~status ~~insurance,~~at ~~regardless of dollar amount, until~~ December 31, ~~2012~~2011 ~~under~~totaled ~~provisions of the Dodd-Frank Act; a separate insurance surcharge from the FDIC does not apply as all banks participate in this program~~$9.30 ~~Overall, interest-bearing deposits comprised 85~~million.~~24%,~~ ~~and noninterest-bearing~~These ~~deposits,~~TDRs ~~14.76%,~~are ofincluded ~~total~~with ~~deposits~~other

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Filing Compare · SOUTHEASTERN BANKING CORP