This Analysis should be read in conjunction with the 2008 Annual Report on Form 10-K and the consolidated financial statements & related notes on pages 3 - 11 of this quarterly filing. The Company's accounting policies, which are described in detail in Form 10-K, are integral to understanding the results reported. The Company's accounting policies require management's judgment in valuing assets, liabilities, commitments, and contingencies. A variety of factors could affect the ultimate value that is obtained when earning income, recognizing an expense, recovering an asset, or relieving a liability. This Analysis contains forward-looking statements with respect to business and financial matters. Actual results may vary significantly from those contained in these forward-looking statements. See the sections entitled Critical Accounting Policies and Forward-Looking Statements within this Analysis.

Description of Business

Southeastern Banking Corporation, with assets exceeding $418,482,000, is a financial services company with operations in southeast Georgia and northeast Florida. Southeastern Bank ("SEB"), the Company's wholly-owned commercial bank subsidiary established in 1889, offers a full line of commercial and retail services to meet the financial needs of its customer base through its seventeen 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 Raymond James Financial Services, provides insurance agent and investment brokerage services.

Financial Condition

Consolidated assets totaled $418,482,255 at March 31, 2009, down $16,504,294 or 3.79% from year-end 2008. An 18.75% decline in investment securities was the primary factor in the three-month results. Specifically, investment securities declined $21,649,075; cash & due from banks, which includes correspondent balances, cash letters in transit, and federal funds sold, grew $3,660,960, while net loans increased $1,735,586. A $16,375,735 reduction in deposits and other funding liabilities, particularly FHLB advances and federal funds purchased, precipitated the asset drop. Loans comprised approximately 74%, investment securities, 25%, and bank-owned life insurance, 1%, of earning assets at March 31, 2009 versus 70%, 29%, and 1%, at December 31, 2008. Overall, earning assets approximated 91% of total assets at March 31, 2009. During the year-earlier period, total assets increased $4,826,522 or 1.11%. The 2008 asset growth was concentrated in federal funds sold and investment securities. Refer to the Liquidity section of this Analysis for details on deposits and other funding sources.

Investment Securities

As further discussed in the Notes to the Consolidated Financial Statements, the Company transferred all investment securities classified as held-to-maturity to the available-for-sale category on February 2, 2009. The amortized cost of the transferred securities totaled $28,811,418, and the market value, $29,269,028. The Company recorded a $302,023 reclassification adjustment to accumulated other comprehensive income, net of tax, as a result of the transfer. The transfer provides management more flexibility in managing the portfolio.

Overall, investment securities declined $21,649,075 or 18.75% since December 31, 2008. No securities were purchased during the three-month period as management sought to reduce holdings of corporate securities and improve the Company's overall liquidity position. Proceeds from sales of securities

Management believes the credit quality of the investment portfolio remains fundamentally sound, with 58.16% of the carrying value of debt securities being backed by the U.S. Treasury or other U.S. Government-sponsored agencies at March 31, 2009. 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 $23,856,854 mortgage-backed securities issued by Fannie Mae ("FNMA") and Freddie Mac ("FHLMC") at March 31, 2009. Mortgage-backed securities issued by FNMA and FHLMC are collateralized foremost by the underlying mortgages and secondly, by FNMA and FHLMC themselves. In September 2008, the U.S. Government placed FNMA and FHLMC under regulatory conservatorship, easing credit concerns about these two entities. Fortunately, the Company did not own any FNMA or FHLMC common or preferred stock. Besides FNMA and FHLMC, the Company also owned Ginnie Mae mortgage securities with a carrying value of $538,781 at March 31, 2009. U.S. Government-sponsored Agency holdings at March 31, 2009 included FHLB, U.S. Small Business Administration, and Federal Farm Credit Bank obligations. Recently, credit concern surrounding the FHLB system has been 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 $1,397,400 at March 31, 2009, is included in other assets and recorded at cost.

As noted earlier, the Company sold corporate securities totaling $9,225,240 during the first three months of 2009, reducing these holdings 42%. At March 31, 2009 and also, year-end 2008, the entire corporate bond portfolio comprised issues of banks and bank holding companies domiciled in the southeastern United States. These corporate bonds were all rated "BBB" or higher by at least one nationally recognized rating agency at March 31, 2009 except for three non-rated trust preferred securities with an aggregate carrying value of $2,777,250 and unrealized loss of $719,358. The $3,528,704 net unrealized loss on the total corporate portfolio, up $613,674 from year-end 2008 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 currently affecting the banking industry. As further discussed on the next page, management is optimistic these values will improve. Except for twelve non-rated Georgia municipals and one non-rated Florida municipal, 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.

The weighted average life of the portfolio approximated 4 years at March 31, 2009; management does not expect any extension in duration during 2009. The amortized cost and estimated fair value of investment securities, all available-for-sale, are delineated in the table below:

                                                    Amortized     Unrealized     Unrealized      Fair
Investment Securities by Category March 31, 2009      Cost          Gains          Losses       Value
(In thousands)
U.S. Government agencies1                          $    29,437   $        737   $         -    $ 30,174
Mortgage-backed securities                              23,801            596              1     24,396
States and political subdivisions                       27,166            469            249     27,386
Corporates                                              15,403             -           3,528     11,875

Total investment securities                        $    95,807   $      1,802   $      3,778   $ 93,831

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

At March 31, 2009, the market value of the investment portfolio reflected $1,976,026 in net unrealized losses, mostly in the corporate portfolio. Management is optimistic these market values will eventually recover as issues facing banks and their affiliates are fully addressed. Initiatives recently enacted by the Treasury Department, including various capital and other programs, are positive developments for these corporate holdings; nonetheless, ratings downgrades and additional losses have occurred and may continue. For more details on investment securities and related fair value, refer to the Capital Adequacy section of this Analysis.

The Company did not have a concentration in the obligations of any issuer at March 31, 2009 other than U.S. Government-sponsored agencies and certain corporate holdings. At March 31, 2009, the Company held $9,129,324 in corporate securities issued by three separate regional bank holding companies; these holdings comprised 9.73% of the total securities portfolio and 76.88% of the corporate portfolio.

Loans

Loans, net of unearned income, grew 0.92% or $2,577,926 since year-end 2008. The net loans to deposit ratio aggregated 81.14% at March 31, 2009 versus 79.97% at December 31, 2008, and 69.93% a year ago. Balances in the commercial portfolio posted the largest growth, increasing $2,168,667 or 2.25% year-to-date. Nonfarm real estate within the commercial portfolio grew $4,181,136, while agricultural, governmental, and other commercial/industrial loans fell $728,281, $934,186, and $350,002. The real estate - residential mortgage portfolio also grew, increasing 2.25% or $1,063,104 at March 31, 2009 compared to December 31, 2008. Real estate
- construction balances, predominantly residential in nature and concentrated in the Company's coastal markets, grew a modest $306,235 or 0.25% due to funding of existing commitments. Most of the loans in the real estate - construction portfolio are preparatory to customers' attainment of permanent financing or developer's sale and typically, are 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, duration of these particular loans has increased in the last year and is expected to increase further throughout 2009. Not surprisingly and as further discussed in the next subsection of this Analysis, the recent escalation in nonperforming assets is largely attributable to these land holding and development loans. Other than existing commitments, the Company is originating new land holding 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, like peer institutions of similar size, originates permanent mortgages for new construction, it historically has not held or serviced long-term mortgage loans for 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. The Company has been revamping its mortgage origination department and has begun originating, holding, and servicing such mortgage loans in-house on a limited scale; at March 31, 2009, the three loans originated under this program had an aggregate carrying value of $1,153,774. Originations under this program are expected to increase moderately during 2009 and beyond. Consumer loans declined $965,916 at March 31, 2009 compared to year-end 2008; these loans comprised 4.95% of the total portfolio at March 31, 2009.

Due to economic uncertainties within the Company's markets, particularly in the real estate sector, and resultant concerns regarding credit opportunities, management expects loan volumes to flatten or even decline the remainder of 2009. Additionally, as further discussed in the next subsection of this Analysis, management expects problem asset volumes to increase given the Company's significant real estate portfolio. During the same period in 2008, net loans declined 2.91% or $7,839,241. Pay-downs on large real estate credits, particularly real estate - construction balances, was the leading factor in the 2008 results. Loans outstanding are presented by type in the table below:

                                             March 31,     December 31,      March 31,
  Loans by Category                             2009           2008             2008
  (In thousands)
  Commercial, financial, and agricultural1   $   98,661   $       96,492     $   88,114
  Real estate - construction                    121,500          121,194        115,818
  Real estate - residential mortgage2            48,302           47,239         40,873
  Consumer, including credit cards               13,995           14,961         16,969

  Loans, gross                                  282,458          279,886        261,774
  Unearned income                                   123             (129 )          137

  Loans, net                                 $  282,335   $      279,757     $  261,637

1 Includes obligations of states and political subdivisions.

2 Typically have final maturities of 15 years or less. In the third quarter of 2008, the Company began originating, holding, and servicing longer-term mortgage loans in-house on a limited scale.

Although the Company's loan portfolio is diversified, significant portions of its loans are collateralized by real estate. At March 31, 2009, approximately 83.59% of the loan portfolio was comprised of loans with real estate as the primary collateral, including lots for new construction. 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 $41,286,000 at March 31, 2009; 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.

Nonperforming Assets

Nonperforming assets consist of nonaccrual loans, restructured loans, foreclosed real estate, and other repossessed assets. Nonperforming assets continued to trend upward year-to-date, increasing $2,229,462 or 21.98% to $12,374,823 at March 31, 2009 from year-end 2008 and increasing $10,673,123 from March 31, 2008. As a percent of total assets, nonperforming assets totaled 2.96% at March 31, 2009 versus 2.33% at year-end 2008 and 0.39% at March 31, 2008. Nonaccrual loans comprised $8,680,772 or 70.15% of nonperforming asset balances at March 31, 2009. The transfer of a $1,982,000 relationship secured by residential lots in an established coastal subdivision to nonaccrual status and a $177,000 increase in an existing nonaccrual loan were the major factors in the nonperforming loans increase year-to-date. A $177,000 advance would not customarily be made once a loan has been placed on nonaccrual status. To explain, during 2008, a $643,000 participation loan secured by an office building in north Georgia was placed on nonaccrual status. In February 2009, the Company successfully negotiated the purchase of the FDIC's interest in the north Georgia participation, bringing its recorded investment in this credit to approximately $820,000. The Georgia Department of Banking and Finance and the FDIC had closed the lead bank, the only other participant in the loan, in November 2008. Although this credit is expected to remain outstanding in the near term, no charge-off is expected. The Company does not have other purchased participation loans on its books. Individual concentrations within nonaccrual balances included the aforementioned $2,802,000 loans. Other large relationships within nonaccrual loans, most of which became nonaccrual subsequent to March 31, 2008, included: 1) a $2,115,000 construction/lot loan on a private island with planned development, 2) a $462,000 residential real estate loan secured by waterfront property, 3) a $759,000 relationship secured by assorted real estate and equipment, reduced by a $130,000 foreclosure in January 2009, 4) a separate $256,000 relationship also secured by assorted collateral, 5) a $360,000 residential real estate loan in a north Florida beachfront community, and 6) a $239,000 residential real estate loan secured by a junior lien. The next largest relationship within nonaccrual loans at March 31, 2009 approximated $94,000. Cumulative charge-offs recognized on the eight loans discussed above totaled $97,145 in 2009 year-to-date and $331,594 life-to-date. Nonaccrual balances did not include any industry concentrations at March 31, 2009. Additionally, except for the $360,000 credit, the collateral underlying the large nonaccrual balances at March 31, 2009 was located in Georgia. Management continues to evaluate collateral underlying nonaccrual loans but based on appraisal and similar information currently available, does not expect any other significant losses on these balances above the $570,000 specifically reserved; nonetheless, management realizes valuation estimates can change. Unless collected, higher nonaccrual balances adversely affect interest

The troubled debt restructured ("TDR") balance at March 31, 2009 and December 31, 2008 comprised one owner-occupied commercial real estate loan for which payment concessions were granted. The allowance for loan losses approximated 0.63X the nonperforming loans balance at March 31, 2009 versus 0.69X at year-end 2008 and 3.29X a year ago. Management expects overall credit conditions and the performance of the loan portfolio to continue deteriorating in the near term, resulting in additional charge-offs and more provisioning.

Other than foreclosure of one borrower's residential lots valued at approximately $130,000, as noted above, no significant activity occurred within foreclosed real estate balances during the first quarter of 2009. Foreclosed real estate balances included five material credits aggregating $3,052,000 at March 31, 2009; individual values ranged from $130,000-$1,460,000. Charge-offs recognized on these properties prior to foreclosure, all recorded in the third and fourth quarters of 2008, approximated $277,000. In February 2009, a $150,000 recovery resulting from a deficiency suit was recorded on the largest of the five credits. Although these and other properties continue to be marketed aggressively, management expects to incur carrying costs for at least one year. Any subsequent devaluations will be charged to operations. Foreclosed real estate balances primarily comprised residential and commercial lots at March 31, 2009; all holdings were located in Georgia. No significant activity occurred within other repossessed assets during 2009 year-to-date.

Loans past due 90 days or more and still accruing totaled $210,021, or less than 1% of net loans, at March 31, 2009. Management is unaware of any material concentrations within these past due balances; the vast majority, or 72%, of these past due balances were real estate-secured. The table below provides further information about nonperforming assets and loans past due 90 plus days:

                                                   March 31,        December 31,        March 31,
Nonperforming Assets                                 2009               2008              2008
(In thousands)
Nonaccrual loans:
Commercial, financial, and agricultural           $     1,610      $        1,232      $       202
Real estate - construction                              5,291               3,594              164
Real estate - mortgage                                  1,571               1,595              823
Consumer, including credit cards                          208                 241              210

Total nonaccrual loans                                  8,680      $        6,662            1,399
Restructured loans1                                       468                 468               -

Total nonperforming loans                               9,148      $        7,130            1,399
Foreclosed real estate2                                 3,226               3,005              291
Other repossessed assets                                   -                   10               12

Total nonperforming assets                        $    12,374      $       10,145      $     1,702

Accruing loans past due 90 days or more           $       210      $          135      $       300

Ratios:
Nonperforming loans to net loans                         3.24 %              2.55 %           0.53 %

Nonperforming assets to net loans plus
foreclosed/repossessed assets                            4.33 %              3.59 %           0.65 %

1 Does not include restructured loans that yield a market rate or loans reported as nonaccrual.

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

Accruing loans classified as individually impaired under SFAS No. 114, "Accounting by Creditors for Impairment of a Loan - an amendment of FASB Statements No. 5 and 15," totaled approximately $15,175,000 at March 31, 2009. This entire classified balance pertained to six separate borrowers whose loan repayment was expected to come foremost from commercial or residential real estate development or lot loan sales of the underlying collateral. Due to lagging sales and lingering distress in the real estate market, 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 six credits approximated $1,481,000 at March 31, 2009. The $1,481,000 assumes a loss if the underlying real estate required liquidation currently. Management fully expects additional relationships to be identified as impaired under SFAS No. 114 the remainder of 2009, necessitating specific allowances for the underlying loans.

Policy Note. Loans classified as nonaccrual have been placed in nonperforming, or impaired, status because the borrower's ability to make future principal and/or interest payments has become uncertain. The Company considers a loan to be nonaccrual with the occurrence of any one of the following events: a) interest or principal has been in default 90 days or more, unless the loan is well-collateralized and in the process of collection; b) collection of recorded interest or principal is not anticipated; or c) income on the loan is recognized on a cash basis due to deterioration in the financial condition of the debtor. Smaller balance consumer loans are generally not subject to the above-referenced guidelines and are normally placed on nonaccrual status or else charged-off when payments have been in default 90 days or more. Nonaccrual loans are reduced to the lower of the principal balance of the loan or the market value of the underlying real estate or other collateral net of selling costs. Any impairment in the principal balance is charged against the allowance for loan losses; subsequent charge-offs may be required as a result of changes in the market value of collateral or other repayment prospects. Unpaid interest on any loan placed on nonaccrual status is reversed against interest income. Interest income on nonaccrual loans, if subsequently recognized, is recorded on a cash basis. No interest is subsequently recognized on nonaccrual loans until all principal has been collected. Loans are classified as TDR when a concession, including interest reduction or deferral, has been granted to the borrower due to the borrower's deteriorating financial condition. Foreclosed real estate represents real property acquired by foreclosure or directly by title or deed transfer in settlement of debt. Provisions for subsequent devaluations of foreclosed real estate are charged to operations, while costs associated with improving the properties are generally capitalized.

Allowance for Loan Losses

. . .