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 - 20 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 $408,915,000, 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 $408,915,467 at September 30, 2009, down $26,071,082 or 5.99% from year-end 2008. A 31.28% decline in investment securities was the primary factor in the nine-month results. Specifically, investment securities declined $36,122,676; federal funds sold increased $9,600,000, while net loans grew $977,012. A $25,859,497 reduction in deposits and other funding liabilities, particularly FHLB advances and federal funds purchased, precipitated the asset drop. Loans comprised approximately 75%, investment securities, 21%, bank-owned life insurance, 1%, and federal funds sold, 3%, of earning assets at September 30, 2009 versus 70%, 29%, 1%, and 0%, at December 31, 2008. Overall, earning assets approximated 91% of total assets at September 30, 2009. During the year-earlier period, total assets declined $24,222,833 or 5.55%. Declines in investment securities and cash & due from banks were the primary factors in the 2008 results. 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 $36,122,676 or 31.28% since December 31, 2008. No securities were purchased during the nine-month period as management sought to reduce holdings of corporate securities and improve the Company's overall liquidity position. Proceeds from sales of securities totaled $14,441,591 during the nine-month period. Approximately $10,249,740 or 71% of the year-to-date sales occurred in the corporate sector, 17% in the U.S. Government agency and U.S. Government-sponsored agency

sector combined, and 12% in the municipal sector. Gross realized gains on these sales were $284,727, and gross realized losses, $84,701. The $84,701 gross realized loss was recognized on a single corporate holding. The remaining redemptions were largely attributable to various issuers' exercise of call options and other prepayments in the normal course of business and also to 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 September 30, 2009, residential mortgage-backed securities, municipals, and corporates comprised 25%, 30%, and 14% of the portfolio. Other agency securities comprised 31%. Overall, securities comprised 21% of earning assets at September 30, 2009, down from 29% at year-end 2008. The portfolio yield approximated 5.35% during the first nine months of 2009 versus 5.38% in 2008. Yields are expected to decline during the forth quarter due largely to the corporate sales discussed above; 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 55.77% of the carrying value of debt securities being backed by U.S. Government agencies or U.S. Government-sponsored agencies at September 30, 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 $19,154,003 residential mortgage-backed securities issued by Fannie Mae ("FNMA") and Freddie Mac ("FHLMC") at September 30, 2009. Residential 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. Besides FNMA and FHLMC, the Company also owned Ginnie Mae residential mortgage securities with a carrying value of $436,639 at September 30, 2009. U.S. Government agency holdings comprised U.S. Small Business Administration obligations, and U.S. Government-sponsored agency holdings comprised FHLB, FHLMC, and Federal Farm Credit Bank obligations at September 30, 2009. 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 $1,313,800 at September 30, 2009, is included in other assets and recorded at cost.

As noted earlier, the Company sold corporate securities totaling $10,249,740 during the first nine months of 2009, reducing these holdings nearly 50%. At September 30, 2009 and also, year-end 2008, 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 September 30, 2009 except for three non-rated trust preferred securities with an aggregate carrying value of $2,803,775 and unrealized loss of $685,337. The $3,422,489 net unrealized loss on the total corporate portfolio, up $316,711 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. Subsequent to September 30, the Company sold another corporate security totaling $990,000 at a $40,012 loss, further reducing its exposure to this portfolio sector. Except for twelve non-rated Georgia, one non-rated Florida, and one non-rated Alabama municipal(s), these securities were all 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 September 30, 2009, management reviewed securities with an unrealized loss and concluded that no material individual securities were other-than-temporarily impaired; however, these conclusions could change, particularly if the economic crisis facing the banking industry does not abate. Management did not recognize any securities as other-than-temporarily impaired during the first nine months of 2009.

The weighted average life of the portfolio approximated 3.5 years at September 30, 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:

Investment Securities by Category                   Amortized     Unrealized     Unrealized      Fair
September 30, 2009                                    Cost          Gains          Losses       Value
(In thousands)

U. S. Government agency securities1                $     4,302   $        180   $         -    $  4,482
U. S. Government-sponsored agency securities1           19,607            577             -      20,184
Agency residential mortgage-backed securities           18,862            731              2     19,591
Obligations of states and political subdivisions        23,686            637            167     24,156
Corporate debt obligations                              14,366             -           3,422     10,944

Total investment securities                        $    80,823   $      2,125   $      3,591   $ 79,357

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

At September 30, 2009, the market value of the investment portfolio reflected $1,465,583 in net unrealized losses, predominantly in the corporate portfolio. Management continues to monitor these market values closely and hopes for an eventual recovery as issues facing banks and their affiliates are fully addressed. Initiatives enacted by the Treasury Department, including various capital and other programs, have been positive developments for these corporate holdings; nonetheless, ratings downgrades and additional losses have occurred and may continue. For more details on investment securities and related fair value, refer to the Capital Adequacy section of this Analysis.

The Company did not have a concentration in the obligations of any issuer at September 30, 2009 other than U.S. Government agencies, U.S.
Government-sponsored agencies, and certain corporate holdings. At September 30, 2009, the Company held $6,975,196 in corporate securities issued by two separate regional bank holding companies; these holdings comprised 8.79% of the total securities portfolio and 63.74% of the corporate portfolio. Refer to Note 2 for additional disclosures on investment securities.

Loans

Loans, net of unearned income, grew 0.84% or $2,347,515 since year-end 2008. The net loans to deposit ratio aggregated 83.32% at September 30, 2009 versus 79.97% at December 31, 2008 and 78.76% a year ago. The loan categorization table on the next page reflects an approximate $5,716,000 decline in real estate - construction balances, a $6,062,000 increase in real estate - residential mortgage balances, $3,170,000 growth in the commercial portfolio, and a $1,186,000 decline in consumer loans year-to-date. When code and collateral changes for which no new money was advanced are considered, the comparative results reflect growth approximating $9,900,000 or 11.03% in the commercial portfolio and $1,857,000 or 3.61% in real estate - residential mortgage balances and declines approximating $8,241,000 or 6.67% in real estate - construction balances and $1,186,000 or 7.93% in consumer loans. Following year-to-date trends, the majority, or $6,900,000, of the commercial growth resulted from nonfarm real estate; tax-free loans to local government entities comprised approximately $2,800,000 of the remaining growth. The tax-free loans serve as a bridge for local government bodies anticipating property tax collections by December 31, 2009. The $8,241,000 decline in

real estate - construction balances resulted from multiple factors, including pay-downs and as further discussed in the next two subsections of this Analysis, 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 September 30. These type loans are typically short-term and somewhat cyclical; swings in these account balances are normal and to be expected. Due to the current slowdown in real estate activity, overall duration of these particular loans has increased in the last year and is expected to increase further throughout 2009. Not surprisingly, the escalation in nonperforming assets attributable to these acquisition and development loans is also expected to continue the rest of 2009 and into 2010. Other than 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, 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 September 30, 2009, the six loans originated under this program had an aggregate carrying value of $1,898,350. Originations under this program are expected to increase moderately during 2009 and beyond. Tighter credit policies and less demand throughout SEB's seventeen locations both contributed to the 7.93% decline in consumer loans year-to-date. Recent staff changes at various branches are expected to increase SEB's market presence and consumer loan production going forward.

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 and into the beginning of 2010. 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 grew 0.98% or $2,583,559. The residential mortgage portfolio posted the largest growth during this period, increasing $4,004,269 or 9.10%; this growth was somewhat offset by declines in other loan categories. Loans outstanding are presented by type in the table below:

                                               September 30,      December 31,      September 30,
Loans by Category                                  2009               2008              2008
(In thousands)

Commercial, financial, and agricultural1      $        99,662    $       96,492    $        92,003
Real estate - construction                            115,478           121,194            121,181
Real estate - residential mortgage2                    53,301            47,239             43,992
Consumer, including credit cards                       13,775            14,961             15,263

Loans, gross                                          282,216           279,886            272,439
Unearned income                                           112               129                138

Loans, net                                    $       282,104    $      279,757    $       272,301

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.

Many commercial and real estate credits with floating rates reached their contractual floors in late 2008 and the first nine months of 2009. Additionally, new originations and renewals, particularly in the last nine months, have been priced at fixed rather than adjustable rates, unless floors applied. Loans with floating rates that had reached a contractual floor approximated $143,000,000 at September 30, 2009 compared to $77,000,000 at December 31, 2008 and less than $15,000,000 at September 30, 2008. In 2009, management has shortened maturity options on commercial credits, a move that should mitigate the Company's interest sensitivity position when prime adjusts upward.

Although the Company's loan portfolio is diversified, significant portions of its loans are collateralized by real estate. At September 30, 2009, approximately 84.44% 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 $38,917,000 at September 30, 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. The escalation in nonperforming assets continued year-to-date, as balances jumped $9,920,838 or 97.79% at September 3, 2009 from year-end 2009 and $14,645,370 from September 30, 2008. As a percent of total assets, nonperforming assets totaled 4.91% at September 30, 2009 versus 2.33% at year-end 2008 and 1.32% at September 30, 2008. Acquisition and development loans were the primary factor in the nonperforming trends.

Nonaccrual loans comprised $8,519,908 or 42.46% of nonperforming asset balances at September 30, 2009. Approximately $7,214,000 of loans were placed on nonaccrual status during the nine-month period, $2,084,000 charged-off, $2,925,000 transferred out by foreclosure, $435,000 reduced by payments or other repossession, and $88,000 increased by a principal purchase on an existing nonaccrual loan. An $88,000 advance, net of discount, 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 $731,000. 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, and due to principal payments, the balance had been reduced to $702,000 at September 30, 2009. The Company does not have other purchased participation loans on its books. Individual concentrations within nonaccrual balances include the aforementioned $702,000 loan and the following additional credits, most of which became nonaccrual subsequent to September 30, 2008: 1) Two separate relationships secured primarily by residential lots in the same coastal subdivision - one for $1,981,000 and the other for $1,154,000; 2) a $478,000 development loan on residential lots in rural north-central Florida; 3) a $513,000 commercial real estate and equipment relationship associated with a restaurant and warehouse facility which is currently in process of foreclosure;
4) a $456,000 residential real estate loan secured by waterfront property, 5) a separate $259,000 lot/development loan secured by different waterfront property;
6) a $360,000 residential real estate loan in a north Florida beachfront community, and 7) a $182,000 residential real estate loan secured by a junior lien. The next largest relationship within nonaccrual loans at September 30, 2009 approximated $138,000. Cumulative charge-offs recognized on the nine relationships discussed above, again primarily acquisition and development relationships, totaled $862,222 in 2009 year-to-date and $1,058,647 life-to-date. Nonaccrual balances did not include any industry concentrations other than real estate at September 30, 2009. Additionally, except for the $360,000 and $478,000 credits discussed above, the collateral underlying the large nonaccrual balances at September 30, 2009 was located in Georgia, predominantly coastal 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 $514,000 specifically reserved; nonetheless, management realizes valuation estimates can change. Unless collected, higher nonaccrual balances adversely affect interest income versus performing loans.

Subsequent to September 30, three material credits aggregating $7,700,000 were placed on nonaccrual status, reduced by a single charge-off totaling $987,000. These three large credits comprised: 1) a $2,434,000 lot loan for development of a subdivision in northeast Florida, which was charged down the $987,000; 2) a $2,355,000 relationship secured by raw land, also in northeast Florida; and 3) a $2,911,000 loan secured by commercial property adjoining I-95 in Georgia, which was also 30-89 days past due at September 30, 2009. No charge-offs have been recognized on the second or third credits to-date. The specific allowance allocated to these three credits approximated $1,586,000 at September 30, 2009; 63% of this specific allowance was allocated to the first credit. Management is currently reappraising the underlying real estate, particularly on the second and third credits, and reviewing legal remedies and other solutions prior to foreclosure. For criteria used by management in classifying loans as nonaccrual, refer to the subsection entitled Policy Note.

The troubled debt restructured ("TDR") balance of $6,063,513 at September 30, 2009 comprised eight loan relationships for which payment concessions were granted. One large relationship secured by multi-family residential property comprised $4,334,680 or 71% of the quarter-end TDR balance. The remaining seven relationships averaged $246,976 each. The specific allowance allocated to the aggregate TDR balance approximated $274,000 at September 30, 2009. The TDR balance is projected to increase the next 3 - 15 months as various credits are reworked to boost payment capabilities.

The allowance for loan losses approximated 0.43X the nonperforming loans balance at September 30, 2009 versus 0.69X at year-end 2008 and 1.21X 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 until the real estate market stabilizes.

Foreclosures, sales, capitalized construction costs, and subsequent devaluations within foreclosed real estate balances totaled $2,925,054, $272,886, $28,343, and $216,828 during the first nine month of 2009. Charge-offs recognized on the underlying credits in 2009 prior to foreclosure approximated $958,000. The largest relationships foreclosed during 2009 to-date were one borrower's residential lots and commercial building with an aggregate value of $627,000 following a $90,000 devaluation charge on the lots and a $1,350,000 private island with planned development which was charged down $798,000 prior to foreclosure. Fourteen percent of the $216,828 devaluation pertained to a completed single family residence, never occupied, and the remaining 86% to residential lots acquired from two separate owners in 2008 and 2009, including the lots discussed above. Foreclosed real estate balances included nine material credits aggregating $5,168,000 at September 30, 2009; individual values ranged from $100,000 - $1,460,000. Charge-offs recognized on these larger properties prior to foreclosure approximated $1,194,000 - namely, $284,000 recorded in the third and fourth quarters of 2008 and $910,000 in 2009 year-to-date. During the first nine months of 2009, a $190,000 recovery resulting from a deficiency suit was recorded on the largest of the nine credits. The $216,828 devaluation discussed above also pertained to large credits. Although these and other properties continue to be marketed aggressively, management expects to incur carrying costs for at least one year. Any additional devaluation will be charged to operations. Foreclosed real estate balances primarily comprised residential and commercial lots at September 30, 2009; all holdings were located in Georgia. The Company's foreclosed real estate holdings can be viewed via a link from its website at www.southeasternbank.com. No significant activity occurred within other repossessed assets during 2009 year-to-date.

Loans past due 90 days or more and still accruing totaled $129,709, or less than 1% of net loans, at September 30, 2009. Management is unaware of any material concentrations within these past due balances. The table below provides further information about nonperforming assets and loans past due 90 plus days:

                                             September 30,          December 31,          September 30,
Nonperforming Assets                             2009                   2008                  2008
(In thousands)

Nonaccrual loans:
Commercial, financial, and agricultural     $         1,609        $        1,232        $           313
Real estate - construction                            4,812                 3,594                  2,300
. . .