ended December 31, 2008. All percentage and dollar variances noted in the following analysis are calculated from the balances presented in the accompanying financial statements.
Forward-Looking Statements
This report on Form 10-Q may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that reflect our current expectations relating to present or future trends or factors generally affecting the banking industry and specifically affecting our operations, markets and products. Without limiting the foregoing, the words "believes", "expects", "anticipates", "estimates", "projects", "intends", and similar expressions are intended to identify forward-looking statements. These forward-looking statements are based upon assumptions we believe are reasonable and may relate to, among other things, the deteriorating economy and its impact on operating results and credit quality, the adequacy of the allowance for loan losses, changes in interest rates, and litigation results. These forward-looking statements are subject to risks and uncertainties. Actual results could differ materially from those projected for many reasons, including without limitation, changing events and trends that have influenced our assumptions. These trends and events include (1) real estate values in the Atlanta, Georgia, metropolitan area and in eastern and northern Florida markets; (2) general business and economic conditions; (3) conditions in the financial markets and economic conditions generally and the impact of recent efforts to address difficult market and economic conditions; (4) our liquidity and sources of liquidity;
(5) the terms of the U.S. Treasury Department's (the "Treasury") equity investment in us; (6) the limitations on executive compensation imposed through our participation in the TARP Capital Purchase Program; (7) a deteriorating economy and its impact on operations and credit quality; (8) the ability of the Treasury to unilaterally amend any provision of the purchase agreement we entered into as part of the TARP Capital Purchase Program; (9) unique risks associated with our construction and land development loans; (10) our ability to raise capital; (11) the impact of a recession on our consumer loan portfolio and its potential impact on our commercial portfolio; (12) economic conditions in Atlanta, Georgia; (13) our ability to maintain and service relationships with automobile dealers and indirect automobile loan purchasers and our ability to profitably manage changes in our indirect automobile lending operations;
(14) the accuracy and completeness of information from customers and our counterparties; (15) changes in the interest rate environment and their impact on our net interest margin; (16) difficulties in maintaining quality loan growth; (17) less favorable than anticipated changes in the national and local business environment, particularly in regard to the housing market in general and residential construction and new home sales in particular; (18) the impact of and adverse changes in the governmental regulatory requirements affecting us;
(19) the effectiveness of our controls and procedures; (20) our ability to and retain skilled people; (21) greater competitive pressures among financial institutions in our market; (22) changes in political, legislative and economic conditions; (23) inflation; (24) greater loan losses than historic levels and an insufficient allowance for loan losses; (25) failure to achieve the revenue increases expected to result from our investments in our growth strategies, including our branch additions and in our transaction deposit and lending businesses; (26) the volatility and limited trading of our common stock; and
(27) the impact of dilution on our common stock. This list is intended to identify some of the principal factors that could cause actual results to differ materially from those described in the forward-looking statements included herein and are not intended to represent a complete list of all risks and uncertainties in our business. Investors are encouraged to read the related section in our 2008 Annual Report on Form 10-K, including the "Risk Factors" set forth therein. Additional information and other factors that could affect future financial results are included in our filings with the Securities and Exchange Commission. Critical Accounting Policies
Our accounting and reporting policies are in accordance with U.S. generally accepted accounting principles and conform to general practices within the financial services industry. Our financial position and

results of operations are affected by management's application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies, or conditions significantly different from certain assumptions, could result in material changes in our consolidated financial position or consolidated results of operations. Critical accounting and reporting policies include those related to the allowance for loan losses, fair value of mortgage loans held-for-sale, the capitalization of servicing assets and liabilities and the related amortization, loan related revenue recognition, and income taxes. Our accounting policies are fundamental to understanding our consolidated financial position and consolidated results of operations. Significant accounting policies have been periodically discussed and reviewed with and approved by the Board of Directors.
Our critical accounting policies that are highly dependent on estimates, assumptions and judgment are substantially unchanged from the descriptions included in the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2008. Results of Operations
Earnings
For the first quarter of 2009, the Company recorded a net loss of $3.4 million compared to net income of $1.1 million for the first quarter of 2008. Net loss available for common equity was $4.2 million for the quarter ended March 31, 2009. Basic and diluted (loss) earnings per share for the first quarter of 2009 and 2008 were $(.43) and $.12, respectively. The decrease in net income for the first quarter of 2009 when compared to the same period in 2008 was primarily due to a $5.0 million increase in the provision for loan losses to $9.6 million. The increase in the provision for loan losses was due to increased nonperforming assets and loan charge-offs caused by the continued recession and slow housing market.
The Company benefited in the first quarter of 2008 from a pretax gain of $1,252,000 on the mandatory redemption of 29,267 shares of Visa, Inc. common stock upon Visa's successful initial public offering. In addition, the Company reversed a pretax $567,000 litigation expense accrual recorded in the fourth quarter of 2007 to recognize the Company's proportional share of Visa litigation settlements and litigation reserves.
Net Interest Income
Net interest income decreased $719,000 or 6.1% in the first quarter of 2009 to $11.0 million compared to $11.7 million for the same period in 2008 resulting primarily from a decrease in loan interest income due to lower interest rates on loans, and an increase in nonperforming assets.
The average balance of interest-earning assets increased by $43.2 million or 2.7% to $1.660 billion for the first quarter of 2009, when compared to the same period in 2008. The yield on interest-earning assets for the first quarter of 2009 was 5.73%, a decrease of 113 basis points when compared to the yield on interest-earning assets for the same period in 2008. The average balance of loans outstanding for the first quarter of 2009 decreased $22.6 million or 1.5% to $1.449 billion when compared to the same period in 2008. In addition to the negative impact of the recession on lending activity, prior to receiving $48.2 million in TARP capital, management actively worked to constrain lending in an effort to preserve capital. The yield on average loans outstanding for the period decreased 110 basis points to 5.94% when compared to the same period in 2008 as a result of a 299 basis point decrease in the average prime lending rate and the effects of an increase in the level of nonperforming loans from $37.0 million at March 31, 2008 to $123.5 million at March 31, 2009.
The average balance of interest-bearing liabilities increased $24.9 million or 1.7% to $1.485 billion for the first quarter of 2009 and the rate on this average balance decreased 96 basis points to 3.37% when compared

to the same period in 2008. The 96 basis point decrease in the cost of interest-bearing liabilities was lower than the 113 basis point decrease in the yield on interest earning assets, resulting in a 17 basis point decrease in net interest spread. Net interest margin decreased 23 basis points to 2.71% for the first quarter of 2009 compared to 2.94% for the same period in 2008. The Bank manages its net interest spread and net interest margin based primarily on its loan and deposit pricing. To maintain its deposit market share and to assist in liquidity management, during 2009 as compared to 2008, the Bank did not decrease its deposit pricing as much as it lowered its loan rates, which fluctuates with the change in the prime interest rate.
Provision for Loan Losses
The allowance for loan losses is established and maintained through provisions charged to operations. Such provisions are based on management's evaluation of the loan portfolio including loan portfolio concentrations, current economic conditions, past loan loss experience, adequacy of underlying collateral, and such other factors which, in management's judgment, require consideration in estimating loan losses. Loans are charged off or charged down when, in the opinion of management, such loans are deemed to be uncollectible or not fully collectible. Subsequent recoveries are added to the allowance.
For all loan categories, historical loan loss experience, adjusted for changes in the risk characteristics of each loan category, current trends, and other factors, is used to determine the level of allowance required. Additional amounts are allocated based on the probable losses of individual impaired loans and the effect of economic conditions on both individual loans and loan categories. Since the allocation is based on estimates and subjective judgment, it is not necessarily indicative of the specific amounts of losses that may ultimately occur.
The allowance for loan losses for the homogenous pools is allocated to loan types based on historical net charge-off rates adjusted for any current or anticipated changes in these trends. The specific allowance for individually reviewed nonperforming loans and loans having greater than normal risk characteristics is based on a specific loan impairment analysis.
In determining the appropriate level for the allowance, management ensures that the overall allowance appropriately reflects a margin for the imprecision inherent in most estimates of the range of probable credit losses. This additional amount, if any, is reflected in the overall allowance. Management believes the allowance for loan losses is adequate to provide for losses inherent in the loan portfolio at March 31, 2009 (see "Asset Quality").
The provision for loan losses for the first three months of 2009 was $9.6 million compared to $4.6 million for the same period in 2008. The allowance for loan losses as a percentage of loans at March 31, 2009, was 2.66% compared to 2.43% at December 31, 2008, and to 1.34% at March 31, 2008. The increase in the provision in the first three months of 2009 as compared to the same period in 2008 and the increase in the allowance as a percentage of loans at March 31, 2009, was due to management's assessment of the continued recession and slow housing market, as well as increased charge-offs in both the residential construction and consumer loan portfolios. The ratio of net charge-offs to average loans on an annualized basis for the first three months of 2009 increased to 2.32% compared to .60% for the same period in 2008. The ratio of net charge-offs to average loans for the year ended December 31, 2008 was 1.36%. The following schedule summarizes changes in the allowance for loan losses for the periods indicated (dollars in thousands):

                                                            Three Months Ended             Year Ended
                                                                March 31,                 December 31,
                                                           2009             2008              2008
Balance at beginning of period                          $   33,691        $ 16,557        $      16,557
Charge-offs:
Commercial, financial and agricultural                         299              14                   99
SBA                                                            249               -                  220
Real estate-construction                                     3,642             535                9,083
Real estate-mortgage                                            63              11                  332
Consumer installment                                         3,756           1,869               10,841

Total charge-offs                                            8,009           2,429               20,575


Recoveries:
Commercial, financial and agricultural                           6               -                    5
SBA                                                              -              56                  215
Real estate-construction                                         9               -                   43
Real estate-mortgage                                             -              13                   14
Consumer installment                                           206             249                  882

Total recoveries                                               221             318                1,159


Net charge-offs                                              7,788           2,111               19,416
Provision for loan losses                                    9,600           4,600               36,550

Balance at end of period                                $   35,503        $ 19,046        $      33,691


Annualized ratio of net charge-offs to average
loans                                                         2.32 %           .60 %               1.36 %

Allowance for loan losses as a percentage of loans
at end of period                                              2.66 %          1.34 %               2.43 %

Substantially all of the consumer installment loan net charge-offs in the first three months of 2009 and 2008 were from the indirect automobile loan portfolio. Consumer installment loan net charge-offs increased $1.9 million to $3.6 million for the three months ended March 31, 2009, compared to the same period in 2008. The national and Atlanta economies continued to decline in the first three months of 2009, as the continuing economic recession impacted our consumer lending portfolio. The annualized ratio of net charge-offs to average consumer loans outstanding was 2.06% and .87% during the first three months of 2009 and 2008, respectively.
Construction loan net charge-offs were $3.6 million in the first three months of 2009 compared to $535,000 in the same period of 2008. The residential construction markets continued to show the effects of the recession and slow housing market, directly contributing to the increase in non-performing and charged-off real estate construction loans. Management will continue to monitor closely and aggressively address credit quality and trends in the residential construction loan portfolio. The residential construction loan portfolio will require close scrutiny through the next several quarters. Noninterest Income
Noninterest income for the first three months of 2009 was $6.8 million compared to $5.7 million for the same period in 2008, an increase of $1.1 million for the quarter. The increase was a result of the Bank's expansion of its mortgage banking division less decreases in indirect lending activities, SBA lending activities, and gain on sale of securities.
Income from mortgage banking activities increased $3.5 million to $3.6 million for the first quarter of 2009 compared to the same period in 2008. In the first quarter of 2009, management made the strategic decision to expand the mortgage banking operation by hiring over 60 former employees of an Atlanta based mortgage company which closed down operations. As a result of this expansion and favorable mortgage interest rates, the Bank originated approximately $85 million in mortgage loans during the first quarter of 2009 compared to $6 million for the same period in 2008. Origination fee income for the first quarter of 2009 was $1.2 million compared to $31,000 for the same period in 2008. Gain on loans sold increased from $29,000 for the quarter ended March 31, 2008 to $749,000 for the same quarter in 2009. In addition, on January 1, 2009 the Bank elected under FAS 159 to value its loans held-for-sale at fair value. This valuation along with the mark to

market on the derivatives associated with interest rate lock commitments and related hedges resulted in the recognition of a mark to market gain of $1.6 million during the first quarter of 2009 (See Note 7).
Income from indirect lending activities, which includes both net gains from the sale of indirect automobile loans and servicing and ancillary loan fees on loans sold, decreased $442,000 or 27.9% in the first quarter of 2009 compared to 2008. The decrease was a result of a reduction in gain on sales due to lower sales and lower indirect automobile loans serviced for others. With the continued liquidity and credit crisis, the secondary markets continued to show little activity during 2009. For the first quarter of 2009, there was one servicing retained sale of $15 million compared to $27 million in service retained sales and $24 million in service released sales for the same period in 2008. The average amount of loans serviced for others decreased from $281 million for the first quarter of 2008 to $233 million for the same period in 2009, a decrease of $48 million or 17.1% due to monthly principal payments which exceeded the additional loans serviced for others added because of fewer servicing retained loan sales.
For the first quarter of 2009 compared to the same period in 2008, income from SBA lending activities decreased $236,000 or 57.0%, due to a reduction in the gain on loans sold and a reduction in the volume of loans sold. SBA loans sold totaled $4.8 million for the first quarter of 2009 compared to $6.7 million sold in the first quarter of 2008. With the continuing volatility in credit markets, the market price and thus the profit on loan sales have been less than they have been for us historically.
Securities gains decreased $1.3 million for the first quarter of 2009 compared to the same period in 2008 because of the 2008 mandatory redemption of 29,267 shares of Visa, Inc. common stock which resulted in the gain of $1.3 million. Other operating income decreased $320,000 for the first quarter of 2009 compared to 2008 because of lower brokerage fee income, lower insurance sales commissions and lower gains on sale of other real estate. Noninterest Expense
Noninterest expense was $14.0 million for the first quarter of 2009, compared to $11.4 million for the same period in 2008, an increase of $2.6 million or 23.1%. The increase was a result of higher salaries and benefits expense which increased $983,000 or 14.2% as a result of the expansion of the mortgage division and the associated commission expense. ORE related expenses, which were $749,000 in the first quarter of 2009, increased $612,000 compared to the same period in 2008. The increase was a result of higher foreclosed assets held by the Bank during 2009. The average ORE balance increased 132.5% to $18.3 million for the first quarter of 2009 compared to $7.9 million for the same period in 2008. The ORE expense is made up of $523,000 in provision for other real estate losses and $226,000 in maintenance, real estate taxes, and other related expenses.
Other significant variances include the reversal of a $567,000 accrual in the first quarter of 2008 related to the reserve for Fidelity's estimated proportional share of a settlement of the Visa litigation with Discover Financial Services which did not reoccur in 2009, an increase of $183,000 related to a higher FDIC assessment, higher fraud losses and higher appraisal fee expenses. Management expects FDIC insurance expense to increase in 2009 due to a yet to be determined special assessment. Provision for Income Taxes
The provision for income taxes for the first quarter of 2009 was a benefit of $2.4 million compared to expenses of $295,000 for the same period in 2008. The income tax benefit recorded in the first quarter of 2009 was primarily the result of a pretax loss as well as the recognition of state income tax credits earned.

Financial Condition
Assets
Total assets were $1.875 billion at March 31, 2009, compared to $1.763 billion at December 31, 2008, an increase of $112.2 million, or 6.4%. This increase was due to a $124.1 million increase in investment securities available-for-sale, and a $51.4 million increase in loans held-for-sale offset in part by a decrease of $51.9 in loans and a decrease of $12.3 million in cash and cash equivalents.
Investment securities available-for-sale increased $124.1 million or 96.4% to $252.9 million at March 31, 2009 compared to December 31, 2008. The increase was a result of management's decision to enter into a leveraged purchase transaction to help offset the preferred stock dividends to be paid on the preferred stock sold to the U.S. Treasury under the TARP Capital Purchase Program in December 2008. The leveraged purchase transaction allows the Bank to quickly and prudently increase earning assets to generate interest income. In March, the Bank purchased $127.7 million in FNMA and GNMA mortgage backed securities and funded the purchases with $30 million in fixed rate wholesale borrowings and the remainder from increased deposit balances and excess liquidity. There were no investment sales during the quarter ended March 31, 2009.
Loans held-for-sale increased $51.4 million or 92.0% to $107.2 million at March 31, 2009 compared to December 31, 2008. The increase is due to an increase in mortgage loans held-for-sale as a result of the expanded mortgage operation in the first quarter of 2009 which resulted in new loan originations totaling $85 million.
Loans decreased $51.9 million or 3.7% to $1.336 billion at March 31, 2009 compared to $1.388 billion at December 31, 2008. The decrease in loans was primarily the result of a decrease in consumer installment loans of $34.4 million or 5.1% to $644.9 million, and a decrease in real estate construction loans of $16.6 million or 6.8% to $228.6 million. Until receiving the TARP Capital Purchase Program capital infusion in December of 2008, management actively engaged in reducing the level of the loan portfolio to preserve capital ratios. By slowing originations in the consumer installment portfolio, the normal monthly principal paydowns led to lower outstanding loans. As the liquidity and credit crisis continued during the first three months of 2009, demand for construction loans continued to be limited and the portfolio balance continued to decrease including $4.3 million in loans that were transferred to other real estate.
Cash and cash equivalents decreased 13.4% or $12.3 million to $79.7 million at March 31, 2009 compared to December 31, 2008. This balance varies with the Bank's liquidity needs and is influenced by scheduled loan closings, investment purchases, timing of customer deposits, and loan sales. Loans
The following schedule summarizes our total loans at March 31, 2009, and December 31, 2008 (dollars in thousands):

                                                 March 31,       December 31,
                                                   2009              2008
       Loans:
       Commercial, financial and agricultural   $   129,530     $      137,988
       Tax exempt commercial                          7,283              7,508
       Real estate - mortgage - commercial          209,847            202,516

       Total commercial                             346,660            348,012
       Real estate - construction                   228,578            245,153
       Real estate - mortgage - residential         115,971            115,527
       Consumer installment                         644,932            679,330

       Loans                                      1,336,141          1,388,022
       Allowance for loan losses                    (35,503 )          (33,691 )

       Loans, net of allowance                  $ 1,300,638     $    1,354,331


       Total Loans:
       Loans                                    $ 1,336,141     $    1,388,022
       Loans Held-for-Sale:
       Residential mortgage                          55,691                967
       Consumer installment                          15,000             15,000
       SBA                                           36,513             39,873

       Total loans held-for-sale                    107,204             55,840

       Total loans                              $ 1,443,345     $    1,443,862

Asset Quality
   The following schedule summarizes our asset quality position at March 31,
2009, and December 31, 2008 (dollars in thousands):

                                                                  March 31,           December 31,
                                                                     2009                 2008
Nonperforming assets:
Nonaccrual loans                                                  $  105,215         $       98,151
Repossessions                                                          1,860                  2,016
Other real estate                                                     16,474                 15,063

Total nonperforming assets                                        $  123,549         $      115,230


Loans 90 days past due and still accruing                         $        -         $            -


Allowance for loan losses                                         $   35,503         $       33,691


Ratio of loans past due and still accruing to loans                        - %                    - %


. . .