Forward-Looking Statements

The Company may, from time to time, make written or oral "forward-looking statements," including statements contained in the Company's filings with the SEC (including this quarterly report on Form 10-Q) and in its reports to shareholders and in other communications by the Company, which are made in good faith by the Company pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995.

This MD&A and other Company communications and statements may contain "forward-looking statements." These forward-looking statements may include, among others, statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and which may change based on various factors, many of which are beyond our control. The words "may," "could," "should," "would," "will," "believe," "anticipate," "estimate," "expect," "intend," "indicate," "plan" and similar words are intended to identify expressions of the future. These forward-looking statements involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations, estimates and intentions that are subject to change based on various important factors (some of which are beyond the Company's control). The following factors, among others, could cause the Company's financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rates, market and monetary fluctuations; competitors' products and services; technological changes; acquisitions; changes in consumer spending and saving habits; and the success of the Company at managing the risks involved in the foregoing.

The Company cautions that the foregoing list of important factors is not exhaustive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.

Overview

For a comprehensive presentation of the Company's financial condition at March 31, 2009 and 2008 and results of operations for the three month periods ended March 31, 2009 and 2008, the following analysis should be reviewed with other information including the Company's December 31, 2008 Annual Report on Form 10-K and the Company's Condensed Consolidated Financial Statements and the Notes thereto included in this report.

                  The Savannah Bancorp, Inc. and Subsidiaries
                       First Quarter Financial Highlights
                       ($ in thousands, except share data)
                                  (Unaudited)

 Balance Sheet Data at March 31                     2009          2008     % Change
 Total assets                                 $ 999,900      $ 945,637       5.7
 Interest-earning assets                        920,205        866,483       6.2
 Loans                                          864,926        834,734       3.6
 Other real estate owned                          8,342          2,025       312
 Deposits                                       842,519        771,263       9.2
 Interest-bearing liabilities                   830,087        771,824       7.5
 Shareholders' equity                            79,644         78,885       1.0
 Loan to deposit ratio                           102.66   %     108.23   %  (5.1)
 Equity to assets                                  7.97   %       8.34   %  (4.4)
 Tier 1 capital to risk-weighted assets           10.26   %      10.29   %  (0.3)
 Total capital to risk-weighted assets            11.52   %      11.54   %  (0.2)
 Outstanding shares                               5,934          5,931       0.1
 Book value per share                          $  13.42       $  13.30       0.9
 Tangible book value per share                 $  12.98       $  12.84       1.1
 Market value per share                        $   7.01       $  17.50       (60)

 Loan Quality Data
 Nonaccruing loans                             $ 23,927       $ 16,915        41
 Loans past due 90 days - accruing                  268            596       (55)
 Net charge-offs                                  1,711          1,806      (5.3)
 Allowance for loan losses                       15,309         12,128        26
 Allowance for loan losses to total loans          1.77   %       1.45   %    22
 Nonperforming assets to total loans and OREO      3.73   %       2.33   %    60

 Performance Data for the First Quarter
 Net (loss) income                             $  (285)       $  1,704      (117)
 Return on average assets                        (0.12)   %       0.73   %  (116)
 Return on average equity                        (1.43)   %       8.76   %  (116)
 Net interest margin                               3.36   %       3.70   %  (9.2)
 Efficiency ratio                                 66.93   %      62.54   %   7.0
 Per share data:
 Net (loss) income - basic                    $  (0.05)       $   0.29      (117)
 Net (loss) income - diluted                  $  (0.05)       $   0.29      (117)
 Dividends                                     $  0.125       $  0.125       0.0
 Average shares (000s):
 Basic                                            5,933          5,928       0.1
 Diluted                                          5,933          5,951      (0.3)

Introduction

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") provides supplemental information, which sets forth the major factors that have affected the Company's financial condition and results of operations and should be read in conjunction with the Consolidated Financial Statements and related notes. The MD&A is divided into subsections entitled:

Introduction
Critical Accounting Estimates
Results of Operations
Financial Condition and Capital Resources Liquidity and Interest Rate Sensitivity Management Off-Balance Sheet Arrangements

These discussions should facilitate a better understanding of the major factors and trends that affect the Company's earnings performance and financial condition and how the Company's performance during the three month period ended March 31, 2009 compared with the same period in 2008. Throughout this section, The Savannah Bancorp, Inc., and its subsidiaries, collectively, are referred to as "SAVB" or the "Company." The Savannah Bank, N.A. is referred to as "Savannah," Bryan Bank & Trust is referred to as "Bryan" and Harbourside Community Bank is referred to as "Harbourside." Minis & Co., Inc., a registered investment advisor and wholly-owned subsidiary, is referred to as "Minis." The Company formed a new subsidiary, SAVB Holdings, LLC ("SAVB Holdings"), in the third quarter 2008 for the purpose of holding problem loans and other real estate. Collectively, Savannah, Bryan and Harbourside are referred to as the "Subsidiary Banks."

The averages used in this report are based on the sum of the daily balances for each respective period divided by the number of days in the reporting period.

The Company is headquartered in Savannah, Georgia and, as of March 31, 2009, had ten banking offices and twelve ATMs in Savannah and surrounding Chatham County, Georgia, Richmond Hill, Georgia and Hilton Head Island and Bluffton, South Carolina. The Company also has mortgage lending offices in Savannah, Richmond Hill and Hilton Head Island and an investment management office in Savannah. In addition, the Company has a loan production office on St. Simons Island, Georgia.

Savannah and Bryan are in the relatively diverse and growing Savannah Metropolitan Statistical Area. The diversity of major employers includes manufacturing, port related transportation, construction, military, healthcare, tourism, education, warehousing and the supporting services and products for each of these major employers. The real estate market is experiencing moderate government and commercial growth and slower residential growth. Coastal Georgia and South Carolina continue to be desired retiree residential destinations.

Harbourside specifically targets real estate lending and related full service banking opportunities in the coastal South Carolina market. Harbourside's primary market has continued to show deterioration in real estate prices.

The primary risks to the Company include those disclosed in Item 1A in the Company's Annual Report on Form 10-K for December 31, 2008.

The primary strategic objectives of the Company are growth in loans, deposits, assets under management, product lines and service quality in existing markets, and quality expansion into new markets, within acceptable risk parameters, which result in enhanced shareholder value.

Critical Accounting Estimates

Allowance for Loan Losses

The Company considers its policies regarding the allowance for loan losses to be its most critical accounting estimate due to the significant degree of management judgment involved. The allowance for loan losses is established through charges to earnings in the form of a provision for loan losses based on management's continuous evaluation of the loan portfolio. Loan losses and recoveries are charged or credited directly to the allowance. The amount of the allowance reflects management's opinion of an adequate level to absorb probable losses inherent in the loan portfolio at March 31, 2009. The amount charged to the provision and the level of the allowance is based on management's judgment and is dependent upon growth in the loan portfolio, the total amount of past due loans and nonperforming loans, known loan deteriorations and concentrations of credit. Other factors affecting the allowance include market interest rates, loan sizes, portfolio maturity and composition, collateral values and general economic conditions. Finally, management's assessment of probable losses, based upon internal credit grading of the loans and periodic reviews and assessments of credit risk associated with particular loans, is considered in establishing the amount of the allowance.

No assurance can be given that the Company will not sustain loan losses which would be sizable in relationship to the amount reserved or that subsequent evaluation of the loan portfolio, in light of conditions and factors then prevailing, will not require significant changes in the allowance for loan losses by future charges or credits to earnings. The allowance for loan losses is also subject to review by various regulatory agencies through their periodic examinations of the Subsidiary Banks. Such examinations could result in required changes to the allowance for loan losses.

The allowance for loan losses totaled $15,309,000, or 1.77 percent of total loans, at March 31, 2009. This is compared to an allowance of $13,300,000, or 1.54 percent of total loans, at December 31, 2008. For the three months ended March 31, 2009, the Company reported net charge-offs of $1,711,000 compared to net charge-offs of $1,806,000 for the same period in 2008.

During the first three months of 2009 and 2008, a provision for loan losses of $3,720,000 and $1,070,000, respectively, was added to the allowance for loan losses. The higher provision for loans losses in 2009 was primarily due to continued weakness in the Company's local residential real estate markets. Approximately $1.6 million of the first quarter 2009 provision was related to deterioration in two significant residential relationships in the Hilton Head Island/Bluffton, South Carolina market.

The Company's nonperforming assets consist of other real estate owned, loans on nonaccrual status and loans which are contractually past due 90 days or more on which interest is still being accrued. Nonaccrual loans of $23,927,000 and loans past due 90 days or more of $268,000 totaled $24,195,000, or 2.80 percent of gross loans, at March 31, 2009. Nonaccrual loans of $26,277,000 and loans past due 90 days or more of $1,326,000 totaled $27,603,000, or 3.19 percent of gross loans, at December 31, 2008. Generally, loans are placed on nonaccrual status when the collection of the principal or interest in full becomes doubtful. In the first quarter 2009, the Company successfully settled its largest single nonperforming loan of approximately $4 million. The Company recovered the full principal and interest due on the loan. Nonperforming assets also included $8,342,000 and $8,100,000 of other real estate owned at March 31, 2009 and December 31, 2008, respectively. Management is aggressively pricing and marketing the other real estate owned.

If the allowance for loan losses had changed by five percent, the effect on net income would have been approximately $500,000. If the allowance had to be increased by this amount, it would not have changed the holding company or the Subsidiary Banks' status as well-capitalized financial institutions.

Impairment of Loans

The Company measures impaired loans based on the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent. A loan is considered impaired when it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. A loan is not considered impaired during a period of delay in payment if the ultimate collection of all amounts due is expected. The Company maintains a valuation allowance to the extent that the measure of value of an impaired loan is less than the recorded investment.

Other Real Estate Owned

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less costs to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, management periodically performs valuations of the foreclosed assets based on updated appraisals, general market conditions, length of time the properties have been held, and our ability and intention with regard to continued ownership of the properties. The Company may incur additional write-downs of foreclosed assets to fair value less costs to sell if valuations indicate a further other than temporary deterioration in market conditions.

The following table provides historical information regarding the allowance for loan losses and nonperforming loans and assets for the most recent five quarters ended March 31, 2009.

                    The Savannah Bancorp, Inc. and Subsidiaries
                 Allowance for Loan Losses and Nonperforming Loans
                                    (Unaudited)

                                   2009                  2008
                                  First    Fourth     Third    Second     First
     ($ in thousands)           Quarter   Quarter   Quarter   Quarter   Quarter

     Allowance for loan losses
     Balance at beginning of
     period                    $ 13,300  $ 12,390  $ 12,445  $ 12,128  $ 12,864
     Provision for loan losses    3,720     2,270     1,505     1,155     1,070
     Net charge-offs            (1,711)   (1,360)   (1,560)     (838)   (1,806)
     Balance at end of period  $ 15,309  $ 13,300  $ 12,390  $ 12,445  $ 12,128

     As a % of loans              1.77%     1.54%     1.45%     1.48%     1.45%
     As a % of nonperforming
     loans                       63.27%    48.18%    56.25%    66.61%    69.26%
     As a % of nonperforming
     assets                      47.05%    37.25%    43.94%    59.18%    62.08%

     Net charge-offs as a % of
     average loans (a)            0.82%     0.65%     0.75%     0.40%     0.90%

     Risk element assets
     Nonaccruing loans         $ 23,927  $ 26,277  $ 17,753  $ 16,991  $ 16,915
     Loans past due 90 days -
     accruing                       268     1,326     4,274     1,693       596
     Total nonperforming loans   24,195    27,603    22,027    18,684    17,511
     Other real estate owned      8,342     8,100     6,168     2,346     2,025
       Total nonperforming
     assets                    $ 32,537  $ 35,703  $ 28,195  $ 21,030  $ 19,536

     Loans past due 30-89 days $ 16,906   $ 8,269   $ 8,841   $ 6,528  $ 11,014

     Nonperforming loans as a
     % of loans                   2.80%     3.19%     2.58%     2.22%     2.10%
     Nonperforming assets as a
     % of loans
       and other real estate
     owned                        3.73%     4.09%     3.28%     2.50%     2.33%

(a) Annualized

Impaired loans under Statement of Financial Accounting Standards No. 114 totaled $38,492,000 and $37,730,000 at March 31, 2009 and December 31, 2008, respectively.

Results of Operations

First Quarter, 2009 Compared to the First Quarter, 2008

Net loss for the first quarter 2009 was $285,000, versus net income of $1,704,000 in the first quarter 2008. Net loss per share was 5 cents in the first quarter 2009 compared to net income of 29 cents per diluted share in the first quarter 2008. The decline in first quarter earnings results primarily from a higher provision for loan losses. Return on average equity was (1.43) percent, return on average assets was (0.12) percent and the efficiency ratio was 66.93 percent in the first quarter 2009.

First quarter average interest-earning assets increased 5.7 percent to $926 million in 2009 from $876 million in 2008. First quarter net interest income was $7,666,000 in 2009 compared to $8,071,000 in 2008, a decrease of $405,000 or 5.0 percent. First quarter average loans were $840 million in 2009, 4.9 percent higher when compared to $801 million in 2008. First quarter net interest margin decreased to 3.36 percent in 2009 from 3.70 percent in the same period in 2008. The prime rate decreased from 5.25 percent to 3.25 percent during the twelve month period ended March 31, 2009. As shown in Table 2, the decline in net interest margin was primarily due to lower loan market rates, competitive local deposit pricing and higher levels of noninterest-earning assets.

As shown in Table 1, the Company's balance sheet is asset-sensitive since the interest-earning assets reprice faster than interest-bearing liabilities. Deposit pricing in the Savannah and Bryan markets has also been impacted by new entrants into the market paying special deposit rates that are significantly higher than market deposit rates.

First quarter provision for loan losses was $3,720,000 for 2009, compared to $1,070,000 for the comparable period in 2008. First quarter net charge-offs were $1,711,000 for 2009 compared to $1,806,000 in the same quarter in 2008. Loan growth was flat in the first quarter 2009 compared to $26 million in loan growth in the first quarter 2008. The significantly higher provision for loan losses was primarily related to weakness in residential real estate-related loans in the Hilton Head Island / Bluffton, South Carolina market.

Noninterest income increased $245,000, or 14 percent in the first quarter 2009 versus the same period in 2008. The increase was due to higher service charges on deposits of $80,000 and mortgage related income of $29,000, a higher gain on hedges of $112,000 and a gain on the sale of securities of $184,000 partially offset by $137,000 in lower trust and asset management fees. The higher service charges were primarily due to a new payment optimization program started in the first quarter 2008.

Noninterest expense increased to $6,475,000, up $324,000 or 5.3 percent, in the first quarter 2009 compared to the first quarter 2008. Noninterest expense included $139,000 of higher Federal Deposit Insurance Corporation ("FDIC") insurance premiums and a loss on the sale of other real estate owned of $164,000. The remainder of the increase was due to higher occupancy and equipment and information technology expense partially offset by lower salaries and employee benefits.

The first quarter income tax benefit was $235,000 in 2009 and income tax expense was $910,000 in 2008. The combined effective federal and state tax rates were 45.2 percent and 34.8 percent in the first quarter of 2009 and 2008, respectively. The higher effective tax rate in the first quarter 2009 was due to the impact of tax credits on lower taxable income. The Company has never recorded a valuation allowance against deferred tax assets. All significant deferred tax assets are considered to be realizable due to expected future taxable income.

Financial Condition and Capital Resources

Balance Sheet Activity

The changes in the Company's assets and liabilities for the current and prior period are shown in the consolidated statements of cash flows. Loans were flat for the first quarter of 2009. The $7 million decrease in investment securities and $11 million increase in deposits was used primarily to pay down short-term borrowings.

Average total assets increased 7 percent to $1 billion in the first three months of 2009 from $935 million in the same period in 2008. Total assets were $1 billion and $946 million at March 31, 2009 and 2008, respectively, an increase of 6 percent.

The Company has classified all investment securities as available for sale. The unrealized gain/loss on investment securities and the net change in the fair value of derivative instruments are included in shareholders' equity at March 31, 2009 and 2008 as accumulated other comprehensive income (loss), net of tax.

Brokered time deposits and institutional money market accounts totaled $220 million at March 31, 2009 compared to $222 million at December 31, 2008. At March 31, 2009 and December 31, 2008, brokered time deposits include $39 million and $38 million, respectively, of deposits from our local customers that are classified as brokered because they are included in the CDARS network for deposit insurance purposes.

Loans

The following table shows the composition of the loan portfolio as of March 31,
2009 and December 31, 2008, including a more detailed breakdown of real
estate-secured loans by collateral type and purpose.

                                                                      %
                                             % of             % of  Dollar
           ($ in thousands)          3/31/09 Total   12/31/08 Total Change
           Non-residential real
           estate
             Owner-occupied        $ 140,879  16    $ 137,742  16    2.3
             Non owner-occupied      139,334  16      124,502  14     12
             Construction             11,893   1       26,965   3    (56)
             Commercial land and
           lot development            42,837   5       42,590   5    0.6
           Total non-residential
           real estate               334,943  38      331,799  38    0.9
           Residential real
           estate
             Owner-occupied - 1-4
           family                     89,054  10       89,774  10   (0.8)
             Non owner-occupied -
           1-4 family                153,602  18      147,396  17    4.2
             Construction             24,768   3       43,431   5    (43)
             Residential land and
           lot development           104,296  12       98,715  12    5.7
             Home equity lines        57,243   7       55,092   6    3.9
           Total residential real
           estate                    428,963  50      434,408  50   (1.3)
           Total real estate
           loans                     763,906  88      766,207  88   (0.3)
           Commercial                 85,405  10       81,348  10    5.0
           Consumer                   15,804   2       17,628   2    (10)
           Unearned fees, net          (189)   -        (209)   -   (9.6)
           Total loans, net of
           unearned fees           $ 864,926  100   $ 864,974  100   0.0

Capital Resources

The banking regulatory agencies have adopted capital requirements that specify the minimum level for which no prompt corrective action is required. In addition, the FDIC assesses FDIC insurance premiums based on certain "well-capitalized" risk-based and equity capital ratios. As of March 31, 2009, the Company and the Subsidiary Banks exceeded the minimum requirements necessary to be classified as "well-capitalized."

Total tangible equity capital for the Company was $77.0 million, or 7.70 percent of total assets at March 31, 2009. The table below includes the regulatory capital ratios for the Company and each Subsidiary Bank along with the minimum capital ratio and the ratio required to maintain a well-capitalized regulatory status.

                                                                               Well-
  ($ in thousands)         Company Savannah    Bryan Harbourside Minimum Capitalized

  Qualifying Capital
  Tier 1 capital          $ 84,389 $ 54,395 $ 20,780     $ 5,227       -           -
  Total capital             94,730   61,309   23,270       5,973       -           -

  Leverage Ratios
  Tier 1 capital to
  average assets             8.41%    8.18%    8.63%        7.24   4.00%       5.00%

  Risk-based Ratios
  Tier 1 capital to risk-
  weighted assets           10.26%    9.88%   10.45%       8.99%   4.00%       6.00%
  Total capital to risk-
  weighted assets           11.52%   11.14%   11.70%      10.28%   8.00%      10.00%

Tier 1 and total capital at the Company level includes $10 million of subordinated debt issued to the Company's nonconsolidated subsidiaries. Total capital also includes the allowance for loan losses up to 1.25 percent of risk-weighted assets.

The capital ratios are above the well-capitalized threshold. The Company currently has the regulatory capacity to add approximately $14 million of trust preferred borrowings and has access to the capital markets, if needed, to maintain the well-capitalized status of the Subsidiary Banks. However, due to the recent events in the capital markets, the cost of trust preferred borrowings has increased from three-month LIBOR plus 150 basis points to the same index plus 400 to 450 basis points and the availability is currently less certain than in the past.

The Company is evaluating the TARP and other liquidity programs provided by the United States Treasury Department. If approved, and if the Company elects to participate, the Company is eligible to issue up to $24 million of preferred stock under the guidelines of the Capital Purchase Program.