than historic levels and sufficiency of allowance for loan losses; (20) 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; (21) the volatility and limited trading of our common stock; (22) and 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 third quarter of 2009, the Company recorded net income of $398,000 compared to net loss of $4.9 million for the third quarter of 2008. Net loss available to common equity was $425,000 for the quarter ended September 30, 2009. Per share losses (basic and diluted) for the third quarter of 2009 and 2008 were $.04 and $.50, respectively. Net loss for the nine months ended September 30, 2009 was $5.8 million compared to $4.7 million for the same period in 2008. Loss per share (basic and diluted) for the first nine months of 2009 and 2008 were $.83 and $.48, respectively. The increase in net income for the third quarter when compared to the same period in 2008 was primarily due to a $6.9 million decrease in the provision for loan losses to $4.5 million. The decrease in the provision for loan losses was due to decreased loan charge-offs as the consumer lending portfolio began to show signs of improvement and the construction loan portfolio began to stabilize as compared to the first and second quarters of 2009. The decrease in net income for the first nine months of 2009 when compared to the same period in 2008 was primarily due to higher noninterest expense somewhat offset by higher net interest income and noninterest income.
The Company benefited in the first nine months 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. The $567,000 reversal was somewhat offset by the third quarter of 2008 accrual of $360,000 for the Company's proportional share of Visa's settlement with Discovery Financial Services. Net Interest Income
Net interest income for the third quarter of 2009 increased $1.9 million to $13.8 million when compared to the same period in 2008. The average balance of interest-earning assets increased by $104.6 million or 6.2% to $1.783 billion for the third quarter of 2009, when compared to the same period in 2008. The yield on interest-earning assets for the third quarter of 2009 was 5.61%, a decrease of 60 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 third quarter of 2009 decreased $41.9 million or 2.8% to $1.460 billion when compared to the same period in 2008. Consumer installment and construction lending had the largest decrease from September 2008 to September 2009 as a result of the recession and rising unemployment. The yield on average loans outstanding for the period decreased 34 basis points to 6.05% when compared to the same period in 2008 as a result of a 175 basis point decrease in the average prime lending rate and the effects of an increase in the level of nonperforming loans from $73.0 million at September 30, 2008 to $83.5 million at September 30, 2009.
The average balance of interest-bearing liabilities increased $81.9 million or 5.4% to $1.610 billion for the third quarter of 2009 and the rate on this average balance decreased 90 basis points to 2.78% when compared to the same period in 2008. The 90 basis point decrease in the cost of interest-bearing liabilities was higher than the 60 basis point decrease in the yield on interest earning assets, resulting in a 30 basis point increase in net interest spread. Net interest margin increased 24 basis points to 3.10% for the third quarter of 2009 compared to 2.86% 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. Even with management's concerted effort to reduce the cost of funds on deposits, the Bank was able to grow its deposit base compared to the prior year and the quarter ended June 30, 2009. In addition, there was a shift in the mix of deposits from higher cost certificate of deposits to lower cost savings and money market accounts. Management will continue to review its deposit pricing in 2009 and forecasts a continued decrease to cost of funds as higher priced certificates of deposit and brokered deposits mature and reset to lower interest rates.
Net interest income increased $1.1 million or 3.2% in the first nine months of 2009 to $36.8 million compared to $35.7 million for the same period in 2008 resulting primarily from a decrease in interest expense due to lower interest rates on deposits as discussed previously.
The average balance of interest-earning assets increased by $102.3 million or 6.2% to $1.754 billion for the first nine months of 2009, when compared to the same period in 2008. The yield on interest-earning assets for the first nine months of 2009 was 5.58%, a decrease of 89 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 nine months of 2009 decreased $30.5 million or 2.0% to $1.458 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 ratios. The yield on average loans outstanding for the period decreased 69 basis points to 5.96% when compared to the same period in 2008 as a result of a 219 basis point decrease in the average prime lending rate and the effects of an increase in the level of nonperforming loans.
The average balance of interest-bearing liabilities increased $69.1 million or 4.6% to $1.568 billion for the first nine months of 2009 and the rate on this average balance decreased 84 basis points to 3.08% when compared to the same period in 2008. The 84 basis point decrease in the cost of interest-bearing liabilities was lower than the 89 basis point decrease in the yield on interest-earning assets, resulting in a five basis point decrease in net interest spread. Net interest margin decreased ten basis points to 2.82% for the first nine months

of 2009 compared to 2.92% for the same period in 2008. Management offered competitive interest rates on select savings and money market accounts in 2009 to grow its market share and assist in liquidity management. 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 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 September 30, 2009 (see "Asset Quality").
The provision for loan losses for the third quarter and first nine months of 2009 was $4.5 million and $21.3 million, respectively, compared to $11.4 million and $21.9 million for the same periods in 2008. The allowance for loan losses as a percentage of loans at September 30, 2009, was 2.71% compared to 2.43% at December 31, 2008, and to 1.83% at September 30, 2008. The increase in the allowance as a percentage of loans at September 30, 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 for the nine months ended September 30, 2009 compared to the same period in 2008. The ratio of net charge-offs to average loans on an annualized basis for the first nine months of 2009 increased to 1.95% compared to 1.16% 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):

                                                            Nine Months Ended             Year Ended
                                                              September 30,              December 31,
                                                          2009             2008              2008
Balance at beginning of period                          $  33,691        $ 16,557        $      16,557
Charge-offs:
Commercial, financial and agricultural                        301              99                   99
SBA                                                           660             244                  220
Real estate-construction                                    9,867           5,363                9,083
Real estate-mortgage                                          293             261                  332
Consumer installment                                        9,013           7,349               10,841

Total charge-offs                                          20,134          13,316               20,575


Recoveries:
Commercial, financial and agricultural                          8               5                    5
SBA                                                            29             215                  215
Real estate-construction                                       35              30                   43
Real estate-mortgage                                           15              13                   14
Consumer installment                                          604             669                  882

Total recoveries                                              691             932                1,159


Net charge-offs                                            19,443          12,384               19,416
Provision for loan losses                                  21,300          21,850               36,550

Balance at end of period                                $  35,548        $ 26,023        $      33,691


Annualized ratio of net charge-offs to average
loans                                                        1.95 %          1.16 %               1.36 %

Allowance for loan losses as a percentage of loans
at end of period                                             2.71 %          1.83 %               2.43 %

Substantially all of the consumer installment loan net charge-offs in the first nine months of 2009 and 2008 were from the indirect automobile loan portfolio. Consumer installment loan net charge-offs increased $1.7 million to $9.0 million for the nine months ended September 30, 2009, compared to the same period in 2008. However, on a quarterly basis, the charge-off trend is improving with net charge-offs of $3.6 million, $2.7 million and $2.2 million for first, second, and third quarter 2009, respectively. The annualized ratio of net charge-offs to average consumer loans outstanding was 1.25% and 1.18% during the first nine months of 2009 and 2008, respectively.
Construction loan net charge-offs were $9.8 million in the first nine months of 2009 compared to $5.3 million 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 for the nine months ended September 30, 2009 compared to the same period in 2008. Management will continue to monitor closely and aggressively address credit quality and trends in the residential construction loan portfolio. Noninterest Income
Noninterest income for the third quarter and first nine months of 2009 was $7.2 million and $21.8 million, respectively, compared to $3.9 million and $13.9 million for the same periods in 2008, an increase of $3.4 million for the quarter and $7.9 million for the nine month period. The increases were a result of the Bank's expansion of its mortgage banking division partially offset by decreases in indirect lending activities, SBA lending activities, and other operating income.
Income from mortgage banking activities increased $3.0 million and $11.1 million to $3.1 million and $11.3 million for the third quarter and first nine months of 2009, respectively, compared to the same periods 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 $217 million and $674 million in mortgage loans during the third quarter and first nine months of 2009, respectively, compared to $3.9 million and $15.5 million for the same periods in 2008. Origination fee income for the third quarter and first nine months of 2009 was $731,000 and $3.1 million, respectively, compared to $27,000 and $110,000 for the same periods in 2008. Gain on loans sold increased from $15,000 for the quarter ended September 30, 2008 to $1.8 million for the same quarter in 2009 and $107,000 to $5.2 million for the first nine months of 2008 compared to 2009. In addition, on January 1, 2009 the Bank elected under ASC 825-10-25 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 $1.3 million during the first nine months 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 $49,000 and $950,000 in the third quarter and first nine months of 2009, respectively, compared to the same periods in 2008. The decreases were a result of a reduction in gain on sales due to decreased loan sales and lower indirect automobile loans serviced for others. With the continued recession, automobile sales have been down and the secondary markets continued to show little activity during 2009 though management did begin to see some signs of improvement in the third quarter of 2009. Through September 30, 2009, there were servicing retained sales of $41.1 million of indirect automobile loans, $13.3 million of which occurred in the third quarter. In 2008 there were servicing retained sales of $64.5 million during the first nine months, $8.9 million in the third quarter, and a servicing released sale of $24.0 million in the first quarter of 2008. The average amount of loans serviced for others decreased from $270 million for the first nine months of 2008 to $218 million for the same period in 2009, a decrease of $52 million or 19.3% due to monthly principal payments which exceeded the additional loans serviced for others added because of fewer servicing retained loan sales.
For the third quarter and first nine months of 2009 compared to the same period in 2008, income from SBA lending activities decreased $240,000 and $580,000, respectively, due to a reduction in the gain on loans sold and a reduction in the volume of loans sold. SBA loans sold totaled $1.3 million and $10.2 million for the third quarter and first nine months of 2009, respectively, compared to $5.7 million and $18.1 million sold in the third quarter and first nine months of 2008. While the credit markets remain volatile, demand for loan sales has begun to increase, and therefore the market price and profit on loan sales have begun to improve though still less than they have been for us historically.
Securities gains decreased $787,000 for the first nine months of 2009 compared to the same period in 2008 because the $519,000 gain on the sale of four mortgage-based securities in the third quarter of 2009 was less than 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 $612,000 for the first nine months of 2009 compared to 2008 because of lower brokerage fee income, lower gains on sale of ORE, and lower insurance sales commissions. Noninterest Expense
Noninterest expense was $16.5 million for the third quarter of 2009, compared to $12.6 million for the same period in 2008, an increase of $3.9 million. The increase was a result of higher salaries and benefits expense which increased $1.7 million as a result of the expansion of the mortgage division and the associated commission expense and the hiring of new lenders in the SBA, Commercial, Private Banking and Indirect divisions of the Bank. Other operating expenses increased $1.1 million primarily due to ORE related expenses, which were $1.5 million in the third quarter of 2009, and $701,000 higher than the same period in 2008. Foreclosure expense was $633,000 for the quarter ended September 30, 2009 or $598,000 higher than the same

period last year. The increase was a result of higher foreclosed assets held by the Bank during 2009. The average ORE balance increased to $23.5 million for the third quarter of 2009 compared to $12.8 million for the same period in 2008. The ORE expense is made up of $1.2 million in provision for other real estate losses and $348,000 in maintenance, real estate taxes, and other related expenses. In addition, total FDIC insurance expense increased $577,000 primarily due to growth in deposit balances.
Noninterest expense was $48.0 million for the first nine months of 2009, compared to $36.4 million for the same period in 2008, an increase of $11.6 million. The increase was a result of higher salaries and benefits expense which increased $5.2 million. Other noninterest expense was $8.6 million for the first nine months of 2009 and $3.3 million higher than the same period in 2008. ORE related expenses, which were $4.0 million for the first nine months of 2009, increased $2.0 million 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 93.4% to $21.6 million for the first nine months of 2009 compared to $11.2 million for the same period in 2008. The ORE expense is made up of $3.1 million in provision for other real estate losses and $881,000 in maintenance, real estate taxes, and other related expenses.
Other significant variances include a $733,000 increase in foreclosure expense and the net reversal of a $207,000 accrual in 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. FDIC insurance expense increased $2.0 million due to growth in deposits and a special assessment of five basis points totaling $863,000 in the second quarter of 2009. Management expects FDIC premiums to trend higher for the foreseeable future. Provision for Income Taxes
The provision for income taxes for the third quarter and first nine months of 2009 was a benefit of $346,000 and $4.9 million, respectively, compared to a benefit of $3.3 million and $4.0 million for the same periods in 2008. The income tax benefit recorded in the third quarter and first nine months 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 $1.912 billion at September 30, 2009, compared to $1.763 billion at December 31, 2008, an increase of $149.3 million, or 8.5%. This increase was due to a $95.2 million increase in investment securities available-for-sale, a $69.2 million increase in loans held-for-sale and a $55.1 million increase in cash and cash equivalents offset in part by a decrease of $74.1 million in loans. . . .