FLORIDIAN FINANCIAL GROUP INC - FORM 10-Q

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EX-32.1 - FLORIDIAN FINANCIAL GROUP INC	i00426_ex32-1.htm
EX-31.2 - FLORIDIAN FINANCIAL GROUP INC	i00426_ex31-2.htm
EX-31.1 - FLORIDIAN FINANCIAL GROUP INC	i00426_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the Quarterly Period Ended September 30, 2009

	OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from ____________ to ____________

	Commission File Number: 000-53589

FLORIDIAN FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)


Florida	20-4539279
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)


175 Timacuan Boulevard, Lake Mary, Florida	32746
(Address of principal executive office)	(Zip Code)

(407) 321-3233
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company x
		(Do not check if smaller
		reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

At November 13, 2009, 6,190,248 shares of the Registrant’s Common Stock, $5.00 par value, were outstanding.

TABLE OF CONTENTS


		Page

PART I.	FINANCIAL INFORMATION	2

Item 1.	CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	2

	Consolidated Balance Sheet (Unaudited) September 30, 2009 and December 31, 2008	2
	Consolidated Statement of Operations (Unaudited) For the Three Months Ended September 30, 2009 and 2008	3
	Consolidated Statement of Operations (Unaudited) For the Nine Months Ended September 30, 2009 and 2008	4
	Consolidated Statement of Shareholders’ Equity (Unaudited) For the Nine Months Ended September 30, 2009 and 2008	5
	Consolidated Statement of Cash Flows (Unaudited) For the Nine Months Ended September 30, 2009 and 2008	6
	Notes to Consolidated Financial Statements (Unaudited)	8

Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	35

Item 4T.	CONTROLS AND PROCEDURES	35


PART II.	OTHER INFORMATION	35

Item 1.	LEGAL PROCEEDINGS	35
Item 1 A. RISK FACTORS		35
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	36
Item 3.	DEFAULTS UPON SENIOR SECURITIES	36
Item 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	36
Item 5.	OTHER INFORMATION	36
Item 6.	EXHIBITS	36

-i-

INTRODUCTORY NOTE

Caution Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking statements.

All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements.

Our ability to achieve our financial objectives could be adversely affected by the factors discussed in detail in Part I, Item 2., “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, the following sections of our Registration Statement on Form 10, (a) “Risk Factors” in Item 1A., as updated in our subsequent quarterly reports on Form 10-Q, and (b) “Introduction” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Item 2. as well as:


	§	the strength of the United States economy in general and the strength of the local economies in which we conduct operations;

	§	the loss of our key personnel;

	§	the accuracy of our financial statement estimates and assumptions, including our allowance for loan losses;

	§	our need and our ability to incur additional debt or equity financing;

	§	our ability to execute our growth strategy through expansion;

	§	inflation, interest rate, market and monetary fluctuations;

	§	the effects of our lack of a diversified loan portfolio, including the risk of geographic concentration;

	§	the frequency and magnitude of foreclosure of our loans;

	§	effect of changes in the stock market and other capital markets;

	§	legislative or regulatory changes;

	§	the effects of harsh weather conditions, including hurricanes;

	§	our ability to comply with the extensive laws and regulations to which we are subject;

	§	changes in the securities and real estate markets;

	§	increased competition and its effect on pricing;

	§	technological changes;

	§	changes in monetary and fiscal policies of the U.S. Government;

	§	the effects of security breaches and computer viruses that may affect our computer systems;

	§	changes in consumer spending and saving habits;

	§	changes in accounting principles, policies, practices or guidelines;

	§	effect of government’s action to the financial market crisis, including the possible nationalization of certain financial institutions;

	§	anti-takeover provisions under Federal and state law as well as our Articles of Incorporation and our bylaws; and

	§	our ability to manage the risks involved in the foregoing.

However, other factors besides those referenced also could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by us or on our behalf speak only as of the date they are made. We do not undertake to update any forward-looking statement, except as required by applicable law.


PART I.	FINANCIAL INFORMATION

Item 1.	CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Floridian Financial Group, Inc. and Subsidiaries

Consolidated Balance Sheet
September 30, 2009 and December 31, 2008
(Dollars in thousands, except per share amounts)


	September 30, 2009			December 31, 2008

Assets
Cash and Due from Banks	$	12,290		$	17,603
Federal Funds Sold		25,005			150


Total cash and cash equivalents		37,295			17,753
Securities Available for Sale		90,630			43,916
Securities Held to Maturity (Fair value of $12,475 at September 30, 2009 and $12,621 at December 31, 2008)		12,311			12,464
Other Investments		45			66
Loans, Net of Allowance for Loan Losses of $6,186 and $6,051 at September 30, 2009 and December 31, 2008, respectively		325,255			282,740
Property and Equipment		15,457			15,568
Goodwill		500			78
Intangible Assets		1,633			1,777
Deferred Income Taxes		172			29
Other Real Estate Owned		4,255			712
Other Assets		13,522			13,042

Total assets	$	501,075		$	388,145


Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Noninterest-bearing demand	$	63,097		$	54,137
Savings, NOW and money market		196,281			151,512
Time deposits under $100		97,398			45,066
Time deposits of $100 or more		76,535			56,953

Total deposits		433,311			307,668
Short-term Borrowings		7,015			18,737
Other Liabilities		7,246			1,026
Total liabilities		447,572			327,431

Shareholders’ Equity
Preferred stock, $5 par value, 1,000,000 shares authorized; none outstanding		—			—
Common stock, $5 par value, 100,000,000 shares authorized; 6,190,248 and 6,157,178 shares issued and outstanding		30,951			30,786
Additional paid-in capital		37,718			36,983
Retained deficits		(15,191	)		(7,316	)
Accumulated other comprehensive income		25			261

Total shareholders’ equity		53,503			60,714

Total liabilities and shareholders’ equity	$	501,075		$	388,145

See Notes to Unaudited Consolidated Financial Statements.

Floridian Financial Group, Inc. and Subsidiaries

Consolidated Statement of Operations (Unaudited)
For the Three Months Ended September 30, 2009 and 2008
(Dollars in thousands)


	For the three months ended September 30,

	2009			2008

Interest income:
Interest and fees on loans	$	4,379		$	3,558
Interest on securities		474			546
Interest on federal funds sold		26			98
Other interest		1			101

Total interest income		4,880			4,303


Interest expense:
Interest on deposits		1,758			1,536
Other interest		49			11

Total interest expense		1,807			1,547

Net interest income		3,073			2,756

Provision for loan losses		4,687			939


Net interest income after provision for loan losses		(1,614	)		1,817

Noninterest income:
Origination fees on loans sold		—			7
Other noninterest income		276			227
Gain on sale of securities		22			—

Total noninterest income		298			234


Noninterest expense:
Salaries and employee benefits		2,233			1,867
Occupancy and equipment expenses		864			770
Data processing		223			244
Professional fees		181			122
Stationery and supplies		42			71
FDIC Insurance		270			51
Telephone and communications		80			86
Core deposit intangible amortization		48			58
Other operating expenses		560			354

Total noninterest expense		4,501			3,623


Loss before income taxes		(5,817	)		(1,572	)

Income tax benefit		—			—

Net loss	$	(5,817	)	$	(1,572	)


Basic earnings (loss) per share	$	(0.94	)	$	(0.26	)


Diluted earnings (loss) per share	$	(0.94	)	$	(0.26	)

See Notes to Unaudited Consolidated Financial Statements.

Floridian Financial Group, Inc. and Subsidiaries

Consolidated Statement of Operations (Unaudited)
For the Nine Months Ended September 30, 2009 and 2008
(Dollars in thousands)


	For the nine months ended September 30,

	2009			2008

Interest income:
Interest and fees on loans	$	12,375		$	7,743
Interest on securities		1,517			1,068
Interest on federal funds sold		41			261
Other interest		51			229

Total interest income		13,984			9,301


Interest expense:
Interest on deposits		5,016			3,657
Other interest		161			15

Total interest expense		5,177			3,672

Net interest income		8,807			5,629

Provision for loan losses		5,425			1,574


Net interest income after provision for loan losses		3,382			4,055

Noninterest income:
Origination fees on loans sold		—			41
Other noninterest income		747			368
Gain on sale of securities		206			—

Total noninterest income		953			409

Noninterest expense:
Salaries and employee benefits		5,828			4,021
Occupancy and equipment expenses		2,321			1,517
Data processing		658			538
Professional fees		437			224
Stationery and supplies		130			164
FDIC Insurance		777			103
Telephone and communications		230			168
Core deposit intangible amortization		144			96
Other operating expenses		1,685			721

Total noninterest expense		12,210			7,552


Loss before income taxes		(7,875	)		(3,088	)


Income tax benefit		—			—

Net loss	$	(7,875	)	$	(3,088	)


Basic earnings (loss) per share	$	(1.28	)	$	(0.79	)


Diluted earnings (loss) per share	$	(1.28	)	$	(0.79	)

See Notes to Unaudited Consolidated Financial Statements

Floridian Financial Group, Inc. and Subsidiaries

Consolidated Statement of Shareholders’ Equity
For the Nine Months Ended September 30, 2009 and 2008 (Unaudited)
(Dollars in thousands, except per share amounts)


	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)			Accumulated Other Comprehensive Income(Loss)			Total Shareholders’ Equity

Balance at December 31, 2007	$	8,765	$	8,827	$	(1,203	)	$	23		$	16,412

Sale of 15,577 shares of common stock to employee benefit plan		78		105		—			—			183
Sale of 2,400,000 shares of common stock in offering		12,000		17,961		—			—			29,961
Comprehensive loss:
Net loss		—		—		(3,088	)		—			(3,088	)
Change in unrealized gain on securities available for sale, net of income tax		—		—		—			(113	)		(113	)


Total comprehensive loss		—		—		—			—			(3,201	)


Exercise of 920 stock options		5		4								9
Share-based compensation				82								82
Issuance of 1,983,790 shares of stock for acquisition		9,919		9,919		—			—			19,838


Balance at September 30, 2008	$	30,767	$	36,898	$	(4,291	)	$	(90	)	$	63,284


Balance at December 31, 2008	$	30,786	$	36,983	$	(7,316	)	$	261		$	60,714

Sale of 13,714 shares of common stock to employee benefit plan		68		55		—			—			123

Comprehensive loss:
Net loss		—		—		(7,875	)		—			(7,875	)
Change in unrealized gain on securities available for sale, net of income tax		—		—		—			(236	)		(236	)


Total comprehensive loss		—		—		—			—			(8,111	)
Share-based compensation		—		322		—			—			322
Share-based compensation in acquisition, net of registration expense		—		234		—			—			234
Exercise of 6,450 stock options		32		32		—			—			64
Sale of 7,616 shares of common stock for employee stock purchase plan		38		57		—			—			95
Issuance of 5,290 shares of common stock issued in lieu of cash director fees		27		35		—			—			62


Balance at September 30, 2009	$	30,951	$	37,718	$	(15,191	)	$	25		$	53,503

See Notes to Unaudited Consolidated Financial Statements.

Floridian Financial Group, Inc. and Subsidiaries

Consolidated Statement of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 2009 and 2008
(Dollars in thousands)


	For the nine months ended

	September 30, 2009			September 30, 2008

Cash Flows From Operating Activities
Net loss	$	(7,875	)	$	(3,088	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Provision for loan losses		5,425			1,574
Depreciation and amortization		867			672
Net accretion of securities		564			130
Share-based compensation		556			82
Realized gain on sales of available-for-sale securities		(206	)		—
Increase in cash surrender value		(350	)		(96	)
Increase in accrued interest receivable		(110	)		(587	)
Increase in accrued interest payable		3			(13	)
Net change in other assets		849			(493	)

Net cash used in operating activities		(277	)		(1,819	)

Cash Flows From Investing Activities
Purchases of securities available for sale		(120,294	)		(34,455	)
Maturities, calls, sales and principal payments on securities available for sale		77,996			3,914
Net increase in loans		(51,557	)		(85,275	)
Purchases of property and equipment, net		(612	)		(1,414	)
Investment in Floridian Financial Mortgage		21			(36	)
Cash received in acquisition		—			34,790
Purchase of bank owned life insurance		—			(10,000	)

Net cash used in investing activities		(94,446	)		(92,476	)


Cash Flows From Financing Activities
Net increase in deposits		125,643			86,307
Net decrease(increase) in short-term borrowings		(11,722	)		3,489
Proceeds from sale of stock		344			30,152


Net cash provided by financing activities		114,265			119,948


Net increase in cash and cash equivalents		19,542			25,653
Cash and cash equivalents
Beginning of period		17,753			5,346


End of period	$	37,295		$	30,999

(continued)

Floridian Financial Group, Inc. and Subsidiaries

Consolidated Statement of Cash Flows (continued)
For the Nine Months Ended September 30, 2009 and 2008
(Dollars in thousands)

Supplemental Disclosures of Cash Flow Information and noncash transactions


	For the nine months ended

	September 30, 2009		September 30, 2008


Interest paid	$	5,178	$	3,522


Income taxes paid		—		—


Loans transferred to other real estate owned		3,543		—


Acquisitions (Note 2)
Assets acquired:
Cash and cash equivalents			$	34,790
Available-for-sale securities				29,637
Loans, net				120,026
Premises and equipment, net				9,054
Other				906
Core deposit intangibles				1,921
Excess of cost over fair value of net assets acquired				78


				196,412


Liabilities Assumed
Deposits				176,060
Other liabilities				514
Net assets acquired				19,838


Stock issued				19,838

See Notes to Unaudited Consolidated Financial Statements.

Floridian Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts)


Note 1.	NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of business. Floridian Financial Group, Inc. (the “Company”) is a registered Bank Holding Company formed exclusively to organize and own 100% of its subsidiary banks, Floridian Bank and Orange Bank of Florida (collectively referred to as the “Banks”). The Company was incorporated in 2005, and became operational as a bank holding company once Floridian Bank opened. Floridian Bank is a state-chartered, federally-insured full service commercial banking institution and presently conducts business from its headquarters and main office in Daytona Beach, through branch offices in Ormond Beach, Palm Coast, and Port Orange, Florida. Orange Bank of Florida (“Orange Bank”) is a state-chartered, federally-insured full service commercial banking institution with its headquarters in Orlando, Florida. The Company operates from its main office and branch offices in the Orlando area, Crystal River and Lake County, Florida. The Company also has an equity investment in Floridian Financial Mortgage, LLC which conducts mortgage banking operations throughout the aforementioned market areas.

Basis of Financial Statement Presentation. The accompanying unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and general practices within the financial services industry and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The information furnished reflects, in the opinion of management, all normal recurring adjustments necessary for a fair presentation of the results for the interim periods presented. The results of operations for the nine months ended September 30, 2009 are not necessarily indicative of the results which may be expected for the year as a whole.

Use of estimates. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, deferred tax assets and the fair value of financial instruments.

Income Taxes. The Company accounts for income taxes according to the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates applicable to taxable income for the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation reserves are established against certain deferred tax assets when it is more likely than not that the deferred tax assets will not be realized. Increases or decreases in the valuation reserve are charged or credited to the income tax provision.

Other Real Estate Owned. Other real estate owned consists of property acquired though, or in lieu of, loan foreclosures or other proceedings and is initially recorded at the lower of the related loan balances less any specific allowance for loss, or fair value at the date of foreclosure, which established a new cost basis. Subsequent to foreclosure, the properties are held for sale and are carried at the lower of cost or fair value less estimated costs of disposal. Any write-down to fair value at the time of acquisition is charged to the allowance for loan losses. Properties are evaluated regularly to ensure the recorded amounts are supported by current fair values, and a charge to operations is recorded as necessary to reduce the carrying amount to fair value less estimated costs to dispose.

Earnings per share. Basic earnings per share is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding for each period presented.

Subsequent events. The Company evaluated events for reporting and disclosure in these financial statements through November 13, 2009 which is the date this Form 10-Q was available to be issued.


Note 2.	BUSINESS COMBINATION

On March 31, 2008, as part of the Company’s growth through affiliation strategy, the Company acquired 100% of the outstanding common shares of Orange Bank. The purchase price for Orange Bank was $20,422 paid with 1,983,790 shares of

common stock valued at $10.00 per share, and options valued at $584. The value of the shares issued was determined by an independent valuation firm, and the options were valued using Black-Scholes methodology. At the date of the acquisition, Orange Bank had assets of $195,600, loans of $120,900 and deposits of $175,800. The acquisition was accounted for using the purchase method of accounting, and accordingly, the results of operations have been included in the Company’s results of operations since the date of acquisition. Under this method of accounting, the purchase price is allocated to the respective assets acquired and liabilities assumed based on their estimated fair values, net of applicable income tax effects. See the supplemental information provided in the Statement of Cash Flows for the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. The $1,921 of acquired core deposit intangible is being fully amortized over a life of 10 years. The only other significant intangible acquired was the excess cost over fair value of net assets acquired of approximately $500, which has been recorded as goodwill and is not being amortized. Certain transaction costs such as the professional fees related to the preparation and filing of a registration statement and stock compensation expense were not determined until the first quarter of 2009. These adjustments increased goodwill by $422 and additional paid in capital by $288.

The unaudited pro forma results of operations, which follow, assume that the Orange Bank acquisition had occurred on January 1, 2008. In addition to combining the historical results of operations, the pro forma calculations include purchase accounting adjustments related to the acquisition.

Unaudited pro forma consolidated results of operations for the periods ended September 30, 2009 and 2008 as though Orange Bank had been acquired January 1, 2008 are as follows:


	September 30, 2009			September 30, 2008

Interest income	$	13,984		$	11,778
Interest expense		5,177			4,884


Net interest income		8,807			6,894
Provision for loan losses		(5,425	)		(1,843	)
Non-interest income		953			585
Non-interest expense		(12,210	)		(9,608	)


Income before taxes		(7,875	)		(3,972	)
Income benefit		—			—

Net loss	$	(7,875	)	$	(3,972	)

The pro forma results of operations are not necessarily indicative of the actual results of operations that would have occurred had the Orange Bank acquisition actually taken place as of January 1, 2008 or results that may occur in the future.


Note 3.	SECURITIES

The amortized cost and fair value of securities with gross unrealized gains and losses follows:


	September 30, 2009

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

Securities Available For Sale
Debt Securities:
U.S. Government and federal agencies	$	90,599	$	127	$	(96	)	$	90,630
Corporate		—		—		—			—
Mortgage-backed		—		—		—			—
Other		—		—		—			—

Total debt securities		90,599		127		(96	)		90,630

Marketable equity securities		—		—		—			—

Total securities available for sale	$	90,599	$	127	$	(96	)	$	90,630


Securities held to maturity
U.S. Government and federal agencies	$	12,311	$	164	$	—		$	12,475
State and municipal		—		—		—			—
Foreign governments		—		—		—			—
Corporate		—		—		—			—
Mortgage-backed		—		—		—			—
Other		—		—		—			—

Total securities held to maturity	$	12,311	$	164	$	—		$	12,475


	December 31, 2008

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

Securities Available For Sale
Debt Securities:
U.S. Government and federal agencies	$	26,166	$	151	$	(13	)	$	26,304
Corporate		—		—		—			—
Mortgage-backed		17,331		289		8			17,612
Other		—		—		—			—


Total debt securities		43,497		440		(21	)		43,916
Marketable equity securities		—		—		—			—

Total securities available for sale	$	43,497	$	440	$	(21	)	$	43,916


Securities held to maturity
U.S. Government and federal agencies	$	12,464	$	201	$	(44	)	$	12,621
State and municipal		—		—		—			—
Foreign governments		—		—		—			—
Corporate		—		—		—			—
Mortgage-backed		—		—		—			—
Other		—		—		—			—

Total securities held to maturity	$	12,464	$	201	$	(44	)	$	12,621

At September 30, 2009 and December 31, 2008, U.S government obligations with a carrying value of $21,121 and $8,384, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. At September 30, 2009 and December 31, 2008, the carrying amount of securities pledged to secure repurchase agreements was $7,131 and $7,119, respectively.

The amortized cost and fair value of debt securities by contractual maturity at September 30, 2009 follows:


	Within 1 year		After 1 year Through 5 years		After 5 years Through 10 years		Over 10 years		Total

Available For Sale, at Fair Value:
U.S. Government and federal agencies	$	—	$	66,230	$	23,008	$	1,392	$	90,630
Government sponsored enterprises		—		—		—		—		—
Corporate		—		—		—		—		—
Mortgage-backed		—		—				—		—
Other		—		—		—		—		—


Total	$	—	$	66,230	$	23,008	$	1,392	$	90,630


Securities Held To Maturity
U.S. Government and federal agencies	$	—	$	—	$	2,047	$	10,264	$	12,311
State and municipal		—		—		—		—		—
Foreign governments		—		—		—		—		—
Corporate		—		—		—		—		—
Mortgage-backed		—		—		—		—		—
Other		—		—		—		—		—


Total	$	—	$	—	$	2,047	$	10,264	$	12,311

For the periods ended September 30, 2009 and December 31, 2008 proceeds from sales of securities available for sale amounted to $72,996 and $33,264 respectively. Gross realized gains amounted to $206 and $4 respectively. Gross realized losses amounted to $0 and $0 respectively.

Information pertaining to securities with gross unrealized losses at September 30, 2009 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:


	Less Than Twelve Months				Over Twelve Months

	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Total Unrealized Losses

Securities Available For Sale
Debt Securities:
U.S. Government and federal agencies	$	96	$	19,298	$	—	$	—	$	96
Corporate		—		—		—		—		—
Mortgage-backed		—		—		—		—		—
Other		—		—		—		—		—

Total debt securities	$	96		19,298		—		—		96

Marketable equity securities		—		—		—		—		—

Total securities available for sale	$	96	$	19,298	$	—	$	—	$	96


Securities Held To Maturity
Debt Securities:
U.S. Government and federal agencies		—	$	—	$	—	$	—	$	—
Corporate		—		—		—		—		—
Mortgage-backed		—		—		—		—		—
Other		—		—		—		—		—

Total debt securities		—		—		—		—		—

Marketable equity securities		—		—		—		—		—

Total securities held to maturity	$	—	$	—	$	—	$	—	$	—


Note 4.	LOANS

Loans were comprised of the following:


	September 30, 2009			December 31, 2008


Commercial and financial	$	51,831		$	50,962
Real estate mortgages		259,583			221,485
Installment and consumer		20,342			16,586


Total loans		331,756			289,033
Allowance for loan losses		(6,186	)		(6,051	)
Unearned fees		(315	)		(242	)


Net loans	$	325,255		$	282,740


Activity in the allowance for loan losses is as follows:

	For the nine Months ended September 30,

	2009			2008


Beginning balance	$	6,051		$	725
Net charge offs		(5,290	)		—
Provision		5,425			1,574

Increase due to acquisition		—			1,515

Ending balance	$	6,186		$	3,814

The following is a summary of information pertaining to impaired and nonaccrual loans:


	September 30, 2009		December 31, 2008


Impaired loans without a valuation allowance	$	13,952	$	7,695
Impaired loans with a valuation allowance		950		8,580


Total impaired loans	$	14,902	$	16,275


Valuation allowance related to impaired loans	$	732		2,423
Total nonaccrual loans		2,320		5,999
Total loans past-due 90 days or more and still accruing		—		—


	September 30, 2009		December 31, 2008


Average investment in impaired loans	$	16,899		1,702
Interest income recognized on impaired loans		384		—
Interest income recognized on a cash basis on impaired loans		—		—

No additional funds are committed to be advanced in connection with impaired loans.


Note 5.	COMMITMENTS AND CONTINGENCIES

Financial instruments with off-balance-sheet risk. The financial statements do not reflect various commitments and contingent liabilities that arise in the normal course of business to meet the financing needs of customers. These include commitments to extend credit and honor stand-by letters of credit. These instruments involve, to varying degrees, elements of credit, interest rate and liquidity risks in excess of amounts reflected in the balance sheets. The extent of the Banks’ involvement in these commitments or contingent liabilities is expressed by the contractual, or notional, amounts of the instruments.

Commitments to extend credit, which amount to $77,379 and $95,400 at September 30, 2009 and December 31, 2008, respectively, represent legally binding agreements to lend to customers with fixed expiration dates or other termination clauses. Since many commitments are expected to expire without being funded, committed amounts do not necessarily represent future liquidity requirements. The amount of collateral obtained, if any, is based on management’s credit evaluation in the same manner as though an immediate credit extension were to be granted.

Stand-by letters of credit are conditional commitments issued by the Bank guaranteeing the performance of a customer to a third party. The decision whether to guarantee such performance and the extent of collateral requirements are made considering the same factors as are considered in credit extension. Stand-by letters of credit totaling $0 and $1,696 were outstanding as of September 30, 2009 and December 31, 2008, respectively.

Lines of credit. At September 30, 2009 and December 31, 2008, the Banks had unsecured federal funds lines of credit of $20,200 and $21,000, respectively, available from their correspondent banks. At these dates, there were no outstanding draws under these lines. The highest single day borrowing under these lines was $11,526 during the nine months ended September 30, 2009.


Note 6.	REGULATORY CAPITAL MATTERS

The Company (on a consolidated basis) and Banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Banks must meet specific capital guidelines that involve quantitative measures of the Banks’ assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Banks to maintain minimum amounts and ratios (set forth in the table on the following page) of total and Tier 1 capital (as defined in the regulations), to risk-weighted assets (as defined), and Tier 1 capital (as defined), to average assets (as defined). Management believes, as of September 30, 2009 and December 31, 2008, that the Company and Banks meet all capital adequacy requirements to which they are subject.

At September 30, 2009, the Company and its banking subsidiaries exceeded all regulatory capital measures to be adequately capitalized. Further, the Company and its banking subsidiaries satisfied all the criteria to be well capitalized. To be categorized as well capitalized, the Company and the Banks must maintain minimum total risk-based, Tier 1 risk based, and Tier 1 leverage ratios as set forth in the following table.


	Actual					Minimum Amount and Ratio to Remain Well Capitalized

	Amount		Ratio			Amount		Ratio

As of September 30, 2009:
Total capital (to risk-weighted assets)
Consolidated	$	56,111		14.3	%	$	39,390		10.0	%
Floridian Bank	$	14,728		12.0	%	$	12,229		10.0	%
Orange Bank of Florida	$	28,975		10.9	%	$	26,620		10.0	%

Tier 1 capital (to risk-weighted assets)
Consolidated	$	51,172		13.0	%	$	23,634		6.0	%
Floridian Bank	$	13,376		10.9	%	$	7,337		6.0	%
Orange Bank of Florida	$	25,629		9.6	%	$	15,972		6.0	%

Tier 1 capital (to average assets)
Consolidated	$	51,172		10.4	%	$	24,524		5.0	%
Floridian Bank	$	13,376		8.6	%	$	7,765		5.0	%
Orange Bank of Florida	$	25,629		8.1	%	$	15,805		5.0	%

As of December 31, 2008:
Total capital (to risk-weighted assets)
Consolidated	$	63,369		18.9	%	$	33,525		10.0	%
Floridian Bank	$	15,160		14.6	%	$	10,362		10.0	%
Orange Bank of Florida	$	22,140		9.8	%	$	22,623		10.0	%

Tier 1 capital (to risk-weighted assets)
Consolidated	$	59,155		17.7	%	$	20,115		6.0	%
Floridian Bank	$	13,849		13.4	%	$	6,217		6.0	%
Orange Bank of Florida	$	19,304		8.5	%	$	13,574		6.0	%

Tier 1 capital (to average assets)
Consolidated	$	59,155		15.4	%	$	19,212		5.0	%
Floridian Bank	$	13,849		12.9	%	$	5,387		5.0	%
Orange Bank of Florida	$	19,304		7.6	%	$	12,648		5.0	%

The payment of dividends by a Florida state bank is subject to various restrictions set forth in the Florida Financial Institutions Code. Such restrictions generally limit dividends to an amount not exceeding net income for the current and two preceding years, less any dividends paid during that period. Accordingly, management does not expect the Banks to pay any dividends to the Company at any time in the near future. Further, the Federal Reserve prohibits the Company from paying dividends to its shareholders if the payment may be deemed to constitute an unsafe or unsound practice. As a practical matter, because the Company’s ability to pay dividends is largely dependent on the Banks’ abilities to fund any such dividends through dividends from the Banks to the Company, the Company is, in effect, restricted as to its ability to pay dividends pursuant to Florida and federal law.


Note 7.	FAIR VALUES OF FINANCIAL INSTRUMENTS

Effective January 1, 2008, we adopted the provisions of FASB guidance for Fair Value Measurements for financial assets and financial liabilities. This guidance defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The application of this standard in situations where the market for a financial asset is not active was clarified by the issuance of and interpretation by the FASB in Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, in October 2008.

This interpretation became effective immediately and did not significantly impact the methods by which the Company determines the fair values of its financial assets.

The original standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability

shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

This guidance requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert expected future amounts, such as cash flows or earnings, to a single present value amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, the guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1. Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2. Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3. Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. Our valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Financial Instruments Recorded at Fair Value on a Recurring Basis

The following table sets forth the Company’s assets and liabilities which are carried at fair value on a recurring basis as of September 30, 2009 and December 31, 2008, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


	September 30, 2009

	Quoted Prices in Active Markets For Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total at Fair Value

Assets
Securities available for sale	$	—	$	80,645	$	9,985	$	90,630

	December 31, 2008

	Quoted Prices in Active Markets For Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total at Fair Value

Assets
Securities available for sale	$	—	$	43,916	$	—	$	43,916

Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable inputs (Level 3)


	September 30, 2009

		Significant Unobservable Inputs Level 3		Total at Fair Value

Assets
Securities available for sale
Beginning balance		$	0	$	0
Total gains or losses			0		0
Purchases, issuances, and settlements			9,985		9,985
Transfers in and/or out of Level 3			0		0

Ending balance		$	9,985	$	9,985

Financial Instruments Recorded at Fair Value on a Nonrecurring Basis

Impaired Loans. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with the FASB guidance “Accounting by Creditors for Impairment of a Loan,”. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At September 30, 2009, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with accounting literature, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. Collateral values are estimated using Level 3 inputs based on customized discounting criteria.

The Company may be required, from time to time, to measure certain financial assets and financial liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period.

The fair values of assets measured at fair value on a nonrecurring basis are as follows at September 30, 2009 and December 31, 2008:


	September 30, 2009

	Quoted Prices in Active Markets For Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3


Impaired loans	$	—	$	—	$	218
Other real estate owned	$	—	$	—	$	4,255


	December 31, 2008

	Quoted Prices in Active Markets For Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3


Impaired loans	$	—	$	—	$	6,157
Other real estate owned	$	—	$	—	$	712

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

Cash and due from banks, interest-bearing demand deposits in other banks, and federal funds sold. Due to the short-term nature of these instruments, fair values approximate their carrying amounts.

Investment Securities. The fair values of investment securities are determined by quoted prices in active markets, when available. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique, widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.

Loans. For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for all other loans (for example, commercial, commercial real estate, residential real estate, and consumer loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Accrued interest receivable and accrued interest payable. The fair values of accrued interest receivable and accrued interest payable approximate their carrying amounts.

Deposits. The fair value of demand deposits, including non-interest-bearing demand deposits, savings accounts, NOW accounts and money market demand accounts, is equal to their carrying value. Fixed rate term deposits are valued using discounted cash flows. The discount rate used is based on interest rates currently being offered on comparable deposits as to amount and term.

Short-term borrowings. The carrying amounts of borrowings under repurchase agreements maturing in the amount of $7,015 within 90 days approximate their fair values.

Off-balance-sheet instruments. Loan commitments and letters of credit are negotiated at current market rates and are relatively short-term in nature. Therefore, their estimated fair value approximates the fees charged and is nominal at September 30, 2009 and December 31, 2008.

Following is a summary of the carrying amounts and approximate fair values of the Company’s financial instruments at September 30, 2009 and December 31, 2008. The fair value estimates presented are based on pertinent information available to management as of September 30, 2009 and December 31, 2008. Although management is not aware of any factors that would significantly affect the estimated fair values, they have not been comprehensively revalued for purposes of these financial statements since the statement of financial condition date and therefore, current estimates of fair value may differ significantly from the amounts disclosed.


	September 30, 2009

	Carrying Amount		Estimated Fair Value

Financial assets:
Cash and due from banks	$	12,290	$	12,290
Federal funds sold		25,005		25,005
Securities held to maturity		12,311		12,476
Available-for-sale securities		90,630		90,360
Loans, net		325,255		323,207
Accrued interest receivable		1,519		1,519

Financial liabilities:
Deposits		433,311		434,723
Short-term borrowings		7,015		7,015
Accrued interest payable		190		190

	December 31, 2008

	Carrying Amount		Estimated Fair Value

Financial assets:
Cash and due from banks	$	17,603	$	17,603
Federal funds sold		150		150
Securities held to maturity		12,464		12,621
Available-for-sale securities		43,916		43,916
Loans, net		282,740		281,315
Accrued interest receivable		1,544		1,544

Financial liabilities:
Deposits		307,668		307,720
Short-term borrowings		18,737		18,737
Accrued interest payable		166		166


Note 8.	NEW ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued new guidance regarding Business Combinations. This new guidance among other things, establishes principles and requirements for how the acquirer in a business combination (a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired business, (b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This new guidance is effective for fiscal years beginning on or after December 15, 2008, with early adoption prohibited. The Company is required to adopt this new guidance for all business combinations for which the acquisition date is on or after January 1, 2009. Earlier adoption is prohibited. This standard will change the accounting treatment for business combinations on a prospective basis.

In April 2009, the FASB issued three amendments to the fair value measurement, disclosure and other-than-temporary impairment standards. The first amendment for Determination of Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, provides additional guidance on: a) determining when the volume and level of activity for the asset or liability has significantly decreased; b) identifying circumstances in which a transaction is not orderly; and c) understanding the fair value measurement implications of both (a) and (b). This guidance requires several new disclosures, including the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques and related inputs, if any, in both interim and annual periods. The second amendment addresses the Recognition and Presentation of Other-Than-Temporary Impairments which

clarifies the interaction of factors that should be considered when determining whether a debt security is other-than-temporarily impaired (“OTTI”). For debt securities, management must assess whether (a) it has the intent to sell the security, or (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. If OTTI exists, but the entity does not intend to sell the security, then the OTTI adjustment is separated into the credit-related impairment portion which is charged to earnings and the other impairment portion which is recognized in other comprehensive income. This FSP also expands and increases the frequency of certain OTTI related disclosures.

Finally, the third amendment dealt with Interim Disclosures about Fair Value of Financial Instruments which required disclosures about the fair value of financial instruments for interim periods of publicity traded companies as well as in annual financial statements. Fair value information along with the significant assumptions used to estimate fair value must be disclosed.

These amendments were in response to concerns raised by constituents, the mark-to-market study conducted for Congress by the Securities and Exchange Commission (“SEC”) and the recent hearings held by the U.S. House of Representatives on mark-to-market accounting. Each of these accounting standards is effective for interim periods ending after June 15, 2009, and is to be applied prospectively. The Company has adopted all of these amendments.

The FASB provided additional guidance in Accounting for Transfers of Financial Assets, amending previously issued guidance on Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. This new guidance eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. The new guidance also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. This pronouncement will be effective January 1, 2010 and is not expected to have a significant impact on the Company’s condensed consolidated financial statements.

The FASB also issued new amendments to previously issued interpretations regarding Consolidation of Variable Interest Entities, to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. This rule requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the entity’s financial statements. The new amendments will be effective January 1, 2010 and are not expected to have a significant impact on the Company’s consolidated financial statements.

The FASB further issued new rules impacting Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles replacing previously issued guidance and establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative guidance for SEC registrants. All guidance contained in the Codification carries an equal level of authority. All non-grandfathered, non-SEC accounting literature not included in the Codification is superseded and deemed non-authoritative. This Codification is effective for the Company’s consolidated financial statements for periods ending after September 15, 2009. This new guidance is not expected have a significant impact on the Company’s consolidated financial statements.


Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis provides supplemental information, which sets forth the major factors that have affected our financial condition and results of operations during the periods included in the accompanying consolidated financial statements and should be read in conjunction with the Consolidated Financial Statements and related notes. The analysis is divided into subsections entitled “Business Overview,” “Results of Operations,” “Market Risk,” “Financial Condition,” “Liquidity,” “Capital Resources,” “Off-Balance Sheet Arrangements”, “Legislation”, and “Critical Accounting Policies.” The following information should provide a better understanding of the major factors and trends that affect our earnings performance and financial condition, and how our performance during 2009 compares with prior years. Throughout this section, Floridian Financial Group, Inc., and subsidiaries, collectively, are referred to as “Company,” “we,” “us,” or “our.”

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including this management’s discussion and analysis section, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking statements.

All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements. Please see the Introductory Note and Item 1A. Risk Factors of our Registration Statement on Form 10, and in our other filings made from time to time with the SEC after the date of this report.

However, other factors besides those listed in our Quarterly Report or in our Form 10 also could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by us or on our behalf speak only as of the date they are made. We do not undertake to update any forward-looking statement, except as required by applicable law.

Business Overview

About Our Business

We are a multi-bank holding company headquartered in Lake Mary, Florida, a community situated between Orlando and Daytona Beach, Florida. We were incorporated on September 8, 2005 as the bank holding company of Floridian Bank, a Florida chartered commercial bank. We commenced operations, along with Floridian Bank, on March 20, 2006. Since 2006, we have grown rapidly. As of March 31, 2008, our second year anniversary, Floridian Bank had grown to approximately $86 million in assets, including approximately $61 million in net loans, and approximately $70 million in deposits.

On March 31, 2008, we closed a merger transaction in which Orange Bank of Florida, a Florida chartered commercial bank, became our wholly-owned subsidiary. The transaction was treated as a merger of equals where each shareholder of Orange Bank received 1.04 shares of our common stock. At the time of the merger, Orange Bank had approximately $196 million in assets, including approximately $120 million in loans, and approximately $176 million in deposits.

Both Floridian Bank and Orange Bank are full service commercial banks, providing a wide range of business and consumer financial services in our target marketplace, which is comprised primarily of Orange, Seminole, Citrus, Lake, Flagler, and Volusia Counties in Florida. Floridian Bank is headquartered in Daytona Beach, Florida, with a primary service area in Flagler and Volusia Counties. Orange Bank is headquartered in Orlando, Florida, with a primary service area in Orange, Seminole, Lake and Citrus Counties. Collectively, our Banks operate 13 banking offices.

Our growth strategy is to affiliate with banks or bank holding companies situated in market areas along the east coast of Florida from St. Johns County to West Palm Beach, along the I-4 Corridor east from Daytona Beach to Tampa, and along the west coast of Florida from the Tampa MSA to Naples. Our “affiliate model” is not a traditional merger and acquisition strategy. Rather, we expect to affiliate with community banks that are looking to benefit from a holding company structure to achieve their growth goals. Although the affiliate bank becomes a subsidiary, part of our strategy is to maintain the affiliate bank’s independence by keeping its existing directors and officers, as well as retaining the affiliate bank’s identity, while we provide centralized support to the affiliate bank. We expect that this strategy will permit us to grow while paying less than the book value multiple we would have had to pay in a traditional merger and acquisition strategy. In addition, we have registered with the FDIC to be considered for any assisted transactions that may occur. We may or may not participate in an assisted transaction following an assessment of the inherent risk in the target financial institution.

The Banks offer commercial and retail banking services with an emphasis on commercial and commercial real estate lending, particularly to the medical services industry. As of September 30, 2009, we had total assets of $501 million, deposits of $433 million, and total gross loans of $331 million. In addition, as of September 30, 2009, we had $54 million in total shareholders’ equity, after having completed a $30 million secondary stock offering in July 2008. At September 30, 2009, our capital ratios all surpassed regulatory “well capitalized measures”:


	As of September 30, 2009		Minimum to be “Well Capitalized”

Risk Based Capital	14.3	%	10.0	%
Tier 1 Capital	13.0	%	6.0	%
Leverage Capital	10.4	%	5.0	%

In October 2008, we entered into a joint venture with FBC Mortgage, LLC, a licensed correspondent mortgage lender, located in Orlando, Florida. The joint venture, Floridian Financial Mortgage, facilitates the origination of jumbo, conventional and FHA residential mortgages selling most loans into the secondary market. The primary purpose of this operation is to supplement our sources of fee income provided by the Banks. We have a 49% interest in the joint venture and account for our interest using the equity method.

Our lending operations are entirely in the State of Florida, which has been particularly hard hit in the current U.S. recession. Evidence of the economic downturn in Florida is reflected in current unemployment statistics. The Florida unemployment rate at September 2009 increased to 11.0% from 8.1% at the end of 2008 and from 4.7% at the end of 2007. A worsening of the economic conditions in Florida would likely exacerbate the adverse effects of these difficult market conditions on our customers, which may have a negative impact on our financial results. Our principal executive offices are located at 175 Timacuan Boulevard, Lake Mary, Florida 32746. The telephone number at that office is (407) 321-3233.

Results of Operations

Three Months Ended September 30, 2009 Compared to the Three months Ended September 30, 2008

CONDENSED SUMMARY OF EARNINGS


	For The Three Months Ended September 30,

(Dollars in Thousands, Except Per Share Data)	2009			2008

Interest Income	$	4,880		$	4,303
Interest Expense		1,807			1,547


Net Interest Income		3,073			2,756
Provision For Loan Losses		4,687			939
Noninterest Income		298			234
Noninterest Expense		4,501			3,623


Income Before Income Taxes		(5,817	)		(1,572	)
Income Tax Benefit		—			—


Net Loss		(5,817	)		(1,572	)


Basic Net Loss Per Share	$	(0.94	)	$	(0.26	)


Selected Operating Ratios
Return on Average Assets		(4.79	%)		(1.69	%)
Return on Average Equity		(41.01	%)		(9.76	%)
Dividend Payout Ratio		N/A			N/A
Equity to Assets Ratio		10.68			16.57

The net loss for the three months ended September 30, 2009 was $5.8 million compared to $1.6 million net loss for the same period of 2008. During the three months ended September 30, 2009 there was a significant increase in the Provision for Loan Losses approximating $3.7 million. In addition, there was an increase in Noninterest Expense attributable to a rise in FDIC insurance premiums and costs related to problem loans / foreclosed property. These unfavorable items were somewhat offset by an increase in revenues from net interest income and fee income.

In addition to the impact of credit quality, our profitability is dependent to a large extent on net interest income which is the difference between the interest received on earning assets such as loans and securities and the interest paid on interest bearing liabilities principally deposits and borrowings. Our principal interest earning assets are loans, investment securities, and federal funds sold. Interest-bearing liabilities primarily consist of certificates of deposit, NOW accounts, savings deposits, and money market accounts. Funds attracted by these interest-bearing liabilities are invested in interest-earning assets. Accordingly, net interest income depends upon the volume of average interest-earning assets and average interest-bearing liabilities and the interest rates earned or paid on them.

The significance of net interest income is largely enhanced as our size grows and the impact of market rates of interest as influenced by the Federal Reserve’s monetary policy.

Net interest Income

The following table reflects the components of net interest income, setting forth for the three month periods ended September 30, 2009 and 2008 presented, (1) average assets, liabilities and shareholders’ equity, (2) interest income earned on interest-earning assets and interest paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (4) our net interest spread (i.e., the average yield on interest-earning assets less the average rate on interest-bearing liabilities) and (5) our net interest margin (i.e., the net yield on interest earning assets):

AVERAGE BALANCES AND INTEREST RATES


(Dollars in Thousands)	Three Months Ended September 30,

	2009							2008

	Average Balance		Interest		Rate			Average Balance		Interest		Rate

ASSETS
Loans, Net⁽¹⁾⁽²⁾	$	331,611	$	4,379		5.24	%	$	242,921	$	3,558		5.83	%
Investment Securities		62,169		474		3.02	%		56,385		546		3.85	%
Federal Funds Sold		49,019		26		0.21	%		19,507		98		2.00	%
Deposits at Interest with Banks		130		1		3.05	%		17,759		101		2.26	%


Total Earning Assets		442,929	$	4,880		4.37	%		366,572	$	4,303		5.09	%


Other Assets		42,839							34,802


Total Assets	$	485,768						$	371,374


LIABILITIES
Savings, NOW and Money Market	$	193,114	$	760		1.56	%	$	157,564	$	852		2.15
Certificates of Deposit		160,167		998		2.47	%		103,066		685		2.64	%


Total Interest Bearing Deposits		353,281		1,758		1.97	%		260,631		1,536		2.34	%
Short Term Borrowings		7,299		49		2.67	%		1,954		11		2.24	%


Total Interest Bearing Liabilities		360,580		1,807		1.99	%		262,585		1,547		2.34	%


Noninterest Bearing Deposits		66,245							43,306
Other Liabilities		2,205							1,027


Total Liabilities		429,030							306,918

Total Shareholders’ Equity		56,738							64,456


Total Liabilities and Equity	$	485,768						$	371,374


Interest Rate Spread						2.38	%						2.75	%


Net Interest Income			$	3,073						$	2,756


Net Interest Margin						2.81	%						3.25	%


(1)	Average balances include non-accrual loans, and are net of unearned loan fees of $302 and $232 at September 30, 2009 and 2008, respectively.

(2)	Interest income includes fees on loans of $81 and $48 in the three months ended September 30, 2009 and 2008, respectively.

Net interest income increased $0.3 million, or 11.5%, from $2.8 million in 2008 to $3.1 million in 2009 principally due to the addition of interest earning assets due to organic growth in loans, investments and deposits period over the period. This was somewhat offset by a decline in rates promulgated by the Federal Reserve’s monetary policy of significantly reducing short-term interest rates by 400 basis points throughout 2008. Now that the Federal Reserve has effectively established a zero interest rate policy, going forward we would expect there to be less impact on net interest earnings due to interest rate reductions. In managing the net interest margin going forward, the Banks have been emphasizing originating loans with interest rate floors approximating 6%. Further, the Banks are reducing their costs of funds and beginning to lengthen deposit maturities at these lower rates. In spite of the lower rates on deposits, liquidity remained strong at both Banks as of September 30, 2009. With these initiatives, it is anticipated that net interest earnings will improve in the short term, and in the event that interest rates begin to rise, net interest income should increase modestly.

The following table sets forth certain information regarding changes in our interest income and interest expense for the quarter ended September 30, 2009 compared to the quarter ended September 30, 2008. For each category of interest earning assets and interest-bearing liabilities, information is provided on changes attributable to changes in interest rate and changes in the volume. Changes in both volume and rate have been allocated based on the proportionate absolute changes in each category.

RATE VOLUME ANALYSIS


	September 30, 2009 and 2008

	Total Change			Due To Average
	Total Change			Volume			Rate

Interest Earning Assets
Loans, Net	$	821		$	1,308		$	(487	)
Investment Securities		(72	)		58			(130	)
Federal Funds Sold		(72	)		149			(221	)
Other		(100	)		(100	)		—


Total	$	577		$	1,415		$	(838	)


Interest Bearing Liabilities
Savings, NOW, Money Market Accounts	$	(92	)	$	194		$	(286	)
Certificates of Deposit		314			381			(67	)
Short Term Borrowings		38			30			8


Total	$	260		$	605		$	(345	)


Changes In Net Interest Income	$	317		$	810		$	(493	)

Provision for Loan Losses

The allowance for loan losses is established through a provision for loan losses charged against operations. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely. The allowance is an amount that management believes is adequate to absorb possible losses on existing loans that may become uncollectable, based on evaluations of the collectability of loans, industry historical loss experience, current economic conditions, portfolio mix, and other factors. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions.

Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. A loan is impaired when it is probable the creditor will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Cash collections on impaired loans are credited to the loan receivable balance and no interest income is recognized on those loans until the principal balance is current.

Due to the continuing decline in commercial real estate values and our large exposure to commercial real estate loans, during the quarter ended September 30, 2009, the Banks performed an in-depth analysis of their loan portfolios to better assess the collateral values and financial strength, staying power and collectability of borrowers. This analysis covered approximately 80% of all loans outstanding. Where loans had real estate as collateral, multiple sources of valuation were utilized to assess values such as appraisals, tax assessed values and internet based valuation services. Management reviewed and revised loan grades, visited certain borrowers and physically viewed properties. As a direct result of the above factors and analyses the loan loss provision was $4,687 for the three months ended September 30, 2009 compared to $939 for the same period in 2008 representing an allowance of 1.86% of total loans at September 30, 2009. Management believes that the loan loss allowance at its current level is adequate to cover potential loan charge-offs, however further credit deterioration is possible due to the uncertain economic conditions currently present in the Banks’ market areas.

Non interest Income

Following is a schedule of non interest income:


	Three months ended September 30,

(Dollars in Thousands)	2009		2008


Origination fees on loans sold	$	—	$	7
Other		276		227
Gain on sale of securities		22		—

Totals	$	298	$	234

Non interest income derived principally from loan and deposit fees increased in 2009 due to the organic growth in loans and deposits. Mangement expects that as our loans and deposits increase in the future, these fees will show a proportionate increase. Non interest income increased to $298 for the three months ended September 30, 2009 from $234 in the same period 2008.

Non interest Expense

Following is a schedule of non interest expense:


	For the three months ended September 30,

(Dollars in Thousands)	2009		2008


Salaries and employee benefits	$	2,233	$	1,867
Occupancy and equipment expense		864		770
Professional fees		181		122
Data processing		223		244
Core deposit intangible amortization		48		58
Stationery and supplies		42		71
FDIC Insurance		270		51
Telephone and communications		80		86
Other		560		354

Totals	$	4,501	$	3,623

Total noninterest expense of $4.5 million during the three months ended September 30, 2009 increased $0.9 million or 24.2% from the same period in 2008 due to the addition of six branches during 2008, as reflected in the increase in salary and employee benefit and occupancy and equipment expenses. It is anticipated that these expenses will show modest increases in future periods generally associated with increased loan and deposit volumes. In addition, in the period ending September 30, 2009, there was a substantial increase in FDIC insurance premiums to cover the cost of failing financial institutions as well as professional fees associated with becoming an SEC filer and problem asset resolutions.

Income Taxes

We file consolidated tax returns. Having incurred operating losses since our inception in 2006, we have accumulated a net tax benefit over the past three years. We have recorded a valuation allowance to partially offset the deferred tax assets associated with the net operating loss carry forwards generated by our net losses. Management will continue to monitor the deferred tax assets, and will determine whether we will require an additional valuation allowance, or if we experience net income, whether we will need to reverse any remaining valuation allowance. We did not recognize an income tax benefit for the quarters ended September 30, 2009 and 2008.

Nine Months Ended September 30, 2009 Compared to the Nine months Ended September 30, 2008

CONDENSED SUMMARY OF EARNINGS


	For The Nine Months Ended September 30,

(Dollars in Thousands, Except Per Share Data)	2009			2008


Interest Income	$	13,984		$	9,301
Interest Expense		5,177			3,672


Net Interest Income		8,807			5,629
Provision For Loan Losses		5,425			1,574
Noninterest Income		953			409
Noninterest Expense		12,210			7,552


Income Before Income Taxes		(7,875	)		(3,088	)
Income Tax Benefit		—			—


Net Loss	$	(7,875	)	$	(3,088	)


Basic Net Loss Per Share	$	(1.28	)	$	(0.79	)


Selected Operating Ratios
Return on Average Assets		(2.31	%)		(1.61	%)
Return on Average Equity		(17.79	%)		(8.65	%)
Dividend Payout Ratio		N/A			N/A
Equity to Assets Ratio		10.68			16.57

The net loss for the first nine months of 2009 totaled $7.9 million which compares to a net loss of $3.1 million for the same period last year. As noted previously, we merged with Orange Bank at the end of the first quarter 2008 which increased our assets from $86 million to $282 million. The significant increase in assets, including interest earning assets, led to the increase in our interest income. Compared to prior periods, Floridian Bank’s results were adversely impacted by the Federal Reserve’s rate reductions in combating a slumping economy as well as the addition of a fourth banking office. The merger with Orange Bank, also contributed to a greater loss than experienced in the prior year due to large expenses related to Orange Bank’s accelerated growth plans.

For the period following the merger with us, Orange Bank’s results were directly impacted by the Federal Reserve’s rate reductions exacerbated by an aggressive growth plan adding business development staff and four additional branches, which has increased expenses substantially. We expect these growth initiatives to contribute positively to future operating results. Further, we have not recognized the tax benefits of the operating losses incurred rather we have set up an allowance for deferred taxes until we become profitable.

The predominant change in net income period over period was the result of a much greater provision for loan losses.

Net Interest Income

The significance of net interest income is largely enhanced as our size grows and the impact of market rates of interest as influenced by the Federal Reserve’s monetary policy.

The following table reflects the components of net interest income, setting forth for the nine month periods ended September 30, 2009 and 2008 presented, (1) average assets, liabilities and shareholders’ equity, (2) interest income earned on interest-earning

assets and interest paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (4) our net interest spread (i.e., the average yield on interest-earning assets less the average rate on interest-bearing liabilities) and (5) our net interest margin (i.e., the net yield on interest earning assets):

AVERAGE BALANCES AND INTEREST RATES


(Dollars in thousands)	Nine Months Ended September 30,

	2009										2008

	Average Balance		Interest		Rate			Average Balance		Interest		Rate

ASSETS
Loans, Net⁽¹⁾⁽²⁾	$	315,500	$	12,375		5.24	%	$	167,695	$	7,743		6.17	%
Investment Securities		65,470		1,517		3.10	%		35,342		1,068		4.04	%
Federal Funds Sold		27,657		41		0.20	%		15,129		261		2.30	%
Deposits at Interest with Banks		1,917		51		3.56	%		11,086		229		2.76	%


Total Earning Assets		410,544	$	13,984		4.55	%		229,252	$	9,301		5.42	%


Other Assets		43,224							26,083


Total Assets	$	453,768						$	255,335


LIABILITIES
Savings, NOW and Money Market	$	189,807	$	2,327		1.64	%	$	106,227	$	1,744		2.19	%
Certificates of Deposit		134,164		2,689		2.68	%		72,698		1,913		3.52


Total Interest Bearing Deposits		323,971		5,016		2.07	%		178,925		3,657		2.73	%
Short Term Borrowings		6,950		161		3.10	%		877		15		2.28	%


Total Interest Bearing Liabilities		330,921		5,177		2.09	%		179,802		3,672		2.73	%


Noninterest Bearing Deposits		61,270							27,345
Other Liabilities		2,572							584


Total Liabilities		394,763							207,731

Total Shareholders’ Equity		59,005							47,604


Total Liabilities and Equity	$	453,768						$	255,335


Interest Rate Spread						2.46	%						2.69	%


Net Interest Income			$	8,807						$	5,629


Net Interest Margin						2.87	%						3.27	%


(1)	Average balances include non-accrual loans, and are net of unearned loan fees of $226 and $186 at September 30, 2009 and 2008, respectively.

(2)	Interest income includes fees on loans of $136 and $229 in the nine months ended September 30, 2009 and 2008, respectively.

During the first nine months net interest income increased $3.2 million, or 56%, from $5.6 million in 2008 to $8.8 million in 2009 principally due to the significant addition of interest earning assets acquired in the Orange Bank merger on March 31, 2008 as well as organic growth in loans and deposits over the 12 month period. While the increase in the amount of our interest earning assets

increased our net interest income, our net interest income was negatively impacted by the Federal Reserve’s monetary policy of significantly reducing short-term interest rates by 400 basis points since the end of 2007.

The following table sets forth certain information regarding changes in our interest income and interest expense for the nine months ended September 30, 2009 compared to the same period last year. For each category of interest earning assets and interest-bearing liabilities, information is provided on changes attributable to changes in interest rate and changes in the volume. Changes in both volume and rate have been allocated based on the proportionate absolute changes in each category.

RATE VOLUME ANALYSIS


(Dollars In Thousands)	September 30, 2009 and 2008

	Total Change			Due To Average

				Volume			Rate

Interest Earning Assets
Loans, Net	$	4,632		$	6,846		$	(2,214	)
Investment Securities		449			912			(463	)
Federal Funds Sold		(220	)		215			(435	)
Other		(178	)		(189	)		11


Total	$	4,683		$	7,784		$	(3,101	)


Interest Bearing Liabilities
Savings, NOW, Money Market Accounts	$	583		$	1,371		$	(788	)
Certificates of Deposit		776			1,623			(847	)
Short Term Borrowings		146			104			42


Total	$	1,505		$	3,098		$	(1,593	)


Changes In Net Interest Income	$	3,178		$	4,686		$	(1,508	)

Provision for Loan Losses

The loan loss provision was $5.4 million for the nine months ended September 30, 2009 compared to $1.6 million for the same period in 2008. The $3.9 million increase period over period in the provision was primarily due to performing an in-depth analysis of the loan portfolios as described in the Provision for Loan loss discussion on Page 25 of this document. This analysis was aimed at determining an adequate allowance based on our borrowers continued performance in a potentially extended economic downturn and decline in real estate values. The increase in the provision is also attributable to the growth in loans outstanding period over period. Also please see other discussions regarding Provision for Loan Losses and Allowance for Loan Losses in other sections of this document.

Non interest Income

Following is a schedule of non interest income:


(Dollars In Thousands)	Nine months endedSeptember 30,

	2009		2008

Origination fees on loans sold	$	—	$	41
Other		747		368
Gain on sale of securities		206		—


Totals	$	953	$	409

Non interest income derived principally from loan and deposit fees increased in 2009 due to the addition of Orange Bank. Management expects that as our loans and deposits increase in the future, these fees will show a proportionate increase. Non interest

income, further enhanced by the addition of Bank Owned Life Insurance in mid year 2008, increased to $953 for the nine months ended September 30, 2009 from $390 in the same period 2008. Non interest income in 2009 included the gain or sale of securities of $206, which primarily represents a disposal of longer-term securities available for sale.

Non interest Expense

Following is a schedule of non interest expense:


(Dollars In Thousands)	For the nine months ended September 30,

	2009		2008

Salaries and employee benefits	$	5,828	$	4,021
Occupancy and equipment expense		2,321		1,517
Professional fees		437		224
Data processing		658		538
Core deposit intangible amortization		144		96
Stationery and supplies		130		164
FDIC Insurance		777		103
Telephone and communications		230		168
Other		1,685		721

Totals	$	12,210	$	7,552

Total non interest expense of $12.2 million during the nine months ended September 30, 2009 increased $4.7 million or 61.7% from the same period in 2008 due to the addition of Orange Bank’s operations and the six branches added during 2008 which is reflected in the increase in salary and employee benefit and occupancy and equipment expenses. Additionally in 2009, professional fees increased $213 due to SEC filing requirements as well as problem loan workout expenses, FDIC insurance premiums increased $674 largely due to funding bank failures and other expenses increased due to a potential customer incident of fraud.

Income Taxes

Please refer to the discussion under the Results of Operations for the Three Months ended September 30, 2009 versus September 30, 2008 for a complete background explanation on income taxes. We have not recognized an income tax benefit for the nine months ended September 30, 2009 and 2008.

Market Risk

Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices and commodity prices. We are primarily exposed to interest rate risk inherent in our lending and deposit taking activities as a financial intermediary. To succeed in our capacity as a financial intermediary, we offer an extensive variety of financial products to meet the diverse needs of our customers. These products sometimes contribute to interest rate risk for us when product groups do not complement one another. For example, depositors may want short-term deposits while borrowers desire long-term loans. Changes in market interest rates may also result in changes in the fair value of our financial instruments, cash flows, and net interest income.

Interest rate risk is comprised of repricing risk, basis risk, yield curve risk, and options risk. Repricing risk arises from differences in the cash flow or repricing between asset and liability portfolios. Basis risk arises when asset and liability portfolios are related to different market rate indexes, which do not always change by the same amount. Yield curve risk arises when asset and liability portfolios are related to different maturities on a given yield curve; when the yield curve changes shape, the risk position is altered. Options risk arises from “embedded options” within asset and liability products as certain borrowers have the option to prepay their loans when rates fall while certain depositors can redeem their certificates of deposit early when rates rise.

We have established an Asset/Liability Committee (“ALCO”) for each Bank, which are responsible for each Bank’s interest rate risk management. We have implemented a sophisticated asset/liability model at Floridian Bank to measure its interest rate risk. Interest rate risk measures used by us include earnings simulation, economic value of equity (“EVE”) and gap analysis. It is management’s intention to expand the use of this model to include Orange Bank. In the past, Orange Bank had retained a third-party

to provide earnings simulation, and EVE and Gap analysis. We do not use derivative financial instruments for market risk management purposes.

Gap analysis and EVE are static measures that do not incorporate assumptions regarding future business. Gap analysis, while a helpful diagnostic tool, displays cash flows for only a single rate environment. EVE’s long-term horizon helps identify changes in optionality and longer-term positions. However, EVE’s liquidation perspective does not translate into the earnings-based measures that are the focus of managing and valuing a going concern. Net interest income simulations explicitly measure the exposure to earnings from changes in market rates of interest. Our current financial position is combined with assumptions regarding future business to calculate net interest income under various hypothetical rate scenarios. Currently, Floridian Bank’s ALCO, and we expect in the near future, Orange Bank’s ALCO, reviews earnings simulations over the ensuing 12 months under various interest rate scenarios. Reviewing these various measures provides us with a reasonably comprehensive view of our interest rate risk profile.

The following gap analysis compares the difference between the amount of interest earning assets (“IEA”) and interest bearing liabilities (“IBL”) subject to repricing over a period of time and utilizing call dates for its securities portfolio. A ratio of more than one indicates a higher level of repricing assets over repricing liabilities for the time period. Conversely, a ratio of less than one indicates a higher level of repricing liabilities over repricing assets for the time period. It is the Banks’ policy to maintain a cumulative one year gap of +/- 10% and a ratio of IEA/IBL of 0.80 to 1.20. At September 30, 2009, we were within our policy limits.

GAP ANALYSIS


(Dollars in Thousands)	Within 3 Months			4 To 6 Months			7 To 12 Months			Total 1 Year
Interest Earning Assets (IEA)

Loans	$	204,191		$	4,697		$	11,206		$	220,094
Investment Securities		62,046			9,998			14,243			86,287
Federal Funds Sold		25,005			—			—			25,005


Total	$	291,242		$	14,695		$	25,449		$	331,386


Interest Bearing Liabilities (IBL)

Savings, NOW, Money Market	$	196,281		$	—		$	—		$	196,281
Certificates of Deposit		18,439			18,882			67,932			105,253
Short Term Borrowings		7,015			—			—			7,015


Total	$	221,735		$	18,882		$	67,932		$	308,549


Period Gap		69,507			(4,187	)		(42,483	)		22,837


Cumulative Gap	$	69,507		$	65,320		$	22,837


Cumulative Gap / Total Assets		13.87	%		13.04	%		4.56	%
IEA / IBL (Cumulative)		1.31			1.27			1.07

Financial Condition

Lending Activity

The loan portfolio consists principally of loans to individuals and small- and medium-sized businesses within our primary market area of Central Florida. The table below shows our loan portfolio composition:

LOAN PORTFOLIO COMPOSITION


(Dollars In Thousands)	September 30, 2009			December 31, 2008

Commercial	$	51,831		$	50,962
Commercial Real Estate		248,514			212,328
Residential Mortgage		11,069			9,157
Consumer Loans		20,342			16,586


Total loans	$	331,756		$	289,033
Less: Allowance for Loan Losses		(6,186	)		(6,051	)
Less: Net Deferred Fees		(315	)		(242	)


Loans, Net	$	325,255		$	282,740

Total loans increased $43 million during the first nine months of 2009 due to organic growth within our market areas principally in the commercial real estate portfolio.

Non-Performing Assets

Non-performing assets include non-accrual loans and restructured loans and other real estate owned. Non-accrual loans represent loans on which interest accruals have been discontinued. Restructured loans are loans in which the borrower has been granted a concession on the interest rate or the original repayment terms due to financial distress. Other real estate owned is comprised principally of real estate properties obtained in partial or total loan satisfactions and is included in other assets at its estimated fair value less selling costs.

We discontinue interest accruals when principal or interest is due and has remained unpaid for 90 to 180 days depending on the loan type, unless the loan is both well secured and in the process of collection. When a loan is placed on non-accrual status, all unpaid interest and fees are reversed. Non-accrual loans may not be restored to accrual status until all delinquent principal and interest have been paid.

Non-performing loans are closely monitored on an ongoing basis as part of our loan review and work-out process. The potential risk of loss on these loans is evaluated by comparing the loan balance to the fair value of any underlying collateral or the present value of projected future cash flows. Losses are recognized where appropriate.

NON-PERFORMING ASSETS


(Dollars in Thousands)	September 30, 2009			December 31, 2008

Non-Accrual	$	2,320		$	5,999
Restructured Loans		—			—


Total Non-Performing Loans	$	2,320		$	5,999
Other Real Estate Owned		4,255			712


Total Non-Performing Assets	$	6,575		$	6,711


Non-Performing Loans as a Percentage of Total Loans		0.7	%		2.1	%


Non-Performing Assets as a Percentage of Total Assets		1.3	%		1.7	%


Past Due 90 or more days and still accruing		—			—

In the nine months ended September 30, 2009, interest income not recognized on non-accrual loans (but would have been recognized if the loans were current) was approximately $319.

Allowance and Provision for Loan Losses

The allowance for loan losses represents management’s estimate of probable loan losses inherent in the loan portfolio at a specific point in time. This estimate includes losses associated with specifically identified loans as well as estimated probable credit losses inherent in the remainder of the loan portfolio. Additions are made to the allowance through periodic provisions charged to income. Reductions to the allowance occur as loans are charged off. During the first nine months of 2009, we had net charged-offs of approximately $5.3 million that were reserved for previously representing 1.68% of year to date average loans. Further, as disclosed in Note 4. of the Consolidated Financial Statements, management added approximately $5.4 million to the Allowance for Loan Losses through the Provision bringing the total allowance to a level of approximately $6.2 million or 1.87% of total loans outstanding at September 30, 2009. Management evaluates the adequacy of the allowance at least quarterly, and in doing so relies on various factors including, but not limited to, assessment of potential loss, delinquency and non-accrual trends, portfolio growth, underlying collateral coverage and current economic conditions. This evaluation is subjective and requires material estimates that may change over time.

There are no residential mortgage loan concentrations in the loan portfolio. The majority of the charge-offs and impaired loans experienced in the first nine months of 2009 were in the commercial real estate loan portfolio which represents 75% of gross loans. These type loans are all within our general market areas and are made on terms typically at 80% loan to value. These real estate collateral dependent loans generally require an updated appraisal at least annually using a Board of Directors approved appraisal firm. In the event of a collateral shortfall following an appraisal update, the borrower is contacted to provide additional collateral or reduce the outstanding loan balance. Subsequent to these actions if there is concern that the loan may not be collectable as originally documented an evaluation is performed utilizing the guidance documented in the FASB’s guidance for Accounting by Creditors for Impairment of a Loan and reserves are provided to offset any shortfalls in collectability. At September 30, 2009, loans 30 to 89 days past due in the commercial real estate portfolio totaled $96 thousand or 0.04%.

The components of the allowance for loan losses represent estimates based upon Statement of Financial Accounting Standards regarding Accounting for Contingencies and Accounting by Creditors for Impairment of a Loan, as amended. We apply the latter FASB guidance to commercial loans that are considered impaired.

Under the guidance provided for Accounting by Creditors for Impairment of a Loan, a loan is impaired when, based upon current information and events, it is probable that the loan will not be repaid according to its contractual terms, including both principal and interest. Management performs individual assessments of impaired loans to determine the existence of loss exposure and, where applicable, the extent of loss exposure based upon the present value of expected future cash flows available to pay the loan, or based upon the estimated realizable collateral where a loan is collateral dependent.

The following is a summary of information pertaining to impaired loans:


(Dollars in Thousands)	September 30, 2009		December 31, 2008

Impaired loans without a valuation allowance	$	13,952	$	7,695
Impaired loans with a valuation allowance		950		8,580


Total impaired loans	$	14,902	$	16,275


Valuation allowance related to impaired loans	$	732	$	2,423

Investment Activity

Investment activities serve to enhance the overall yield on interest earning assets while supporting interest rate sensitivity and liquidity positions. Securities purchased with the intent and ability to retain until maturity are categorized as securities held to maturity and carried at amortized cost. All other securities are categorized as securities available for sale and are recorded at fair value. Securities, like loans, are subject to similar interest rate and credit risk. In addition, by their nature, securities classified as available for sale are also subject to market value risks that could negatively affect the level of liquidity available to us, as well as shareholders’ equity. A change in the value of securities held to maturity could also negatively affect the level of shareholders’ equity if there was a decline in the underlying creditworthiness of the issuers and an other-than-temporary impairment is deemed or a change in our intent and ability to hold the securities to maturity.

As of September 30, 2009, securities totaling $91 million and $12 million were classified as available for sale and held to maturity, respectively. During the nine months ended September 30, 2009, securities available for sale increased by $47 million and securities held to maturity decreased $153 from December 31, 2008 due to premium amortization.

Deposits and Short-Term Borrowings

As a bank holding company, our primary source of funds is deposits. Those deposits are provided by businesses, municipalities, and individuals located within the markets served by our subsidiaries. In addition, we accept a limited amount of brokered deposits.

Total deposits increased $126 million to $433 million at September 30, 2009, compared to December 31, 2008, as a result of organic growth as well as increased brokered deposits totaling $27.7 million.

Short-term borrowings, made up of federal funds purchased, and other short-term borrowings, decreased by $12 million at September 30, 2009 compared to a balance of $19 million at December 31, 2008. This decrease is the result of a reduction in short term funding needs due to growth in deposit funding sources. As of September 30, 2009, total short-term borrowings were approximately 13% of our total shareholders’ equity.

Liquidity

Our goal in liquidity management is to satisfy the cash flow requirements of depositors and borrowers as well as our operating cash needs with cost-effective funding. Our Board of Directors has established an Asset/Liability Policy in order to achieve and maintain earnings performance consistent with long-term goals while maintaining acceptable levels of interest rate risk, a “well-capitalized” balance sheet, and adequate levels of liquidity. This policy designates each Bank’s ALCO as the body responsible for meeting these objectives. The ALCO, which includes members of executive management, reviews liquidity on a periodic basis and approves significant changes in strategies that affect balance sheet or cash flow positions.

The primary source of liquidity is deposits provided by commercial and retail customers. The Banks attract these deposits by offering an array of products designed to match customer needs and priced in the middle of our competitors. Deposits can be very price sensitive; therefore, we believe that fluctuating deposit offering rates to the top of the market would generate a larger inflow of funds. In addition to local market deposits, the Banks have access to national brokered certificates of deposit markets as well as deposit subscription services. The Banks use these alternative sources of deposits to supplement deposits particularly when the rates are lower than the local market. These sources of deposit are limited by our policies to 25% of assets. Overall deposit levels are monitored on a constant basis as are liquidity policy levels, which must be maintained at a minimum of 14% of total deposits. Sources of these liquidity levels include cash and due from banks, short-term investments such as federal funds sold, and our investment portfolio, which can also be used as collateral for short-term borrowings. Alternative sources of funds include unsecured federal funds lines of credit through correspondent banks. The Banks have established contingency plans in the event of extraordinary fluctuations in cash resources.

Operating Activities

Cash flows from continuing operating activities primarily include net income (loss), adjusted for items that did not impact cash. Net cash used in continuing operating activities was $277 for the nine months ended September 30, 2009 a decrease of $1,542 from net cash used of $1,819 for the same period last year. The increase was primarily due to additional non-cash charges for loan loss provision, depreciation and accretion and stock option expense offset by a greater net loss, gains on sale of available for sale securities, an increase for cash surrender value of insurance policies.

Investing Activities

Cash used in investing activities reflects the impact of loans and investments acquired for our interest-earning asset portfolios, as well as cash flows from asset sales and the impact of acquisitions. For the nine months ended September 30, 2009, we had net cash flows used in investing activities of $94 million, compared to $92 million for the same period in 2008. The change in cash flows from investing activities was primarily due to the purchase of available for sale securities.

Financing Activities

Cash flows from financing activities include transactions and events whereby cash is obtained from depositors, creditors or investors. For the nine months ended September 30, 2009, we had net cash flows provided by financing activities of $114 million,

compared to $120 million for the nine months ended September 30, 2008. The change in cash flows from financing activities was primarily due to an increase in deposits offset by a decline in short term borrowings. In addition, a secondary capital offering was underway in the second quarter of 2008. It is management’s expectation that deposits will remain its principal funding source into the future. Both Banks recently executed a marketing plan to increase deposits by slightly increasing the rates paid but remaining within the range offered by competitors. These actions resulted in outstanding success increasing each Bank’s liquidity above near term needs. Management believes that it can replicate this plan in the future in a controlled environment so not to significantly diminish its net interest margin.

Capital Resources

The assessment of capital adequacy depends on a number of factors such as asset quality, liquidity, earnings performance, changing competitive conditions and economic forces. We seek to maintain a strong capital base to support growth and expansion activities, to provide stability to current operations and to promote public confidence. At September 30, 2009, the Company and its banking subsidiaries exceeded all regulatory “Well Capitalized” measures as disclosed in Note 7. of the Consolidated Financial Statements.

We successfully completed a $30 million secondary capital offering in June 2008 at a price of $12.50 per share. We intend to continue to grow through acquisitions, which could potentially impact our capital position.

We offer a stock purchase plan to our employees and directors to purchase shares of our common stock at fair market value. In 2008, employees purchased 7,616 shares valued at $12.50, which were issued in February 2009.

Holders of our common stock are entitled to receive dividends if, as, and when declared by our Board of Directors out of funds legally available for that purpose. We have not paid any dividends to our holders of common stock in the past, and we currently do not intend to pay dividends on our common stock in the near future. In the event that we decide to pay dividends, there are a number of restrictions on our ability to do so.

The declaration and payment of dividends on our common stock will depend upon our earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate, our ability to service any equity or debt obligations senior to the common stock and other factors deemed relevant by our Board of Directors. Regulatory authorities in their discretion could impose administratively stricter limitations on the ability of the Banks to pay dividends to us if such limits were deemed appropriate to preserve certain capital adequacy requirements.

For a foreseeable period of time, our principal source of cash revenues will be dividends paid by the Banks to us with respect to their common stock. There are certain restrictions on the payment of these dividends imposed by Florida and federal banking laws, regulations and authorities.

Off-Balance Sheet Arrangements

We do not currently engage in the use of derivative instruments to hedge interest rate risks. However, we are a party to financial instruments with off-balance sheet risks in the normal course of business to meet the financing needs of our customers.

At September 30, 2009, we had $77 million in commitments to extend credit and no standby letters of credit. Commitments to extend credit are agreements to lend to a customer so long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. We use the same credit policies in establishing commitments and issuing letters of credit as we do for on-balance sheet instruments.

If commitments arising from these financial instruments continue to require funding at historical levels, management does not anticipate that such funding will adversely impact our ability to meet on-going obligations. In the event these commitments require funding in excess of historical levels, management believes current liquidity, available lines of credit from the Federal Home Loan Bank, investment security maturities and our revolving credit facility provide a sufficient source of funds to meet these commitments.

Legislation

A final rule adopted at the FDIC Board Meeting held on November 12, 2009 requires insured institutions to prepay on December 30, 2009, estimated quarterly risk-based assessments for the 4^th quarter of 2009 and for all of 2010, 2011 and 2012. An institution’s assessment will be calculated by taking the institution’s actual September 30, 2009 assessment and adjusting it quarterly by an estimated 5 percent annual growth rate through the end of 2012. Further, the FDIC will incorporate a uniform 3 basis point increase effective January 1, 2011. Our estimates for this assessment will result in a prepayment of approximately $ 3.4 million, with the corresponding expense to be recorded for each respective quarter of analysis.

Critical Accounting Policies

Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors.

A loan is impaired when full payment under the loan terms is not expected. Commercial and commercial real estate loans are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans are collectively evaluated for impairment, and, accordingly, they are not separately identified for impairment disclosures.


Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable as the Company is a smaller reporting company.


Item 4T.	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of September 30, 2009, the end of the period covered by this Form 10-Q, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that as of September 30, 2009, the end of the period covered by this Form 10-Q, we maintained effective disclosure controls and procedures.


PART II.	OTHER INFORMATION

Item 1.	LEGAL PROCEEDINGS

We are party to lawsuits and claims arising out of the normal course of business. In management’s opinion, there are no known pending claims or litigation, the outcome of which would, individually or in the aggregate, have a material effect on our consolidated results of operations, financial position, or cash flows which have not been included in the financial statements presented in this Form 10-Q.


Item 1A.	RISK FACTORS

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Registration Statement on Form 10 filed on February 27, 2009, which could materially affect our business, financial condition or future results. The risks described in our Registration Statement on Form 10 are

not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.


Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

Item 3.	DEFAULTS UPON SENIOR SECURITIES

None.

Item 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

Item 5.	OTHER INFORMATION

None.

Item 6.	EXHIBITS


(A)	Exhibits

31.1	Certification of Charlie W. Brinkley, Jr., Chairman and Chief Executive Officer of Floridian Financial Group, Inc., Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

31.2	Certification of John D. Waters, Executive Vice President and Chief Financial Officer of Floridian Financial Group, Inc., Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

32.1	Certification pursuant to 18 U.S.C. Section 1350.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned Chief Financial Officer hereunto duly authorized.

FLORIDIAN FINANCIAL GROUP, INC.
(Registrant)


By:	/s/ John D. Waters

	John D. Waters
	Executive Vice President and Chief Financial Officer
	(Mr. Waters is the Principal Financial Officer and has been duly authorized to sign on behalf of the Registrant)

Date:	November 13, 2009

Exhibit Index


31.1	Certification of Charlie W. Brinkley, Jr., Chairman and Chief Executive Officer of Floridian Financial Group, Inc., Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

31.2	Certification of John D. Waters, Executive Vice President and Chief Financial Officer of Floridian Financial Group, Inc., Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

32.1	Certification pursuant to 18 U.S.C. Section 1350.

Attached files

FLORIDIAN FINANCIAL GROUP INC Reports

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