September 2010

Dear Shareholder:

As you are probably aware, the economy in Florida is struggling to achieve positive trends. This difficult environment has contributed to additional provisions for loan losses at the Corporation’s banks during the second quarter of 2010, while overall non-performing assets² continue to perform better than the median of all commercial banks in Florida.¹ Floridian Financial Group continues to report favorable financial measures from an operating standpoint, excluding these increases to the allowance for loan losses. In spite of the poor economic trends, the Corporation’s banks continue to originate quality loans and grow core deposits. Further, Floridian Financial Group continues to maintain capital levels in excess of all well capitalized regulatory measures.

Earnings and Asset Quality

During the first quarter where we saw positive signs that the Florida economy was improving, the second quarter reflected a slowing economy and declining credit quality. Consistent with this “observation”, we reported positive earnings results in the first quarter of 2010, while results for the second quarter were heavily influenced by a $3.6 million provision for loan losses. In keeping with our commitment to our shareholders, we continue to aggressively and proactively recognize potential problem loans and value those loans appropriately. The results for the six months ended June 30, 2010 were favorable compared to the same period last year, except for this provision.

Net interest income increased $1.4 million, or 24.3%, in the first six months of 2010 compared to the same period in 2009. Interest income increased $1.2 million primarily due to average loans growing $31.5 million or 10.3%. Interest on deposits declined a net $195 thousand as average interest bearing liabilities grew $39.2 million, or 12.4%, which increased interest expense $631 thousand; however, the cost of those liabilities declined 35 basis points reducing interest expense $826 thousand. The net interest margin increased to 3.26% for the six months ended June 30, 2010 from 2.93% in the same period ended June 30, 2009. Noninterest expense declined $736 thousand through the first six months 2010 compared to the same period in 2009. In 2009, a $570 thousand operating loss was recognized and the loss was partially recovered in 2010 resulting in a recovery of $450 thousand. Occupancy expenses increased $193 thousand primarily reflecting higher costs associated with a new branch opened in the fourth quarter of 2009. Expenses related to repossessed real estate and personal property increased $205 thousand.

As noted above, the Corporation has experienced declining credit quality in the second quarter of 2010 as exemplified by the $3.6 million addition to the allowance for loan losses. This deterioration was concentrated in only three commercial real estate loans totaling $14 million. It should be noted that Floridian Financial Group continues to outperform the median of all commercial banks based in the State of Florida as measured by non-performing assets² as a percent of total assets. As of June 30, 2010, the Corporation’s non-performing assets as a percent of total assets was 1.1% compared to the median of 4.6% in the State of Florida. ¹

The allowance for loan losses (“ALL”) at June 30, 2010 was $7.9 million or 2.37% of total loans. The ALL to total loans was 2.68% and 1.22% at December 31, 2009 and June 30, 2009, respectively. In the second quarter of 2010, we added $3.6 million to the allowance for loan losses compared to $423 thousand for the

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¹  The Carson Medlin Company, Florida Asset Quality Review, Second Quarter 2010

²  Loans 90+ days past due, non-accrual loans and other real estate owned