Back to GetFilings.com
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-18560
THE SAVANNAH BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1861820
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
25 Bull Street, Savannah, GA 31401
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
912-651-8200
------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
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. Yes X No _
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of October 31, 2002 2,982,398 shares of Common Stock, $1.00 par
value per share
================================================================================
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q INDEX
SEPTEMBER 30, 2002
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Review Report of Independent Certified Public Accountants 2
Consolidated Balance Sheets - September 30, 2002 and 2001
and December 31, 2001 3
Consolidated Statements of Income for the Third Quarter and
for the Nine Months Ended September 30, 2002 and 2001 4
Consolidated Statements of Changes in Shareholders' Equity
for the Nine months Ended September 30, 2002 and 2001 5
Consolidated Statements of Cash Flows for the Nine months
ended September 30, 2002 and 2001 and December 31, 2001 6
Condensed Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-20
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10-21
Item 4. Controls and Procedures 21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
Exhibits
1
ITEM 1. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of The Savannah Bancorp, Inc.
We have reviewed the accompanying consolidated balance sheets of The
Savannah Bancorp, Inc. (a Georgia Corporation) and its subsidiaries as of
September 30, 2002 and 2001 and the related consolidated statements of income
for the three-month and nine-month periods ended September 30,2002 and 2001, and
changes in shareholders' equity and cash flows for the nine-month periods ended
September 30, 2002 and 2001 included in the accompanying Securities and Exchange
Commission Form 10-Q for the period ended September 30, 2002. These consolidated
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by
the American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the accompanying consolidated financial statements
referred to above for them to be in conformity with accounting principles
generally accepted in the United States of America.
We have previously audited, in accordance with generally accepted
auditing standards in the USA, the consolidated balance sheet as of December 31,
2001, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for the year then ended (not all presented
herein); and in our report dated January 31, 2002, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 2001 is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
/s/ BDO Seidman, LLP
Atlanta, Georgia
November 5, 2002
2
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands, except share data)
SEPTEMBER 30, December 31, September 30,
2002 2001 2001
(Unaudited) (Unaudited)
------------- ------------ -------------
ASSETS
Cash and due from banks $ 17,416 $ 17,261 $ 12,683
Interest-bearing deposits in bank 1,399 750 1,655
Federal funds sold 4,914 4,222 15,117
Securities available for sale, at fair
value (amortized cost of $56,670 on
9/30/02, $62,997 on 12/31/01 and
$63,236 on 9/30/01) 58,654 64,662 65,473
Loans 318,289 284,623 270,751
Less allowance for loan losses (4,125) (3,826) (3,726)
- --------------------------------------------------------------------------------
Net loans 314,164 280,797 267,025
Premises and equipment, net 4,806 4,864 4,490
Other assets 3,383 3,627 3,157
- --------------------------------------------------------------------------------
TOTAL ASSETS $404,736 $376,183 $369,600
================================================================================
LIABILITIES
Deposits:
Non interest-bearing demand $ 57,939 $ 50,294 $ 47,145
Interest-bearing demand 58,991 53,388 51,473
Savings 15,000 12,583 11,747
Money market accounts 58,002 48,601 45,698
Time, $100,000 and over 62,899 60,815 61,186
Other time deposits 82,256 83,942 85,728
- --------------------------------------------------------------------------------
Total deposits 335,087 309,623 302,977
Federal Home Loan Bank Advances 20,688 20,836 20,898
Securities sold under repurchase
agreements 12,573 8,583 10,432
Federal funds purchased 251 2,802 1,112
Other liabilities 1,907 2,268 2,491
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 370,506 344,112 337,910
- --------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share:
authorized 20,000,000 shares; issued
2,991,378 shares on 9/30/02, 2,991 2,991 2,991
12/31/01 and 9/30/01
Preferred stock, par value $1 per share:
Authorized 10,000,000 shares, none
issued - - -
Capital surplus 18,555 18,754 18,806
Retained earnings 11,615 9,751 9,100
Treasury stock, 8,440 shares at 9/30/02,
25,542 shares at 12/31/01, and
33,667 shares at 9/30/01 (160) (457) (594)
Accumulated other comprehensive gain
(loss) 1,229 1,032 1,387
- --------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 34,230 32,071 31,690
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $404,736 $376,183 $369,600
================================================================================
See the condensed notes to the consolidated financial statements.
3
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(thousands, except per share data)
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
-------- -------- -------- --------
Interest income $5,902 $6,599 $17,634 $20,546
Interest expense 2,059 3,073 6,469 10,100
- ----------------------------------------------------------------------------
NET INTEREST INCOME 3,843 3,526 11,165 10,446
Provision for loan losses 151 150 463 455
- ----------------------------------------------------------------------------
Net interest income after
provision for loan losses 3,692 3,376 10,702 9,991
- ----------------------------------------------------------------------------
OTHER INCOME
Trust fees 77 89 265 233
Service charges on deposit
accounts 429 315 1,167 982
Mortgage origination fees 291 238 780 629
Other income 122 108 339 344
- ----------------------------------------------------------------------------
Total other operating income 919 750 2,551 2,188
Gains on sales of assets - 13 - 13
- ----------------------------------------------------------------------------
Total other income 919 763 2,551 2,201
- ----------------------------------------------------------------------------
OTHER EXPENSE
Salaries and employee benefits 1,684 1,353 4,791 4,087
Occupancy expense 209 179 614 524
Equipment expense 218 151 575 440
Other operating expenses 744 858 2,314 2,353
- ----------------------------------------------------------------------------
Total other expense 2,855 2,541 8,294 7,404
- ----------------------------------------------------------------------------
Income before provision
for income taxes 1,756 1,598 4,959 4,788
- ----------------------------------------------------------------------------
Provision for income taxes 564 524 1,604 1,554
- ----------------------------------------------------------------------------
NET INCOME $1,192 $1,074 $ 3,355 $ 3,234
============================================================================
NET INCOME PER SHARE:
BASIC $ 0.40 $ 0.36 $ 1.13 $ 1.09
============================================================================
DILUTED $ 0.39 $ 0.36 $ 1.11 $ 1.07
============================================================================
See the condensed notes to the consolidated financial statements.
4
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Accumulated
Other
Common Stock Capital Retained Treasury Comprehensive
($ in thousands, except share data) Shares Amount Surplus Earnings Stock Income (loss) Total
- --------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 2,719,614 $2,720 $12,822 $13,476 ($485) $ 123 $28,656
Comprehensive income:
Net income 3,234 3,234
Change in unrealized gains on
securities available for
sale, net of tax 1,264 1,264
------
Total comprehensive income 4,498
Cash dividends - $.456 per share (1,355) (1,355)
Ten percent stock dividend 271,764 271 5,984 (6,255) -
Purchase of treasury stock (109) (109)
- --------------------------------------------------------------------------------------------------------------
Balance, September 30, 2001 2,991,378 $2,991 $18,806 $ 9,100 ($594) $1,387 $31,690
==============================================================================================================
Balance, December 31, 2001 2,991,378 $2,991 $18,754 $ 9,751 ($457) $1,032 $32,071
Comprehensive income:
Net income 3,355 3,355
Change in unrealized gains on
securities available for
sale, net of tax 197 197
------
Total comprehensive income 3,552
Cash dividends - $.50 per share (1,491) (1,491)
Exercise of options (199) 338 139
Purchase of treasury stock (41) (41)
- --------------------------------------------------------------------------------------------------------------
Balance, September 30, 2002 2,991,378 $2,991 $18,555 $11,615 ($160) $1,229 $34,230
==============================================================================================================
See the condensed notes to the consolidated financial statements.
5
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED FOR THE
SEPTEMBER 30, YEAR ENDED
(UNAUDITED) DECEMBER 31,
($ in thousands) ------------------------- ------------
2002 2001 2001
OPERATING ACTIVITIES -------- -------- --------
Net income $ 3,355 $ 3,234 $ 4,358
Adjustments to reconcile net
income to cash
Provided by operating activities:
Provision for loan losses 463 455 605
Depreciation of premises and
equipment 495 375 545
Gain on sale of securities - (13) (13)
(Accretion) amortization of
investment securities discount-net 62 (20) (3)
Decrease (increase in) other assets 123 109 (362)
(Decrease) increase in other
liabilities (335) (532) (496)
- -------------------------------------------------------------------------------
Net cash provided by operating
activities 4,163 3,608 4,634
- -------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of investment securities (12,132) (21,788) (22,512)
Proceeds from sales of investment
securities - 153 153
Proceeds from maturities of investment
securities 18,396 18,005 18,950
Net increase in loans made to
customers (33,830) (20,413) (34,335)
Capital expenditures (437) (335) (877)
- -------------------------------------------------------------------------------
Net cash used in investing
activities (28,003) (24,378) (38,621)
- -------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in demand,
savings and money market accounts 25,066 14,188 22,991
Net increase (decrease) in
certificates of deposit 398 (3,067) (5,224)
Net increase in securities sold under
agreements to repurchase 3,990 3,885 2,036
Net (decrease) increase in FHLB advances (148) 6,854 2,614
Net (decrease increase in federal funds
purchased (2,551) 924 6,792
Purchase of treasury stock (41) (109) (109)
Dividend payments (1,491) (1,355) (1,828)
Exercise of options 113 - 43
- -------------------------------------------------------------------------------
Net cash provided by financing
activities 25,336 21,320 27,315
- -------------------------------------------------------------------------------
INCREASE IN CASH AND CASH
EQUIVALENTS 1,496 550 (6,672)
Cash and cash equivalents at
beginning of period 22,233 28,905 28,905
- -------------------------------------------------------------------------------
Cash and cash equivalents at
end of period $23,729 $29,455 $22,233
===============================================================================
See the condensed notes to the consolidated financial statements.
6
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE-MONTH AND NINE-MONTH PERIODS
ENDING SEPTEMBER 30, 2002 AND 2001
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine-month period ended September, 2002, are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2002. For further information, refer to the consolidated financial
statements and footnotes thereto, included in the Company's annual report on
Form 10-K for the year ended December 31, 2001.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 145, "Rescission of SFAS No. 4, 44, 64, Amendment of SFAS No.
13, and Technical Corrections." SFAS No. 4 which was amended by SFAS No.
64, required all gains and losses from the extinguishment of debt to be
aggregated and, if material, classified as an extraordinary item, net of
related income tax effect. As a result, the criteria in Opinion 30 will now
be used to classify those gains and losses. SFAS No. 13 was amended to
eliminate modifications that have economic effects that are similar to
sale-leaseback transactions. The adoption of SFAS No. 145 will not have a
current impact on the Company's consolidated financial statements.
In June 1998, FASB issued Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging Activities." Under
recently cleared Derivatives Implementation Group (DIG) Statement 133
Implementation Issue C13, "Scope Exceptions: When a Loan Commitment is Included
in the Scope of Statement 133," the issuer (but not the holder) must apply
Statement 133 to loan commitments related to the origination or acquisition of
mortgage loans that will be held for resale. The guidance is effective the first
day of a reporting entity's first fiscal quarter beginning after April 10, 2002
(that is, July 1, 2002, for the Company). The adoption of this guidance does not
have a current impact on the Company's financial statements.
In July 2002, the FASB approved the issuance of SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. Generally, SFAS No. 146
stipulates that defined exit costs (including restructuring and employee
termination costs) are to be recorded on an incurred basis rather than on a
commitment basis as is presently required. This statement is effective for exit
or disposal activities initiated after December 31, 2002. The Company currently
anticipates that adoption of this statement in 2003 will not have a material
impact on its financial statements.
7
In October 2002, the FASB issued SFAS 147, "Accounting of Certain Financial
Institutions." The statement removes acquisitions of financial institutions,
except for transactions between two or more mutual enterprises, from the scope
of SFAS 72 and Interpretation 9 and requires that those transactions be
accounted for in accordance with SFAS 141, "Business Combinations," and SFAS
142, "Goodwill and Other Intangible Assets." In addition, this statement amends
SFAS 144, "Accounting for the Impairment or Disposal of Long-lived Assets," to
include in its scope long-term customer-relationship intangible assets of
financial institutions. This statement is effective for acquisitions for which
the date of acquisition is on or after October 1, 2002. The provisions related
to the impairment and disposal accounting for certain acquired long-term
customer-relationship intangible assets are effective on October 1, 2002.
Transition provisions for previously recognized unidentifiable intangible assets
are effective on October 1, 2002. The Company currently anticipates that
adoption of this statement will not have a material impact on it financial
statements.
Various proposals have been issued recently by the Securities and Exchange
Commission ("SEC") related to changes in filing requirements and accountability
of Executive management and Directors regarding accounting policies and audit
issues. These proposals result from the recent high profile accounting and audit
irregularities that have been widely covered in the media. Although the eventual
outcome of these proposals is expected to have no material impact on the
Company's consolidated financial statements, additional costs to comply with
certain rules can be expected.
NOTE 3 - SHARES USED IN COMPUTING NET INCOME PER SHARE
The Board of Directors declared a 10 percent stock dividend on April 16, 2001.
The record date for distribution of the stock dividend was April 27 and the
payable date was May 11, 2001. Net income per share and average share amounts
have been restated to give the effect of the 10 percent additional shares
outstanding in the earliest period presented. Net income per diluted share is
computed using the weighted-average number of common and dilutive common
equivalent shares outstanding during the periods. The diluted weighted-average
shares outstanding after adjusting for a ten percent stock dividend were
approximately 3,026,000 and 3,013,000 for the third quarters of 2002 and 2001,
respectively. They included approximately 43,000 and 55,000 common equivalent
shares in 2002 and 2001, respectively. The diluted weighted-average shares
outstanding were approximately 3,025,000 and 3,009,000 for the first nine months
of 2002 and 2001, respectively. They included approximately 43,000 and 51,000
common equivalent shares in 2002 and 2001, respectively.
FORWARD LOOKING STATEMENTS
The Savannah Bancorp, Inc. (the Company) may, from time to time, make written or
oral "forward-looking statements," including statements contained in the
Company's filings with the Securities and Exchange Commission (including this
quarterly report on Form 10-Q and, in its reports to shareholders and in other
communications by the Company, which are made in good faith by the Company
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995.
8
These forward-looking statements involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Board of Governors of the
Federal Reserve System; inflation, interest rate, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by customers, including the features, pricing and quality compared to
competitors' products and services; the willingness of customers to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes; acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing the risks involved
in the foregoing.
The Company cautions that the foregoing list of important factors is not
exclusive. The Company does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.
9
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For a comprehensive presentation of The Savannah Bancorp, Inc.'s financial
condition at September 30, 2002 and December 31, 2001 and results of operations
for the quarters and nine month periods ended September 30, 2002 and 2001, the
following analysis should be reviewed along with other information including the
Company's December 31, 2001 Annual Report on Form 10-K.
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
THIRD QUARTER FINANCIAL HIGHLIGHTS
SEPTEMBER 30, 2002 AND 2001
(Unaudited)
BALANCE SHEET DATA Percent
AT SEPTEMBER 30 2002 2001 Change
-------------------------------------------------------------------
( thousands, except per share data)
Total assets $404,736 $369,600 10
Interest-earning assets 380,878 350,288 8.7
Loans 318,289 270,751 18
Allowance for loan losses 4,125 3,726 11
Nonperforming assets 605 536 13
Deposits 335,087 302,977 11
Interest-bearing liabilities 310,660 288,274 7.8
Shareholders' equity 34,230 31,690 8.0
Allowance for possible loan
losses to total loans 1.30% 1.38% (5.8)
Loan to deposit ratio 94.99% 89.36% 6.3
Equity to assets 8.46% 8.57% (1.3)
Tier 1 capital to risk-
weighted assets 10.44% 10.87% (4.0)
Book value per share $ 11.48 $ 10.71 7.2
Outstanding shares 2,983 2,958 0.8
KEY PERFORMANCE DATA Percent
FOR THE THIRD QUARTER 2002 2001 Change
------------------------------------------------------------------
NET INCOME $ 1,192 $ 1,074 11
Return on average assets 1.17% 1.18% (0.8)
Return on average equity 13.98% 13.75% 1.7
Net interest margin 4.07% 4.15% (1.9)
Efficiency ratio 59.95% 59.25% 1.2
NET INCOME PER SHARE:
Basic $ 0.40 $ 0.36 11
Diluted $ 0.39 $ 0.36 8.3
Dividends $ 0.17 $ 0.16 6.3
AVERAGE SHARES:
Basic 2,983 2,958 0.8
Diluted 3,026 3,013 0.4
10
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
THIRD QUARTER FINANCIAL HIGHLIGHTS - CONTINUED
SEPTEMBER 30, 2002 AND 2001
(Unaudited)
KEY PERFORMANCE DATA Percent
FOR THE FIRST NINE MONTHS 2002 2001 Change
-------------------------------------------------------------------
( thousands, except per share data)
NET INCOME $ 3,355 $ 3,234 3.7
Return on average assets 1.15% 1.20% (4.2)
Return on average equity 13.57% 14.37% (5.6)
Net interest margin 4.11% 4.17% (1.4)
Efficiency ratio 60.47% 58.54% 3.3
NET INCOME PER SHARE:
Basic $ 1.13 $ 1.09 3.7
Diluted $ 1.11 $ 1.07 3.7
Dividends $ 0.50 $ .456 10
AVERAGE SHARES:
Basic 2,982 2,958 0.8
Diluted 3,025 3,009 0.5
FINANCIAL CONDITION AND CAPITAL RESOURCES
BALANCE SHEET ACTIVITY
The major changes in the year-to-date assets and liabilities for the current
year and the prior year of the Company are shown in the consolidated statements
of cash flows. The increase in loans of $33.8 million in the first nine months
2002 was funded primarily by the $25.5 million increase in deposits and a
reduction of investment securities of $6.3 million.
The Company has classified all investment securities as available for sale.
During the first nine months, U.S. Treasury market rates have fallen 20-100
basis points causing an increase in net unrealized gains on available for sale
securities. These amounts are included in shareholders' equity at September 30,
2002 and 2001 and December 31, 2001, respectively, in other accumulated
comprehensive income.
The Company's lending and investment policies continue to emphasize high quality
growth. Management is not aware of any known trends, events or uncertainties
that will have or that are reasonably likely to have a material effect on the
liquidity, capital resources or operations of the Company. However, the events
of September 11, 2001 and the aftermath have caused fear, uncertainty and
security concerns. Additionally, recent high visibility accounting scandals
involving executive management, auditors and legal counsel have created some
degree of uncertainty among investors. Future events could cause disruptions in
economic growth.
11
ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS
The allowance for loan losses is established through charges in the form of a
provision for loan losses based on management's continuing and quarterly
evaluation of the loan portfolio. Loan losses and recoveries are charged or
credited directly to the allowance. The amount of the allowance reflects
management's opinion of an adequate level to absorb probable losses inherent in
the loan portfolio at September 30, 2002. The amount charged to the provision
and the level of the allowance is based on management's judgment and is
dependent upon growth in the loan portfolio, the total amount of past due loans
and nonperforming loans, known loan deteriorations, and concentrations of
credit. Other factors affecting the allowance are market interest rates,
portfolio maturity and composition, collateral values and general economic
conditions. Finally, management's assessment of probable losses based upon
internal credit grading of the loans and periodic reviews and assessments of
credit risk associated with particular loans is considered in establishing the
allowance amount. The Company considers its policies regarding the allowance for
loan losses to be its most critical accounting policy due to the significant
degree of management judgment involved.
Management maintains an allowance for loan losses which it believes is adequate
to cover probable losses in the loan portfolio. It must be emphasized, however,
that the determination of the allowance for loan losses using the Company's
procedures and methods rests upon various judgments and assumptions about future
economic conditions, events, and other factors affecting loans which are
believed to be reasonable, but which may or may not prove valid. While it is the
Company's policy to provide for the loan losses in the current period in which a
loss is considered probable, there are additional risks of future losses which
cannot be quantified precisely or attributed to particular loans or classes of
loans. Because these risks include the state of the economy, industry trends,
and conditions affecting individual borrowers, management's judgment of the
allowance is necessarily approximate and imprecise. No assurance can be given
that the Company will not in any particular period sustain loan losses which
would be sizable in relationship to the amount reserved or that subsequent
evaluation of the loan portfolio, in light of conditions and factors then
prevailing, will not require significant changes in the allowance for loan
losses or future charges or credits to earnings. The allowance for loan losses
is also subject to review by various regulatory agencies through their periodic
examinations of the Company's subsidiaries. Such examination could result in
required changes to the allowance for loan losses. No adjustment in the
allowance or significant adjustments to the Bank's internal classified loans
were made as a result of the subsidiary bank's most recent examination performed
by the Office of the Comptroller of the Currency as of December 31, 2001 and the
Federal Deposit Insurance Corporation as of September 30, 2001.
The allowance for loan losses totaled $4.125 million, or 1.30 percent of
total loans, at September 30, 2002. This is compared to an allowance of $3.826
million, or 1.34 percent of total loans, at December 31, 2001. For the nine
months ended September 30, 2002, the Company reported net charge-offs of
$164,000, or 0.07 percent (annualized) of average loans. This is compared to net
charge-offs of $82,000, or 0.04 percent (annualized) of average loans, for the
comparable period of 2001. Provision for loan losses of $463,000
12
was added tothe allowance for loan losses due to the weaker economic conditions
and the 18 percent growth in the loan portfolio as compared to the prior year.
The Company's nonperforming assets consist of other real estate owned,
loans on nonaccrual basis and loans which are contractually past due 90 days or
more on which interest is still being accrued. Other real estate owned of
$117,000 consists of one foreclosed property at September 30, 2002 and $0 at
September 30, 2001. Nonaccrual loans and loans past due 90 days and greater
totaled $488,000, or 0.15 percent of gross loans, at September 30, 2002 compared
to $566,000, or 0.20 percent of gross loans, at September 30, 2001. Generally,
loans are placed on non-accrual status at the earlier of when they are 90 days
past due or when the collection of the loan becomes doubtful.
Impaired loans under Statement of Financial Accounting Standards 114, which were
all on non-accrual status, totaled $488,000 and $536,000 at September 30, 2002
and 2001, respectively.
CAPITAL ADEQUACY
The Office of the Comptroller of the Currency (OCC) has adopted capital
requirements that specify the minimum level for which no prompt corrective
action is required. In addition, the FDIC adopted FDIC insurance assessment
rates based on certain "well-capitalized" risk-based and equity capital ratios.
As of September 30, 2002, the subsidiary banks exceed the minimum requirements
necessary to be classified as "well-capitalized."
Total equity capital for the Company is $34.2 million, or 8.46 percent of total
assets at September 30, 2002. Tier 1 Capital is 10.44 percent of Risk-Weighted
Assets at the same date. The strong capital and earnings ratios allow the
Company to continue its aggressive growth objectives. Treasury stock activity
during the first nine months included 18,902 shares that were re-issued in
conjunction with the exercise of options and 1,800 shares that were purchased to
be available for future exercise of options. The treasury stock account was
adjusted by the cost of the treasury shares acquired using the first-in,
first-out values.
13
RESULTS OF OPERATIONS
THIRD QUARTER 2002 COMPARED WITH THIRD QUARTER 2001
Net income for the third quarter 2002 was $1,192,000, up 11 percent from
$1,074,000 in the third quarter 2001. This represents annualized returns of
13.98 percent on average equity and 1.17 percent on average assets for the third
quarter, 2002. Diluted earnings per share were 39 cents in the third quarter,
2002 compared to 36 cents for the same period in 2001, an increase of 8.3
percent.
Net interest income was $3,843,000 as compared to $3,526,000 in 2001, an
increase of $317,000, or 9.0 percent. Average loans were $309.3 million, or 16
percent higher in the third quarter 2002 as compared $266.8 million in the third
quarter 2001. The average loan to deposit ratio increased to 93 percent in 2002
as compared to 90 percent in 2001. The prime rate remained at 4.75 percent
during the third quarter 2002. The prime rate averaged 6.57 percent during the
third quarter 2001. Time deposit market rates decreased 100-150 basis points in
the third quarter 2002 as compared to the same period in 2001. The net yield on
interest earning assets decreased slightly to 4.07 percent in 2002 from 4.15
percent in 2001, primarily due to loan yields falling more than deposit costs.
See table 2 for additional analysis of the net interest income changes.
The provision for loan losses was $151,000 for the third quarter of 2002,
compared to $150,000 for the comparable period of 2001. Changes in the provision
each year are impacted as discussed under the "Allowance for Loan Losses"
section above. Loan growth was $9.6 million for the quarter ended September 30,
2002 and $3.8 million for the third quarter 2001.
Other operating income was $919,000 in 2002 compared to $750,000 in 2001, an
increase of $169,000 or 23 percent. Service charge on deposit accounts increased
$114,000 due to higher NSF charges and lower earnings credits on commercial
accounts. Other income included mortgage origination fees of $291,000 and
$238,000 in 2002 and 2001, respectively. Lower mortgage loan interest rates
caused increases in mortgage origination volumes and fees throughout the
industry. Trust income was 77,000 in the third quarter of 2002, compared to
$89,000 in the same period of 2001. The decrease resulted from the decline of
marketable security asset values and reduction in estate fee revenues recognized
when compared to the third quarter, 2001.
Other expenses were $2,855,000 in 2002 compared to $2,541,000 in 2001, an
increase of $314,000, or 12 percent. Personnel expense increased $331,000, or 24
percent in 2002. The Company operated in 2001 with a number of unfilled
positions. Many of the positions were filled in latter 2001 resulting in higher
personnel costs in 2002. In addition, 2002 includes a senior operations officer
salary, in-house item processing function salaries and higher incentive
compensation accruals. Higher costs related to systems security, audit and
marketing were present in the third quarter of 2002 as compared to the third
quarter of 2001. Increased occupancy of approximately $30,000, include
approximately $22,000 related to newly leased operations space.
The provision for income taxes was $564,000 in 2002 and $524,000 in 2001. The
effective federal and state tax rates were 32.1 percent and 32.8 percent in 2002
14
and 2001, respectively. The decrease in the effective rate was due primarily to
an investment in low income housing tax credits in 2002. The Company has never
recorded a valuation allowance against deferred tax assets. All deferred tax
assets are considered to be realizable due to expected future taxable income.
FIRST NINE MONTHS 2002 COMPARED WITH FIRST NINE MONTHS 2001
Net income for the first nine months of 2002 was $3,355,000, up 3.7 percent from
$3,234,000 in the first nine months of 2001. This represented annualized returns
of 13.57 percent on average equity and 1.15 percent on average assets for the
first nine months of 2002. Diluted earnings per share were $1.11 in the first
nine months of 2002 and $1.07 for the same period in 2001, an increase of 3.7%.
Net interest income was $11,165,000 as compared to $10,446,000 in 2001, an
increase of $719,000, or 6.9 percent. Average loans were $301.2 million, or 16
percent higher in the first nine months of 2002 as compared to $260.6 million
for the same period in 2001. The average loan to deposit ratio increased to 93
percent in 2002 as compared to 88 percent in 2001. The prime rate remained at
4.75 percent during the first nine months of 2002. The prime rate averaged 7.56
percent during the first nine months of 2001. The net yield on interest earning
assets decreased to 4.11 percent in 2002 from 4.17 percent in 2001 as shown in
Table 3 of the following content.
The provision for loan losses was $463,000 for the first nine months of 2002,
compared to $455,000 for the same period of 2001. Changes in the provision each
year are impacted as discussed under the "Allowance for Loan Losses" section
above. Loan growth was $33.7 million for the nine months ended September 30,
2002 and $20.3 million for the same period in 2001.
Other operating income was $2,551,000 in 2002 compared to $2,188,000 in 2001, an
increase of $363,000, or 17 percent. Service charges on deposit accounts
increased $185,000 due to higher NSF charges and lower earnings credits on
commercial accounts. Other income included mortgage origination fees of $780,000
and $629,000 in 2002 and 2001, respectively. Lower mortgage loan interest rates
caused increases in mortgage origination volumes and fees throughout the
industry. Trust income was $265,000 in the first nine months of 2002, compared
to $233,000 in the first nine months of 2001. This increase resulted from
increasing business development efforts.
Other expenses were $8,294,000 in 2002 compared to $7,404,000 in 2001, an
increase of $890,000, or 12 percent. Personnel expense increased $704,000, or 17
percent in 2002. The Company operated in 2001 with a number of unfilled
positions. Many of the positions were filled in latter 2001 resulting in higher
personnel costs in 2002. In addition, 2002 new salaries includes a senior
operations officer salary, in-house item processing function salaries and higher
incentive compensation accruals. Higher costs related to systems security, audit
and marketing were present in the first half of 2002 as compared to the first
half of 2001. Increased occupancy and moving costs of approximately $70,000 were
incurred during the
15
first nine months related to newly leased operations space and the write-off of
leasehold improvement in leased space for which the lease option was not
renewed.
The provision for income taxes was $1,604,000 in 2002 and $1,554,000 in 2001.
The effective federal and state tax rates were 32.3 percent and 32.5 percent in
2002 and 2001, respectively. The slight decrease in the effective rate was due
primarily to investment in low-income housing tax credits in 2002 mostly offset
by lower state tax-exempt income. The Company has never recorded a valuation
allowance against deferred tax assets. All deferred tax assets are considered to
be realizable due to expected future taxable income.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The objectives of funds management include maintaining adequate liquidity and
reasonable harmony between the repricing of sources and uses of funds for
interest sensitive assets and liabilities. The goal of liquidity management is
to ensure the availability of adequate funds to meet the loan demand and the
deposit withdrawal needs of customers. This is achieved through maintaining a
combination of sufficient liquid assets, core deposit growth and unused capacity
to purchase and borrow funds in the money markets.
During the first nine months of 2002 loans increased $33.7 million to $318
million, and deposits increased $25.5 million to $335 million. The very low
deposit market interest rates have resulted in customers moving out of time
deposits and into other deposit types or alternative investments. The loan to
deposit ratio increased to 95 percent at September 30, 2002 from 92 percent at
December 31, 2001. Loan growth was strong in the third quarter as was growth in
non-interest bearing deposits.
Primary funding and liquidity sources in addition to local deposit growth
include borrowing capacity with the Federal Home Loan Bank of Atlanta, temporary
federal funds purchased lines with correspondent banks, and non-local time
deposits through an Internet bulletin board service. Backup funding and
liquidity sources include the ability to acquire brokered deposits, arrangements
to sell participations in certain loans and borrowing from the Federal Reserve
Bank of Atlanta discount window.
Both subsidiary banks have a Blanket Floating Lien Agreement with the Federal
Home Loan Bank of Atlanta ("FHLB"). Under these agreements, the banks have
credit lines up to 75 percent of the book value of their 1-4 family first
mortgage loans, or approximately $49.6 million as of September 30, 2002. In
addition, the banks had approximately $0.7 million fair value of investment
securities pledged as collateral at the FHLB. In aggregate, the Company had
secured borrowing capacity of approximately $50.4 million of which $20.7 million
was advanced at September 30, 2002. These credit arrangements serve as a
core-funding source as well as liquidity backup for the banks. The Savannah
Bank, N.A. and Bryan Bank & Trust have credit lines approved by the FHLB of 20
percent and 16 percent of assets, respectively, subject to the FHLB collateral
requirements. The subsidiary banks also have $20 million of temporary
conditional federal funds borrowing lines available from correspondent banks.
A continuing objective of asset liability management is to maintain a high level
of variable rate assets, including variable rate loans and shorter-maturity
investments, to balance increases in interest rate sensitive liabilities.
16
Interest rate sensitivity management and its effects on the net interest margin
require analyses and actions that take into consideration volumes repriced and
the timing and magnitude of their change.
The Company's asset-sensitive cash flow maturity and repricing gap at September
30, 2002, was $32.5 million at one year, or 9 percent of total interest-earning
assets. Fixed rate earning assets with maturities over five years totaled $15.5
million, or 4 percent of total interest-earning assets. See Table 1 for cash
flow maturity and repricing gap.
The Company is more asset-sensitive within one year than desired in a falling
rate environment. The decrease in the prime rate from 9.50 percent to 4.75
percent between January 2001 and December 2001 negatively impacted net interest
income and the net interest margin. The Company is well-positioned for a rising
rate environment. Given the historically low level of current interest rates,
the opportunity for rising rates may be greater than falling rates, however, the
timing of a rise is uncertain. The Federal Reserve has most recently
communicated a neutral bias for interest rates.
The gap position between one and five years is of less concern because
management has time to respond to changing financial conditions with actions
that reduce the impact of the longer-term gap positions. However, fixed rate
assets with maturities over five years may include significant rate risk in the
event of significant market rate increases which subject the subsidiary banks to
repricing risk.
Management monitors interest rate risk on a quarterly basis using
rate-sensitivity gap analysis, rate shock simulation and performance forecasting
measures. If and when interest rate risk measures are outside of policy
tolerances, specific actions to return interest rate risk to acceptable levels
are reported to the Board by management. Management is in the midst of upgrading
its interest rate risk reporting systems to provide better information on a more
frequent basis. These capabilities are especially valuable during a period of
volatile interest rates.
The Company is a party to financial instruments with off-balance sheet risks in
the normal course of business to meet the financing needs of its customers. At
September 30, 2002, the Company had unfunded commitments to extend credit of
$59.5 million and outstanding stand-by letters of credit of $4.4 million. Since
many of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements.
The Company uses the same credit policies in establishing commitments and
issuing letters of credit as it does for on-balance sheet instruments.
Management does not anticipate that funding obligations arising from these
financial instruments will adversely impact its ability to fund future loan
growth or deposit withdrawals.
17
TABLE 1 - LONG-TERM MATURITY GAP AND REPRICING DATA
The following is the long-term maturity and repricing data for the Company as of
September 30, 2002:
($ in 000's) 0-3 3 - 12 1 - 3 3 - 5 Over 5
INTEREST-BEARING ASSETS: Immediate Months Months Years Years Years Total
- ------------------------ --------- -------- -------- -------- -------- -------- --------
Investment securities $ - $ 2,002 $ 18,377 $ 18,947 $ 8,044 $ 9,301 $ 56,671
Interest-bearing deposits 1,399 - - - - - 1,399
Federal funds sold 4,914 - - - - - 4,914
Loans - fixed rates - 18,214 41,107 73,201 20,709 6,182 159,413
Loans - variable rates 158,481 - - - - - 158,481
---------------------------------------------------------------------------
Total interest-earning assets 164,794 20,216 59,484 92,148 28,753 15,483 380,878
---------------------------------------------------------------------------
INTEREST BEARING DEPOSITS:
- -------------------------
NOW and savings ** 14,799 7,399 22,197 29,596 - - 73,991
Money market accounts ** 17,412 5,766 17,412 17,412 - - 58,002
Time, $100 and over - 22,088 30,417 6,742 3,652 - 62,899
Other time - 17,939 43,505 13,307 7,446 59 82,256
Federal Home Loan Bank Advances - 63 152 15,440 1,418 3,615 20,688
Other borrowings 12,824 - - - - - 12,824
---------------------------------------------------------------------------
Total interest-
bearing liabilities 45,035 53,255 113,683 82,497 12,516 3,674 310,660
---------------------------------------------------------------------------
GAP-EXCESS ASSETS (LIABILITIES) 119,759 (33,039) (54,199) 9,651 16,237 11,809 70,218
---------------------------------------------------------------------------
GAP-CUMULATIVE - 9/30/02 $119,759 $ 86,720 $ 32,521 $ 42,172 $ 58,409 $ 70,218 $ 70,218
===========================================================================
CUMULATIVE SENSITIVITY RATIO * 3.66 1.88 1.15 1.14 1.19 1.23 1.23
===========================================================================
* Cumulative interest-earning assets / cumulative interest-bearing
liabilities
** Repricing of NOW, Savings and Money market accounts based on estimated
percentages of the full market interest rate declines over 1 to 36 months.
18
SELECTED STATISTICAL INFORMATION OF THE COMPANY
The following statistical information is provided for the Company for the
quarters and nine months ended September 30, 2002 and 2001. The data is
presented using daily average balances. This data should be read in conjunction
with the financial statements appearing elsewhere in this report. The Company
has no foreign operations and, accordingly, there are no assets or liabilities
attributable to foreign operations.
TABLE 2 - AVERAGE BALANCE SHEET AND RATE/VOLUME ANALYSIS -
THIRD QUARTER 2002 AND 2001
The following table presents average balances of the Company and the Subsidiary
Banks on a consolidated basis, the taxable-equivalent interest earned and the
rate paid thereon during the third quarter of 2002 and 2001.
Average Average (a) Variance
Balance Rate Interest Attributable to
------------------- ----------- ---------------- Vari- ---------------
2002 2001 2002 2001 2002 2001 Ance Rate Volume
-------- -------- ---- ---- ------ ------ ------ ------ ------
($ in Thousands) (%) TAXABLE-EQUIVALENT (Thousands) (Thousands)
INTEREST INCOME
AND FEES(B)
Interest-bearing
$ 5,198 $ 1,434 1.76 3.04 deposits $ 23 $ 11 $ 12 $ (5) $ 17
45,969 55,764 5.48 6.05 Investments - taxable 635 850 (215) (80) (135)
Investments -
8,458 8,927 8.63 8.36 non-taxable 184 188 (4) 6 (10)
13,232 11,496 1.68 3.45 Federal funds sold 56 100 (44) (51) 7
309,332 266,842 6.52 8.21 Loans (c) 5,082 5,525 (443) (1,141) 698
-------- -------- ------ ------ ------ ------ ------
Total int.-earning
382,189 344,463 6.21 8.02 assets 5,980 6,674 (694) (1,271) 577
20,834 17,015 Non-earning assets ------ ------ ------ ------ ------
-------- --------
403,023 361,478 TOTAL ASSETS
======== ========
INTEREST EXPENSE
Deposits
59,406 49,464 0.58 1.33 NOW accounts 87 166 (79) (94) 15
13,652 11,557 0.99 2.03 Savings accounts 34 59 (25) (30) 5
56,309 43,095 1.61 3.07 Money market accounts 229 334 (105) (159) 54
63,230 62,149 3.79 5.86 CD's, $100M or more 604 918 (314) (324) 10
82,932 87,709 3.75 5.65 Other time deposits 784 1,248 (464) (419) (45)
-------- -------- ------ ------ ------ ------ ------
Total interest-bearing
275,529 253,974 2.50 4.26 deposits 1,738 2,725 (987) (1,026) 39
20,700 20,911 5.00 5.01 FHLB advances 261 264 (3) - (3)
13,187 9,948 1.81 3.23 Other borrowings 60 81 (21) (36) 15
-------- -------- ------ ------ ------
Total interest-
309,416 284,833 2.64 4.28 bearing liabilities 2,059 3,070 (1,011) (1,062) 51
------ ------ ------ ------ ------
57,236 43,509 Non-int bearing deposits
2,553 2,150 Other liabilities
33,818 30,986 Stockholders' equity
-------- --------
$403,023 $361,478 Liabilities and equity
======== ========
3.57 3.41 Interest rate spread
==== ====
Net interest income $3,921 $3,604 $ 317 $ (209) $ 526
====== ====== ====== ====== ======
4.07 4.15 Net interest margin
==== ====
72,773 59,630 Net earning assets
======== ========
Total average deposits and
332,765 297,483 2.07 3.63 average cost of deposits
======== ======== ==== ====
93 % 90 % Average loan to deposit ratio
(a) This table shows the changes in interest income and interest expense for the
comparative periods based on either changes in average volume or changes in
average rates for interest-earning assets and interest-bearing liabilities.
Changes which are not solely due to rate changes or solely due to volume
changes have been attributed to volume.
(b) The taxable equivalent adjustment results from tax exempt income less
non-deductible TEFRA interest expense.
(c) Average nonaccruing loans have been excluded from total average loans as a
non interest-earning asset.
19
(c) Average nonaccruing loans have been excluded from total average loans as a
non interest-earning asset.
The following statistical information is provided for the Company for the nine
month periods ended September 30, 2002 and 2001. The data is presented using
daily average balances. This data should be read in conjunction with the
financial statements appearing elsewhere in this report. The Company has no
foreign operations and, accordingly, there are no assets or liabilities
attributable to foreign operations.
TABLE 3 - AVERAGE BALANCE SHEET AND RATE/VOLUME ANALYSIS - FIRST NINE MONTHS,
2002 AND 2001
The following table presents average balances of the Company and the Subsidiary
Banks on a consolidated basis, the taxable-equivalent interest earned and the
rate paid thereon during the first nine months of 2002 and 2001.
Average Average (a) Variance
Balance Rate Interest Attributable to
------------------- ----------- ---------------- Vari- ---------------
2002 2001 2002 2001 2002 2001 Ance Rate Volume
-------- -------- ---- ---- ------ ------ ------ ------ ------
($ in Thousands) (%) TAXABLE-EQUIVALENT (Thousands) (Thousands)
INTEREST INCOME
AND FEES(B)
Interest-bearing
$ 4,988 $ 4,036 1.66 4.77 deposit $ 62 $ 144 $ (82) $ (94) $ 12
47,337 55,275 5.73 6.12 Investments - taxable 2,027 2,531 (504) (164) (340)
Investments -
8,735 9,216 8.56 8.33 non-taxable 559 574 (15) 16 (31)
8,942 13,178 1.69 4.47 Federal funds sold 113 441 (328) (274) (54)
301,243 260,644 6.70 8.77 Loans (c) 15,107 17,090 (1,983) (4,019) 2,036
-------- -------- ---- ---- ------ ------ ------ ------ ------
Total int.-earning
371,245 342,349 6.43 8.12 assets 17,868 20,780 (2,912) (4,535) 1,623
---- ---- ------ ------ ------ ------ ------
20,494 17,420 Non-earning assets
-------- --------
391,739 359,769 TOTAL ASSETS
======== ========
INTEREST EXPENSE
Deposits
57,869 50,980 .59 1.73 NOW accounts 255 660 (405) (435) 30
13,184 11,582 0.99 2.30 Savings accounts 98 199 (101) (113) 12
52,582 38,466 1.79 3.58 Money market accounts 704 1,029 (325) (514) 189
61,995 63,165 4.10 6.29 CD's, $100M or more 1,902 2,971 (1,069) (1,033) (36)
82,284 91,255 4.12 6.12 Other time deposits 2,537 4,179 (1,642) (1,365) (277)
-------- -------- ------ ------ ------ ------ ------
Total Interest-
267,914 255,448 2.74 4.73 bearing deposits 5,496 9,038 (3,542) (3,460) (82)
20,755 20,785 5.01 5.02 FHLB advances 778 780 (2) (1) (1)
13,172 9,124 1.98 4.13 Other borrowings 195 282 (87) (147) 60
-------- -------- ---- ---- ------ ------ ------ ------ ------
Total interest-
301,841 285,357 2.87 4.73 bearing liabilities 6,469 10,100 (3,631) (3,608) (23)
------ ------ ------ ------ ------
54,272 41,825 Non-int bearing deposits
2,560 2,492 Other liabilities
33,066 30,095 Stockholders' equity
-------- --------
391,739 359,769 Liabilities and equity
======== ========
3.57 3.38 Interest rate spread
==== ====
Net interest income $11,399 $10,680 $ 719 $ (927) $ 1,646
====== ====== ====== ====== ======
4.11 4.17 Net interest margin
==== ====
69,404 56,992 Net earning assets
-------- --------
Total average deposits and
$322,186 $297,273 2.28 4.06 average cost of deposits
======== ======== ==== ====
93 % 88 % Average loan to deposit ratio
Footnotes (a), (b) and (c) from the Table are also applicable to Table 3.
20
Item 4. - Controls and Procedures
CONCLUSION ABOUT THE EFFECTIVENESS OF DISCLOSURE
CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Disclose the conclusions of the registrant's principal executive officers and
principal financial officer, or persons performing similar functions, about the
effectiveness of the registrant's disclosure controls and procedures (as defined
in ss.ss.240.13a-14(c) and 240.15d-14(c)) based on their evaluation of these
controls and procedures as of a date within 90 days of the filing date of the
quarterly or annual report that includes the disclosure required by this
paragraph.
We, the certifying officers have disclosed, based on our most recent evaluation,
to the Company's auditors and the audit committee of the board of directors the
following items :
No significant deficiencies in the design or operation of
internal controls which could adversely affect the company's ability to record,
process, summarize, and report financial data have been identified.
No fraud that involves management or other employees who have a significant role
in the company's internal controls has been discovered.
CHANGES IN INTERNAL CONTROLS
Disclose whether or not there were significant changes in the registrant's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
We, the certifying officers, indicate in this report that there were no
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to our evaluation completed on
October 30, 2002. There were no significant deficiencies and material weaknesses
that require corrective actions.
21
PART II - OTHER INFORMATION
Item 1. Legal proceedings. None
Item 2. Changes in 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 and Reports on Form 8-K
a. Exhibits
Exhibit 11. Computation of Per Share Earnings* (rbb)
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 99.3 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* Data required by Statement of Financial Accounting Standards No.
128, Earnings per Share, is provided in Note 3 to the condensed
consolidated financial statements in this report.
b. Reports on Form 8-K during the quarter ended September 30, 2002.
None
22
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 thereunto duly authorized.
The Savannah Bancorp, Inc.
-------------------------------
(Registrant)
Date 11/5/02 /S/ ARCHIE H. DAVIS
------- --------------------------------
Archie H. Davis - President & CEO
Date 11/5/02 /S/ G. MIKE ODOM, JR.
------- --------------------------------
G. Mike Odom, Jr. - Executive Vice
President & COO
Date 11/5/02 /S/ ROBERT B. BRISCOE
------- --------------------------------
Robert B. Briscoe - Chief Financial Officer
23