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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 June 30, 2003
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
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(Address of principal executive offices) (Zip Code)
912-651-8200
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(Registrant's telephone number, including area code)
N/A
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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 July 31, 2003. 3,281,902 shares of Common Stock, $1.00 par
value per share
================================================================================
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q INDEX
JUNE 30, 2003
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Review Report of Independent Certified Public Accountants 2
Consolidated Balance Sheets - June 30, 2003 and 2002
and December 31, 2002 3
Consolidated Statements of Income
For the Three and Six Month Periods Ended June 30, 2003
and 2002 4
Consolidated Statements of Changes in Shareholders' Equity
For the Six Months Ended June 30, 2003 and 2002 5
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2003 and 2002 6
Condensed Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-21
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10-21
Item 4. Conclusion About the Effectiveness of Disclosure Controls
and Procedures 22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
1
ITEM 1. FINANCIAL STATEMENTS
REVIEW 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
June 30, 2003 and 2002 and the related consolidated statements of income for the
three and six-month periods ended June 30, 2003 and 2002, and changes in
shareholders' equity and cash flows for the six-month periods ended June 30,
2003 and 2002 included in the accompanying Securities and Exchange Commission
Form 10-Q for the period ended June 30, 2003. These 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 condensed 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 auditing standards
generally accepted in the United States of America, the consolidated balance
sheet as of December 31, 2002, and the related consolidated statements of
income, changes in shareholders' equity, and cash flows for the year then ended
(not presented herein); and in our report dated January 24, 2003, we expressed
an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 2002 is fairly stated in all material respects
in relation to the consolidated balance sheet from which it has been derived.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Atlanta, Georgia
August 6, 2003
2
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, December 31, June 30,
- --------------------------------------------------------------------------------
($ in thousands, except share data) 2003 2002 2002
- --------------------------------------------------------------------------------
ASSETS (Unaudited) (Unaudited)
Cash and due from banks $ 16,359 $ 34,932 $ 17,595
Interest-bearing deposits in FHLB 15,817 6,061 7,993
Federal funds sold 12,959 733 10,235
Securities available for sale, at
fair value (amortized cost of $42,358 on
6/30/03, $53,112 on 12/31/02 and $51,805
on 6/30/02) 43,958 54,898 53,569
Loans 354,908 336,775 308,697
Less allowance for loan losses (4,797) (4,373) (4,041)
- --------------------------------------------------------------------------------
Net loans 350,111 332,402 304,656
Premises and equipment, net 4,667 4,804 4,774
Other real estate owned 117 117 -
Other assets 8,370 3,651 3,722
- --------------------------------------------------------------------------------
TOTAL ASSETS $452,358 $437,598 $402,544
- --------------------------------------------------------------------------------
LIABILITIES
Deposits:
Non interest-bearing demand $ 70,294 $ 63,450 $ 56,024
Interest-bearing demand 82,025 81,376 60,816
Savings 15,727 14,196 13,378
Money market accounts 66,665 62,537 56,091
Time, $100,000 and over 61,643 59,989 64,362
Other time deposits 78,678 81,496 83,492
- --------------------------------------------------------------------------------
Total deposits 375,032 363,044 334,163
Federal Home Loan Bank advances 20,517 20,625 20,730
Securities sold under repurchase agreements 15,264 14,088 12,141
Federal funds purchased 4,040 2,906 305
Other liabilities 1,649 2,179 1,796
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 416,502 402,842 369,135
- --------------------------------------------------------------------------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share:
authorized 20,000,000 shares; issued
3,290,223 on 6/30/03 and 2,991,378 on
12/31/02 and 6/30/02, respectively 3,290 2,991 2,991
Preferred stock, par value $1 per share:
Authorized 10,000,000 shares, none issued - - -
Contributed capital 25,109 18,557 18,555
Retained earnings 6,612 12,261 10,930
Treasury stock, 8,321, 8,450 and 8,440
shares at 6/30/03, 12/31/02 and 6/30/02,
respectively (147) (161) (160)
Accumulated other comprehensive income 992 1,108 1,093
- --------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 35,856 34,756 33,409
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $452,358 $437,598 $402,544
- --------------------------------------------------------------------------------
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 THREE MONTHS FOR THE SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2003 2002 2003 2002
-------- -------- -------- --------
Interest income $5,735 $5,894 $11,412 $11,732
Interest expense 1,691 2,162 3,424 4,410
-------- -------- -------- --------
NET INTEREST INCOME 4,044 3,732 7,988 7,322
Provision for loan losses 265 156 535 312
-------- -------- -------- --------
Net interest income after
provision for loan losses 3,779 3,576 7,453 7,010
-------- -------- -------- --------
OTHER INCOME
Trust fees 100 104 192 188
Service charges on deposit accounts 394 413 800 738
Mortgage origination fees 505 249 888 489
Other income 129 113 250 217
-------- -------- -------- --------
Total other income 1,128 879 2,130 1,632
-------- -------- -------- --------
OTHER EXPENSE
Salaries and employee benefits 1,909 1,570 3,767 3,107
Occupancy expense 216 222 420 405
Equipment expense 198 178 407 357
Other operating expenses 818 790 1,625 1,570
-------- -------- -------- --------
Total other expense 3,141 2,760 6,219 5,439
-------- -------- -------- --------
Income before provision for
income taxes 1,766 1,695 3,364 3,203
Provision for income taxes 603 561 1,124 1,040
-------- -------- -------- --------
NET INCOME $1,163 $1,134 $2,240 $2,163
======== ======== ======== ========
NET INCOME PER SHARE:
BASIC $ 0.35 $ 0.35 $ 0.68 $ 0.66
======== ======== ======== ========
DILUTED $ 0.35 $ 0.34 $ 0.67 $ 0.65
======== ======== ======== ========
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
($ in thousands, except Common Stock Contributed Retained Treasury Comprehensive
share data) Shares Amount Capital Earnings Stock Income (Loss) Total
- ---------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 2,991,378 $2,991 $18,754 $9,751 $(457) $1,032 $32,071
Comprehensive income:
Net income 2,163 2,163
Change in unrealized gains
on securities available for
sale, net of tax 61 61
------
Total comprehensive income 2,224
Cash dividends - $.30 per share (984) (984)
Exercise of options (199) 338 139
Purchase of treasury stock (41) (41)
---------------------------------------------------------------------------
Balance, June 30, 2002 2,991,378 $2,991 $18,555 $10,930 $(160) $1,093 $33,409
===========================================================================
Balance, December 31, 2002 2,991,378 $2,991 $18,557 $12,261 $(161) $1,108 $34,756
Comprehensive income:
Net income 2,240 2,240
Change in unrealized gains
on securities available for
sale, net of tax (116) (116)
-------
Total comprehensive income 2,124
Cash dividends - $.315 per share (1,039) (1,039)
Exercise of options 1 14 15
Ten percent stock dividend 298,845 299 6,551 (6,850) -
---------------------------------------------------------------------------
Balance, June 30, 2003 3,290,223 $3,290 $25,109 $ 6,612 $(147) $ 992 $35,856
===========================================================================
See the condensed notes to the consolidated financial statements.
5
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE
SIX MONTHS ENDED
($ in thousands) JUNE 30,
--------------------
OPERATING ACTIVITIES 2003 2002
-------- --------
Net income $ 2,240 $ 2,163
Adjustments to reconcile net income to cash
provided by operating activities:
Provision for loan losses 535 312
Depreciation of premises and equipment 332 323
Amortization of investment securities discount-net 153 30
Decrease in other assets 351 (155)
Decrease in other liabilities (530) (424)
- -------------------------------------------------------------------------------
Net cash provided by operating activities 3,081 2,249
- -------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of investment securities (9,724) (2,717)
Proceeds from maturities of investment securities 20,324 13,879
Net increase in loans made to customers (18,244) (24,171)
Capital expenditures (194) (233)
Deposit on bank owned life insurance (5,000) -
- -------------------------------------------------------------------------------
Net cash used in investing activities (12,838) (13,242)
- -------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in demand, savings and money
market deposits 13,152 21,443
Net (decrease) increase in certificates of deposit (1,164) 3,097
Net increase in securities sold under agreements
to repurchase 1,176 3,558
Net decrease in FHLB advances (108) (106)
Net increase (decrease) in federal funds purchased 1,134 (2,497)
Dividend payments (1,039) (984)
Purchase of treasury stock - (41)
Exercise of options 15 113
- -------------------------------------------------------------------------------
Net cash provided by financing activities 13,166 24,583
- -------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 3,409 13,590
Cash and cash equivalents at beginning of period 41,726 22,233
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of period $45,135 $35,823
===============================================================================
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 AND SIX-MONTH PERIODS
ENDED JUNE 30, 2003 AND 2002
(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 three-month and six-month periods ended June, 2003,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2003. 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, 2002.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others", ("Interpretation No. 45"), which
addresses the accounting for and disclosures of guarantees. Interpretation No.
45 requires a guarantor to recognize a liability for the fair value of a
guarantee at inception. The recognition of the liability is required even if it
is not probable that payments will be required under the guarantee. The
disclosure requirements were effective for interim and annual financial
statements ending after December 15, 2002. This statement did not have a
material impact on the financial statements.
In January 2003, the FASB Issued Interpretation No. 46, "Consolidated Financial
Statements" ("Interpretation No. 46"), which addresses consolidation by business
enterprises of variable interest entities that have certain characteristics. In
general, Interpretation No. 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or is entitled to receive
a majority of the entity's residual return or both. An entity that meets this
definition is considered the "primary beneficiary". Interpretation No. 46
requires disclosures about variable interest entities by the primary beneficiary
and an enterprise that holds significant variable interests in a variable
interest entity but is not the primary beneficiary. Interpretation No. 46
provides for exceptions to the scope of this interpretation including transfers
to qualifying special purpose entities subject to the reporting of Statement No.
140, which would not be consolidated. Interpretation No. 46 applies immediately
to variable interest entities created after January 31, 2003 and to variable
interest entities in which an enterprise obtains an interest after January 31,
2003. Interpretation No. 46 applies in the first fiscal year, or interim period,
beginning after June 15, 2003 to variable interests entities in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
This statement did not have a material impact on the financial statements.
7
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 January 28, 2003.
The record date for distribution of the stock dividend was February 10, 2003 and
the payable date was February 24, 2003. 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 3,343,000 and 3,330,000 for the second quarters of
2003 and 2002, respectively. They included approximately 61,000 and 48,000
common equivalent shares in 2003 and 2002, respectively. The diluted
weighted-average shares outstanding were approximately 3,342,000 and 3,326,000
for the first six months of 2003 and 2002, respectively. They included
approximately 61,000 and 46,000 common equivalent shares in 2003 and 2002,
respectively.
NOTE 4 - ACCOUNTING FOR STOCK-BASED COMPENSATION
In December 2002, the FASB issued FAS 148, Accounting for Stock-Based
Compensation - Transition and Disclosure which amends FASB Statement No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results.
The Company has one stock-based employee compensation plan. As permitted by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("Statement No. 123), the Company accounts for the plan under the
recognition and measurement principles of Accounting Principles Board Statement
No. 25, "Accounting for Stock Issued to Employees," ("APB No. 25") and its
related interpretations. Because all options granted under the Company's plans
had an exercise price equal to the market value of the underlying common stock
on the date of grant, no stock-based compensation cost is reflected in net
income under the Company's application of APB 25. Additionally, the Company did
not issue any options to non-employees for the six months ended June 30, 2003 or
June 30, 2002, respectively.
8
The following table presents the effects on net income and net income per share
if the Company had recognized compensation expense under the fair value
recognition provisions of Statement No. 123:
For the Three For the
Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
------ ------ ------ ------
Net Income - as reported $1,163 $1,134 $2,240 $2,163
Stock-based employee compensation
expense, determined under fair
value basis, net of tax (26) (21) (52) (44)
------ ------ ------ ------
Net Income - pro forma $1,137 $1,113 $2,188 $2,119
====== ====== ====== ======
Net Income per share - basic - as reported $ 0.35 $ 0.35 $ 0.68 $ 0.66
Net Income per share - basic - pro forma $ 0.35 $ 0.34 $ 0.67 $ 0.65
Net Income per share - diluted - as reported $ 0.35 $ 0.34 $ 0.67 $ 0.65
Net Income per share - diluted - pro forma $ 0.34 $ 0.33 $ 0.65 $ 0.64
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.
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; competitors' products and services; technological changes;
acquisitions; changes in consumer spending and saving habits; and the success of
the Company at managing the risks involved in the foregoing.
The Company cautions that the foregoing list of important factors is not
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 June 30, 2003 and December 31, 2002 and results of operations for
the quarters ended June 30, 2003 and 2002, the following analysis should be
reviewed along with other information including the Company's December 31, 2002
Annual Report on Form 10-K.
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
SECOND QUARTER FINANCIAL HIGHLIGHTS
JUNE 30, 2003 AND 2002
(Unaudited)
BALANCE SHEET DATA Percent
AT JUNE 30 2003 2002 Change
- ----------------------------------------------------------------------------
(thousands, except per share data)
Total assets $452,358 $402,544 12
Interest-earning assets 423,716 378,297 12
Loans 354,908 308,697 15
Allowance for loan losses 4,797 4,041 19
Nonperforming assets 2,537 532 377
Deposits 375,032 334,163 12
Interest-bearing liabilities 344,559 311,315 11
Shareholders' equity 35,856 33,409 7.3
Allowance for possible
loan losses to total loans 1.35% 1.31% 3.2
Nonperforming assets to
total loans 0.71% 0.17% 318
Loan to deposit ratio 94.63% 92.38% 2.4
Equity to assets 7.93% 8.30% (4.6)
Tier 1 capital to risk-
weighted assets 9.66% 10.53% (8.3)
Book value per share * $ 10.93 $ 10.18 7.3
Outstanding shares * 3,282 3,281 0.0
Market value per share * $ 23.99 $ 22.00 9.0
KEY PERFORMANCE DATA Percent
FOR THE SECOND QUARTER 2003 2002 Change
- ----------------------------------------------------------------------------
NET INCOME $ 1,163 $ 1,134 2.6
Return on average assets 1.06% 1.15% (7.3)
Return on average equity 13.14% 13.82% (4.9)
Net interest margin 3.95% 4.09% (3.4)
Efficiency ratio 60.73% 59.86% 1.5
PER SHARE DATA: *
Net income - basic $ 0.35 $ 0.35 0.0
Net income - diluted $ 0.35 $ 0.34 2.9
Dividends $ 0.16 $ 0.16 0.0
AVERAGE SHARES: *
Basic 3,282 3,282 0.0
Diluted 3,343 3,330 0.4
10
KEY PERFORMANCE DATA Percent
FOR THE SIX MONTHS 2003 2002 Change
- ----------------------------------------------------------------------------
NET INCOME $ 2,240 $ 2,163 3.6
Return on average assets 1.05% 1.13% (6.8)
Return on average equity 12.81% 13.35% (4.0)
Net interest margin 4.00% 4.12% (2.9)
Efficiency ratio 61.46% 60.74% 1.2
PER SHARE DATA: *
Net income - basic $ 0.68 $ 0.66 3.0
Net income - diluted $ 0.67 $ 0.65 3.1
Dividends $ 0.32 $ 0.30 6.7
AVERAGE SHARES: *
Basic 3,281 3,280 0.0
Diluted 3,342 3,326 0.5
* - 2002 restated for a 10 percent stock dividend in February, 2003
THE SAVANNAH BANCORP, INC. AND SUBSIDIARIES
HISTORICAL NET INCOME, SHARE AND PER SHARE DATA
FOR 5 YEARS AND 5 QUARTERS
(thousands, except per share data)
(UNAUDITED)
The following tables show information for the most recent 5 years and 5
quarters. Share and per share information have been restated to reflect the
effect of a 10 percent stock dividend with a record date of February 10, 2003,
an ex-dividend date of February 6 and a distribution date of February 24.
FOR THE MOST RECENT FIVE YEARS 2002 2001 2000 1999 1998
------- ------- ------- ------- -------
Net income $ 4,508 $ 4,358 $ 4,292 $ 3,533 $ 2,626
AVERAGE SHARES
Basic 3,280 3,254 3,272 3,272 3,220
Diluted 3,328 3,312 3,325 3,352 3,340
NET INCOME PER SHARE
Basic $ 1.37 $ 1.34 $ 1.31 $ 1.08 $ 0.82
Diluted $ 1.35 $ 1.32 $ 1.29 $ 1.05 $ 0.79
Dividends per share $ 0.61 $ 0.56 $ 0.47 $ 0.38 $ 0.28
(continued)
11
MARKET PRICE PER COMMON SHARE 2002 2001 2000 1999 1998
------- ------- ------- ------- -------
High $ 22.10 $ 22.73 $ 17.98 $ 20.66 $ 25.62
Low 17.73 15.50 14.05 15.70 17.36
Close 19.06 18.55 15.91 16.28 21.49
AT DECEMBER 31
Shareholders' equity $34,756 $32,071 $28,656 $25,231 $24,475
Outstanding shares 3,281 3,263 3,261 3,278 3,246
Book value per share $ 10.59 $ 9.83 $ 9.66 $ 8.46 $ 7.54
FOR THE MOST RECENT FIVE QUARTERS 2003 2002
---------------- -------------------------
SECOND FIRST FOURTH THIRD SECOND
QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- -------
NET INCOME $ 1,163 $ 1,077 $ 1,153 $ 1,192 $ 1,134
AVERAGE SHARES
Basic 3,282 3,281 3,281 3,281 3,282
Diluted 3,343 3,336 3,329 3,329 3,330
NET INCOME PER SHARE
Basic $ 0.35 $ 0.33 $ 0.35 $ 0.36 $ 0.35
Diluted $ 0.35 $ 0.32 $ 0.35 $ 0.36 $ 0.34
Dividends per share $ 0.160 $ 0.155 $ 0.155 $ 0.155 $ 0.155
MARKET PRICE PER COMMON SHARE
High $ 23.99 $ 24.00 $ 20.69 $ 22.10 $ 22.00
Low 21.34 18.85 18.36 17.73 18.35
Close 23.99 22.80 19.06 19.86 22.00
AT QUARTER-END
Shareholders' equity $35,586 $35,180 $34,756 $34,230 $33,409
Outstanding shares 3,282 3,281 3,281 3,281 3,281
Book value per share $ 10.93 $ 10.72 $ 10.59 $ 10.43 $ 10.18
12
FINANCIAL CONDITION AND CAPITAL RESOURCES
BALANCE SHEET ACTIVITY
The major changes in the assets and liabilities of the Company for the current
year-to-date and the prior year are shown in the consolidated statements of cash
flows. The increase in loans of $18.2 million in the first six months 2003 was
funded primarily by net proceeds of $10.6 million from the maturity of
investment securities and increases in demand, savings and money market deposits
of $13,152. On June 30, 2003, the Company deposited a total of $5.0 million with
two life insurance companies as a deposit on Bank Owned Life Insurance contracts
on key officers of the Company. Once the life insurance contracts are in place,
the cash surrender value of officers' life insurance will be carried in other
assets as prescribed by regulatory and accounting rules.
The Company has classified all investment securities as available for sale..
Unrealized gains are included in shareholders' equity at June 30, 2003 and 2002
and December 31, 2002, 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 some fear, uncertainty and
security concerns among the general population. Unexpected future events could
cause further disruptions in economic growth.
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 June 30, 2003. 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
13
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
examinations could result in required changes to the allowance for loan losses.
No adjustment in the allowance or significant adjustments to the Bank's
internally classified loans were made as a result of The Savannah Bank, N.A.'s
most recent examination performed by the Office of the Comptroller of the
Currency as of December 31, 2002 or Bryan Bank & Trust's most recent examination
by the Georgia Department of Banking and Finance as of March 31, 2003.
The allowance for loan losses totaled $4.797 million or 1.35 percent of total
loans, at June 30, 2003. This is compared to an allowance of $4.373 million, or
1.30 percent of total loans, at December 31, 2002. For the six months ended June
30, 2003, the Company reported net charge-offs of $68,000, or 0.04 percent
(annualized) of average loans. This is compared to net charge-offs of $97,000,
or 0.07 percent (annualized) of average loans, for the comparable period of
2002. Provision for loan losses of $535,000 was added to the allowance for loan
losses due to higher levels of non-performing loans.
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 June 30, 2003 and $0 at June 30, 2002.
Nonaccrual loans and loans past due 90 days and greater totaled $2,420,000, or
0.68 percent of gross loans, at June 30, 2003 compared to $532,000, or 0.17
percent of gross loans, at June 30, 2002. 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. The increase in nonaccrual loans is
attributable to one SBA enhanced credit for $1,684,000 being placed in
nonaccrual status in the fourth quarter of 2002 for which the Company
anticipates no significant loss.
Impaired loans under Statement of Financial Accounting Standards 114, which were
on non-accrual status, totaled $2,326,000 and $434,000 at June 30, 2003 and
2002, 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 June 30, 2003, the subsidiary banks exceed the minimum requirements
necessary to be classified as "well-capitalized."
14
Total equity capital for the Company is $35.9 million, or 7.93 percent of total
assets at June 30, 2003. Tier 1 Capital is 9.66 percent of Risk-Weighted Assets
at the same date.
RESULTS OF OPERATIONS
SECOND QUARTER 2003 COMPARED WITH SECOND QUARTER 2002
Net income for the second quarter 2003 was $1,163,000, up 2.6 percent from
$1,134,000 in the second quarter 2002. This represents an annualized return of
13.14 percent on average equity and 1.06 percent on average assets for the
second quarter, 2003. Diluted earnings per share were 35 cents in the second
quarter, 2003 compared to 34 cents for the same period in 2002. Earnings per
share was restated in 2002 to reflect a 10 percent stock dividend in February
2003.
Net interest income was $4,044,000 as compared to $3,732,000 in 2002, an
increase of $312,000, or 8.4 percent. Average loans were $349.2 million, or 16
percent higher in the first quarter 2003 as compared $301.4 million in the first
quarter 2002. The average loan to deposit ratio increased to 96 percent in 2003
as compared to 93 percent in 2002. The prime rate remained at 4.25 percent until
June 27, 2003, when the rate declined to 4.00%. The net yield on interest
earning assets decreased to 3.95 percent in 2003 from 4.09 percent in 2002, as
shown in Table 2.
The provision for loan losses was $265,000 for the second quarter of 2003,
compared to $156,000 for the comparable period of 2002. Changes in the provision
each year are impacted as discussed under the "Allowance for Loan Losses"
section above. Loan growth was $9.1 million for the quarter ended June 30, 2003
and $11.1 million for the second quarter 2002.
Other operating income was $1,128,000 in 2003 compared to $879,000 in 2002, an
increase of $249,000 or 28 percent. Service charges on deposit accounts
decreased $19,000 due to lower volume of NSF charges and higher earnings credits
on commercial accounts. Other income included mortgage origination fees of
$505,000 and $249,000 in 2003 and 2002, respectively. Lower mortgage loan
interest rates caused increases in mortgage origination and refinancing volumes
and fees throughout the mortgage banking industry which may not continue if
mortgage rates rise. Trust income was $100,000 in the second quarter of 2003,
compared to $104,000 in the same period of 2002.
Other expenses were $3,141,000 in 2003 compared to $2,760,000 in 2002, an
increase of $381,000, or 14 percent. Personnel expense increased $339,000, or 22
percent in 2003 and included approximately $140,000 of mortgage commissions and
benefits directly related to the increase in mortgage origination fee income of
$256,000.
The provision for income taxes was $603,000 in 2003 and $561,000 in 2002. The
effective federal and state tax rates were 34.1 percent and 33.1 percent in 2003
and 2002, respectively. The increase in the effective rate was due primarily to
lower tax-exempt income on investments in 2003 resulting from the lower average
volumes and rates. 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.
15
FIRST SIX MONTHS 2003 COMPARED WITH FIRST SIX MONTHS 2002
Net income for the first six months of 2003 was $2,240,000, up 3.6 percent from
$2,163,000 in the first six months of 2002. This represents annualized returns
of 12.81 percent on average equity and 1.05 percent on average assets for the
first six months of 2003. Diluted earnings per share were 67 cents in the first
six months, 2003 compared to 65 cents for the same period in 2002. Earnings per
share were restated in 2002 to reflect a 10 percent stock dividend in February,
2003.
Net interest income was $7,988,000 as compared to $7,322,000 in 2002, an
increase of $666,000, or 9.1 percent. Average loans were $344.1 million, or 16
percent higher in the first six months 2003 as compared $297.1 million in the
first six months of 2002. The average loan to deposit ratio increased to 97
percent in 2003 as compared to 94 percent in 2002. The prime rate remained at
4.25 percent until June 27, 2003, when the rate declined to 4.00 percent. The
net yield on interest earning assets decreased to 4.00 percent in 2003 from 4.12
percent in 2002, as shown in Table 2.
The provision for loan losses was $535,000 for the first six months of 2003,
compared to $312,000 for the comparable period of 2002. Changes in the provision
each year are impacted as discussed under the "Allowance for Loan Losses"
section above. Loan growth was $18.2 million for the six months ended June 30,
2003 and $24.2 million for the same period in 2002.
Other operating income was $2,130,000 in 2003 compared to $1,632,000 in 2002, an
increase of $498,000 or 31 percent. Service charge on deposit accounts increased
to $800,000 or 8.4 percent over the same period last year. Other income included
mortgage origination fees of $888,000 in 2003 compared to $489,000 in 2002, an
increase of $399,000 or 82 percent. Lower mortgage loan interest rates caused
increases in mortgage origination volumes and refinancing throughout the
industry which may not continue if mortgage interest rates rise. Trust income
was $192,000 in the first six months of 2003, compared to $188,000 in the same
period of 2002.
Other expenses were $6,219,000 in 2003 compared to $5,439,000 in 2002, an
increase of $780,000, or 14 percent. Personnel expense increased $660,000, or 21
percent in 2003, including approximately $198,000 of mortgage commissions and
benefit costs related to the higher revenues previously mentioned. The Company
filled several key management positions during the second quarter of 2002
resulting in lower costs in 2002 when compared to 2003. Occupancy and equipment
expenses increased approximately $65,000 an increase of 8.5 percent as a result
of additional operations space occupied in June 2002. Excluding the mortgage
costs, other expenses increased 10.7 percent.
The provision for income taxes was $1,124,000 in 2003 and $1,040,000 in 2002.
The effective federal and state tax rates were 33.4 percent and 32.5 percent in
2003 and 2002, respectively. The increase in the effective rate was due
primarily to lower tax-exempt income on investments in 2003. 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.
16
ITEM 3. 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 six months of 2003 loans increased $18.2 million to $354.9 million,
and deposits increased $12.0 million to $375.0 million. The very low deposit
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 June 30, 2003 from 93 percent at December 31, 2002.
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 $55.6 million as of June 30, 2003. In addition,
the banks had approximately $1.5 million fair value of investment securities
pledged as collateral at the FHLB. In aggregate, the Company had secured
borrowing capacity of approximately $57.1 million of which $20.5 million was
advanced at June 30 , 2003. 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 $24.5 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.
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 June 30,
2003, was $68.6 million at one year, or 16 percent of total interest-earning
assets. Fixed rate earning assets with maturities over five years totaled $19.2
million, or 4.5 percent of total interest-earning assets. See Table 1 for cash
flow maturity and repricing gap.
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,
17
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 enhancing
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
June 30, 2003, the Company had unfunded commitments to extend credit of $80.7
million and outstanding stand-by letters of credit of $5.1 million. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Company uses the same credit policies in establishing commitments and issuing
letters of credit as it does for on-balance sheet instruments. Management does
not anticipate that funding obligations arising from these financial instruments
will adversely impact its ability to fund future loan growth or deposit
withdrawals.
18
TABLE 1 - LONG-TERM MATURITY GAP AND REPRICING DATA
The following is the long-term maturity and repricing data for the Company as of
June 30, 2003:
($ 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 $ - $ 1,605 $ 10,061 $ 13,278 $ 3,869 $ 13,545 $ 42,358
Interest-bearing deposits 15,817 - - - - - 15,817
Federal funds sold 12,959 - - - - - 12,959
Loans - fixed rates - 21,978 45,530 72,878 25,573 5,636 171,595
Loans - variable rates 180,987 - - - - - 180,987
--------- -------- -------- -------- -------- -------- --------
Total interest-earning assets 209,763 23,583 55,591 86,156 29,442 19,181 423,716
--------- -------- -------- -------- -------- -------- --------
INTEREST BEARING DEPOSITS:
- -------------------------
NOW and savings ** 19,550 9,775 29,325 39,102 - - 97,752
Money market accounts ** 19,921 6,677 20,031 20,036 - - 66,665
Time, $100 and over - 13,591 29,837 9,980 8,235 - 61,643
Other time - 17,336 34,737 15,628 10,941 36 78,678
Federal Home Loan Bank
Advances - 44 172 15,447 1,349 3,505 20,517
Other borrowings 19,304 - - - - - 19,304
--------- -------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities 58,775 47,423 114,102 100,193 20,525 3,541 344,559
--------- -------- -------- -------- -------- -------- --------
GAP-EXCESS ASSETS (LIABILITIES) $ 150,988 (23,840) (58,511) (14,037) 8,917 15,640 79,157
--------- -------- -------- -------- -------- -------- --------
GAP-CUMULATIVE - 6/30/03 $ 150,988 $127,148 $ 68,637 $ 54,600 $ 63,517 $ 79,157 $ 79,157
========= ======== ======== ======== ======== ======== ========
CUMULATIVE SENSITIVITY RATIO * 3.57 2.20 1.31 1.17 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.
19
SELECTED STATISTICAL INFORMATION OF THE COMPANY
The following statistical information is provided for the Company for the
quarters ended June 30, 2003 and 2002. 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 - SECOND QUARTER
2003 AND 2002
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 second quarter of 2003 and 2002.
(a) Variance
Average Balance Average Rate Interest Attributable to
- ------------------- ------------ --------------- Vari- ---------------
2003 2002 2003 2002 2003 2002 ance Rate Volume
- -------- -------- ---- ---- ------ ------ ------ ------ ------
(Thousands) (%) TAXABLE-EQUIVALENT (Thousands) (Thousands)
INTEREST INCOME AND
FEES(B)
$ 7,897 $ 8,309 1.12 1.64 Interest-bearing deposits $ 22 $ 34 $ (12) $ (11) $ (1)
37,556 45,860 4.47 5.84 Investments - taxable 419 668 (249) (156) (93)
7,527 8,983 9.01 8.39 Investments - non-taxable 169 188 (19) 14 (33)
16,307 9,484 1.16 1.69 Federal funds sold 47 40 7 (13) 20
349,208 301,389 5.92 6.71 Loans (c) 5,153 5,042 111 (595) 706
- -------- -------- ------ ------ ------
418,495 374,025 5.57 6.40 Total int.-earning assets 5,810 5,972 (162) (761) 599
- -------- -------- ---- ---- ------ ------ ------ ------ ------
INTEREST EXPENSE
Deposits
74,986 60,640 0.36 0.59 NOW accounts 68 89 (21) (34) 13
15,348 13,197 0.76 1.00 Savings accounts 29 33 (4) (8) 4
68,107 51,957 1.26 1.90 Money market accounts 214 246 (32) (83) 51
60,852 62,274 3.12 4.08 CD's, $100M or more 473 634 (161) (150) (11)
79,594 81,944 2.99 4.08 Other time deposits 593 834 (241) (223) (18)
- -------- -------- ---- ---- ------ ------ ------ ------ ------
Total interest-bearing
298,887 270,012 1.85 2.73 Deposits 1,377 1,836 (459) (498) 39
Federal Home Loan
20,547 20,760 4.98 5.02 Bank advances 255 260 (5) (2) (3)
17,101 12,864 1.38 2.06 Other borrowings 59 66 (7) (22) 15
- -------- -------- ---- ---- ------ ------ ------ ------ ------
Total interest-
$336,535 $303,636 2.02 2.86 bearing liabilities 1,691 2,162 (471) (522) 51
- -------- -------- ---- ---- ------ ------ ------ ------ ------
3.55 3.55 Interest rate spread
==== ====
Net interest income $4,119 $3,810 $ 309 $ (239) $ 548
====== ====== ====== ====== ======
- -------- -------- Non-interest bearing
64,537 55,655 Deposits
- -------- --------
Net yield on interest-
3.95 4.09 earning assets
==== ====
Total average deposits
and average cost of
$363,424 $325,667 1.52 2.26 deposits
======== ======== ==== ====
(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.
20
The following statistical information is provided for the Company for the six
month periods ended June 30, 2003 and 2002. 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 SIX MONTHS,
2003 AND 2002
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 six months of 2003 and 2002.
(a) Variance
Average Balance Average Rate Interest Attributable to
- ------------------- ------------ ----------------- Vari- ---------------
2003 2002 2003 2002 2003 2002 ance Rate Volume
- -------- -------- ---- ---- ------- ------- ------ ------ ------
(Thousands) (%) TAXABLE-EQUIVALENT (Thousands) (Thousands)
INTEREST INCOME AND
FEES(B)
$ 5,929 $ 4,880 1.09 1.61 Interest-bearing deposits $ 32 $ 39 $ (7) $ (13) $ 6
39,324 48,032 4.73 5.84 Investments - taxable 923 1,392 (469) (265) (204)
7,549 8,876 9.00 8.52 Investments - non-taxable 337 375 (38) 21 (59)
12,919 6,717 1.17 1.71 Federal funds sold 75 57 18 (18) 36
344,091 297,094 5.97 6.80 Loans (c) 10,195 10,025 170 (1,222) 1,392
- -------- -------- ------- ------- ------
409,812 365,599 5.69 6.56 Total int.-earning assets 11,562 11,888 (326) (1,496) 1,170
- -------- -------- ---- ---- ------- ------- ------ ------ ------
INTEREST EXPENSE
Deposits
71,970 57,089 0.35 .59 NOW accounts 126 168 (42) (68) 26
14,953 12,945 0.76 1.00 Savings accounts 56 64 (8) (16) 8
66,305 50,704 1.24 1.89 Money market accounts 408 475 (67) (163) 96
60,517 61,367 3.22 4.27 CD's, $100M or more 965 1,298 (333) (319) (14)
80,131 81,955 3.10 4.31 Other time deposits 1,233 1,753 (520) (492) (28)
- -------- -------- ---- ---- ------- ------- ------ ------ ------
Total interest-bearing
293,876 264,060 1.91 2.87 Deposits 2,788 3,758 (970) (1,057) 87
Federal Home Loan
20,571 20,783 5.00 5.02 Bank advances 510 517 (7) (2) (5)
17,082 13,164 1.49 2.07 Other borrowings 126 135 (9) (38) 29
- -------- -------- ---- ---- ------- ------- ------
Total interest-
$331,529 $298,007 2.08 2.98 bearing Liabilities 3,424 4,410 (986) (1,097) 111
- -------- -------- ---- ---- ------- ------- ------ ------ ------
3.61 3.57 Interest rate spread
==== ====
Net interest income $ 8,138 $ 7,478 $ 660 $ (399) $1,059
======= ======= ====== ====== ======
- -------- -------- Non-interest bearing
61,239 52,760 Deposits
- -------- --------
Net yield on interest-
4.00 4.12 earning assets
==== ====
Total average deposits and
$355,115 $316,820 1.58 2.39 average cost of deposits
======== ======== ==== =====
(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.
21
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
July 31, 2003. There were no significant deficiencies and material weaknesses
that require corrective actions.
22
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.
Annual Meeting of Shareholders Held April 15, 2003
- --------------------------------------------------
2,832,958 shares were presented in person or by proxy, representing 86.35
percent of the the 3,280,934 outstanding shares;
Election of Four Directors of the Second Class
- ----------------------------------------------
2,830,516 shares representing 99.91 percent of the shares presented were cast
in favor of the election of directors; 2,442 shares were withheld on selected
directors.
Ratification of Independent Auditors
- ------------------------------------
2,823,000 shares, representing 99.65 percent of the shares present were cast in
favor of the ratification of the appointment of BDO Seidman, LLP as independent
auditors, 9,059 shares, representing 0.32 percent of the shares present
abstained and 899 shares or 0.03 percent voted against the ratification of the
independent auditors.
Item 5. Other information. None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 11. Computation of Per Share Earnings*
* 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.
Exhibit 31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
b. Reports on Form 8-K during the quarter ended June 30, 2003. A Form 8-K was
filed on April 15, 2003 which included the First Quarter 2003 Earnings Release.
The filing was made to comply with Reg FD and the new Sarbanes Oxley Reporting
Requirements.
23
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 8/6/03 /s/ Archie H. Davis
------ -----------------------------------------------
Archie H. Davis - President & CEO
Date 8/6/03 /s/ G. Mike Odom, Jr.
------ -----------------------------------------------
G. Mike Odom, Jr. - Executive Vice President &
COO
Date 8/6/03 /s/ Robert B. Briscoe
------ -----------------------------------------------
Robert B. Briscoe - Chief Financial Officer
24